By Breitkopf, David
American Banker , Vol. 166, No. 155
Things were looking pretty bleak last fall for Richard S. Braddock, the chairman and chief executive officer of Priceline.com Inc.
Customers were complaining in droves -- not only to the company, but also to the Connecticut Better Business Bureau, which revoked Priceline's membership in September. The television show "48 Hours" aired a segment slamming its customer service. Its stock price -- which had peaked at $158.88 in May 1999 -- dropped below $10 and would sink in December to $1.0625.
Suddenly, the company that stormed on to the scene with the revolutionary "name-your-own-price" concept -- and applied it successfully to the airline ticket and hotel businesses -- was seriously stumbling.
One of the few who didn't think Priceline's days were numbered was Mr. Braddock, a former Citibank president. He had joined Priceline, of Norwalk, Conn., in August 1998 after parting ways in 1992 with John S. Reed, then the chairman of Citicorp, and flitting from company to company in the interim. Now, he seems to have hit his stride at Priceline, which recently announced earnings that restored confidence in the venture.
This past quarter, Mr. Braddock brought Priceline into the black for the first time, making it one of the few profitable Internet companies. It made a modest but encouraging profit of $2.8 million -- compared with an $11.7 million loss in the year-earlier period.
Mr. Braddock said in a phone interview last week that a combination of belt-tightening, focusing on its core business of travel, and an infusion of investment capital from two Asian companies turned things around.
"A lot of our problem was perception, which was driven by things like the Internet press, which is a very immature press and doesn't really deeply analyze much of what they're talking about," he said. "Having said that, we had a decent amount of things to work through."
One of the first was customer service. Bob Mylod, Priceline's chief financial officer, said: "Our call centers were suffering very, very bad service level when we started experiencing the hyper-growth of the first couple of quarters of 2000. We probably didn't realize that we had an issue until we got well into the third quarter."
Customers were being forced to wait too long on the phone, and not enough complaints were getting resolved, Mr. Mylod said. Eradicating these problems became a top priority, Mr. Mylod said, and Mr. Braddock adopted the mantra, "Bad customer service costs a lot of money."
Mr. Mylod, whose father had worked for Mr. Braddock at Citibank, also said some clients were put off by the tradeoffs they had to accept to get the price they wanted for airline tickets. These tradeoffs included circuitous routes, long layovers, and inconvenient travel times. Bad publicity soon followed.
Mr. Braddock eliminated unprofitable lines, including the grocery and gasoline businesses, which were not a good fit with the name-your-own-price model. He laid off about 230 employees, but while that was difficult, he said, it was not as hard as laying off 20,000, as he had done at Citibank.
Another area Priceline pruned out was its banking products. It had cobranded credit cards with Capital One Financial Corp. and the First USA division of Bank One Corp., and last year was considering an ambitious foray into auto insurance, term life insurance, and mortgages. Only mortgages survived; even the credit cards fell by the wayside.
The only surviving piece is a joint venture with Alliance Capital Partners, the Jacksonville, Fla., holding company for Alliance Mortgage.
The venture has done moderate business. "I expect good things from that product, because it's a very competitive product," Mr. Braddock said. Over time, he said, as consumers get more comfortable buying online, that piece of the business will grow.
Pat McEnerney, executive vice president of Alliance Mortgage, said of Mr. …