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+++ S P E C I A L R E P O R T +++
"DUH COM..."
©Jacques Chevron - Partner - JRC&A Consulting
Branding Strategy and New Product Development
URL: http://JRCandA.com 

April 20, 2001
Thoughts about the demise of Pets.com

The Economist magazine pointed to the recent failure of several e-ventures with generic brand names (Pets.com; Garden.com and Furniture.com to name only a few). According to the article, those generic brand names are grossly overvalued and may even be detrimental to the success of the companies that use them. 

Maybe so. I, for one, do agree that consumers are better able to remember an identity with a name that's out of the ordinary, like Amazon.com. This seems easier than ascribing a new meaning, that of a commercial identity, to a generic name that's already familiar. While this may be part of the problem, it is only a very small issue. If generic names were really counter productive, the leading dandruff shampoo wouldn't be Heads and Shoulders and Shake n'Bake would have long ceased to exist.

Take the failure of Pets.com as an example. It can be traced to many issues, all basic. Consider this...

Back in 1995 I conducted research to try to anticipate the marketing opportunities that would arise from the growing population of telecommuters. They were defined at the time as people who did not work in an office and who spent most of their working day in front of a computer connected to the Internet and/or to their employer. One of the objects of the research was to identify future marketing opportunities based on the behavior and the desires of these early adopters. The research was reported in an article I co-authored with Dr. Primeau in the Journal of Consumer Marketing (Vol 13 #4 40-46, 1996).

One of our findings was that telecommuters were much more likely to own pets than the average working population . This led us to conclude that the Internet could, in the long term, be a source of growth in the pet market. It would seem also that the Internet, as a communications medium could, in time, become an effective way to reach a growing segment of pet owners. 

So it was no surprise when in November 1998 Pets.com started its operations quickly followed by Petstore.com (May 1999), Petopia and Petsmart.com (July), Petplanet.com (September) and several others. A quick search for pet supplies on the Internet now lists over one hundred online stores. Pets.com appeared to be well-financed and its Web site was efficiently designed, earning it many awards. According to Nielsen/Net it became the most trafficked online pet store, with 1.4 million visitors in July 2000 alone. As recently as February 2000, it implemented an IPO for $82.5 million. It gobbled up its rival Petstore.com. Yet it closed its doors in November 2000.

Why did it fail?

1. An underfunded land-grab strategy:. Like many other dot-coms, Pets.com saw an opportunity and rushed to claim its share of the pet supplies Internet real-estate. According to this "land grab" strategy a business entering a new category should focus on increasing its market share. Once the sales are there they'll find ways to make a profit. Accordingly, many spent millions of dollars trying to get a share of the minds and wallets of the Internet community and some may have succeeded in grabbing the real-estate they were after. But Pets.com's problem is that they seem to have overestimated the real number of active Internet surfers. Many people have "access" to the Internet yet very rarely use it. And among those who do, a little less than half purchase goods on-line.

The "land grab" strategy presupposes that your market is large enough or will grow fast enough so that revenue allows a profit before seed money runs out. Pets.com , as well as many other Internet ventures, did not have a large enough market nor did it have the seed money to wait for its growth. 

2. Poor consumer positioning: Pets.com failed to give its prospective customers a reason for its existence. Its tongue in cheek advertising claim ("Because pets don't drive") seemed like an admission of its lack of a reason for being. And, after all, why should one shop for pet supplies (namely cat, dog or bird supplies) in a venue other than that the place where one usually purchases groceries? I am not dismissing the fact that Pets.com offered a lot of information about pet health, grooming, behavior, etc. But these services would not justify another shopping trip, even a virtual one. Of course, supplies for unusual pets with special needs would be the exception, but not a market large enough to make a business.

Because no good rationale was offered for its existence, Pets.com turned to the fall back positioning adopted by so many of its competitors: low prices... Until the end of its operations, the company sold merchandise at prices below cost. Hardly a sustainable business proposition, particularly in a product category that isn't known to be particularly price-sensitive.

3. An unsustainable business model: many Internet ventures seem to think they can sell merchandise at unbeatable prices because of their low overhead and superior efficiency. Profits will come from incidentals, such as inflated shipping charges, renting out their customer list and advertising on their website. Yet respect for the customer's intelligence should negate these ploys. Many customers, when they uncover the shipping charges, simply abandon their virtual shopping cart and do not complete the transaction. As to the use of one's customer list to generate profit... it may be a short term palliative: the deluge of junk mail and direct mail will make the consumer wiser and withhold information. Furthermore it is very likely that our legislators will further curtail the practice as they have in several European countries. Lastly there is the issue of "advertising" as a source of profit. There is some revenue potential in banner ads but it is limited in great part by the fact that they aren't really advertising, i.e., communication of a sales message with a lingering branding effect, but promotional tools akin to store coupons which aren't usually distributed for their advertising communication value.

4. Management myopia. How could they not see it coming? One of the great advantages of the Internet is the ability to collect data on the individuals who visit your store. Quick analysis of the data must have pointed out that there was a problem with the model. What was the average check? Did customers return after their initial purchase? How often did they return? And so on. That kind of data can allow management to quickly identify issues and implement remedies where possible. It also allows fine-tuning one's financial projections. It should have been apparent some time ago that the business model wasn't working. Yet management persisted in pursuing it to its bitter conclusion.

This is reminiscent of historian Barbara Tuchman's book "The March of Folly," in which she points out that too often, people in a position of power continue to pursue their initial strategy in spite of the many evident signs that the strategy is bound to fail. It is funny to me that Ms. Tuchman, who chose examples ranging from Greek antiquity to the Vietnam war, could easily have added Pets.com to her panoply.

Plus ca change, plus c'est la même chose! 

http://jrcanda.com/art_duhcom.html-- 

© 2001 Jacques Chevron - Partner - JRC&A Consulting
Branding Strategy and New Product Development
URL: http://JRCandA.com 

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