Pets.Com Case Study

Name - Savan Bhanderi

Student ID - 213424189

Case Study: PETS.COM

Summary:

Pets.com lived fast and died young. It was created in 1998, went public in 1999 and went out of business in 2000. At the time of its IPO, Pets.com seemed to have all the potential in the world to become the leader of the online pet supplies industry, but it took almost no time for the company to fold alongside many other dot-com start-up firms. Thanks to the crowded and unstable e-commerce environment, misaligned product offerings and business model and an out-of-control attempt at growth, all that remains of the company is its mascot - The sock puppet. Any business that expands rapidly ahead of its market and business model is headed for disaster.

Problem Statement:

The reasons for the closing of Pets.com relate back to an unsustainable business model and unachievable expectations. Basically, Pets.com bet everything on the market. Pets.com assumed that the market and its revenues would grow quickly enough to allow for a profit before funding money was exhausted. Too strong of a focus on market share instead of on gaining profits led to the downfall of Pets.com. Can a company that goes public within months of its launch while banking only on a trial-and-error business model really support a Super Bowl spot that costs more than a million dollars? Pets.com had a popular ad campaign going, but the firm was in no position to leverage it. Perhaps if the Internet pet store had worked slowly to grow with its business model, Pets.com could have been an online success story.

Users and objectives:

1. CEO : Wainwright wanted to lead the company and establish it as the market leader of the online pet supplies category like as Amazon was in the online book industry, which changed to cost-cutting activities and eventually aimed at refilling the company's shrinking reserves by conserving the cash after the revenues started shrinking and finally decided to shut down.

1. Management: relied on aggressive marketing communication strategy and a penetration pricing policy. They were accustomed to spending whatever was necessary to keep Pets.com growing during its time of downfall.

1. Shareholders and Investors: Initially impressed by pets.com's branding and management, investors and shareholders invested heavy amounts of funds into the company but as the stocks started falling over they demanded rapid returns.

1. Customers: Convenience and time saving was the top reason for making an online pet supplies purchase. They demanded superior value of online shopping and product differentiation which the online stores were not offering.

Company Analysis:

Strength:

1. Funding and shareholder confidence : Amazon and hummer Winblad

1. Direct access to amazon.com's network resources and e-commerce skills and expertise
2. Highly experienced top management team.

1. Brand name: Pets.com is the most recognized domain name with the most visited pet supplies website.

1. Aggressive communications strategy: chat areas for owners, editorial content on pets, pet health related information and searchable databases which provided pets welcoming hotels and other facilities.

1. Marketing campaign: The sock puppet was successful at making public more conscious and aware of the availability of online pet products.

1. Strategic alliances: This allowed pets.com to offer animal health insurance and also become the featured pet store on yahoo.

Weaknesses:

1. Smaller online market: significant investments in building market share through promotion and infrastructure development resulted in the company needing a very large mass of customers to be profitable.

1. High Customer acquisition cost: cost per customer acquisition grew from approximately $80 to $400 due to the extensive promotional efforts.

1. High transportation costs: lack of warehouse on east coast forced pets.com to ship many orders by expensive air freight.

1. Pets.com failed to compete with a unique positioning strategy but instead decided to compete with low prices just like its competitors by running numerous product specials and discounts.

Opportunities:

1. Global Expansion: International expansion could result into more market growth and can leverage its brand name for attracting large customer base.
2. Rapid growth predicted: $23 billion spent on pets in 2000.
3. 60% households owned pet and 40% own more than one.
4. Internet usage rapidly growing worldwide.

1. Frequency and time spent online rising.

Threats:

1. Petopia.com - backed by petco.com which was well known for its quality products.
2. Petsmart.com - brand recognition and strong sales of $2 billion a year.

1. petstore.com - First to have a warehouse, exclusive relationships with over 12000 veterinarians, investment from discovery.

1. Any brick and mortar establishment in market would decrease its share and presence of about 100 other online pet retailers which offered the same products to its customers.

Sub-issues:

1. Faced with large outflow of money in mass advertising and promotion just to attract traffic to website, they had to pursue cost-cutting techniques such as moving its customer service call center to Indiana.

1. Focused only on gaining market share: Decided to concentrate on building market share in US rather than expanding market internationally like its competitors. Too strong of a focus on market share instead of on gaining profits led to the downfall of Pets.com.

1. With a few exceptions, Pets.com just offered products that could be more easily obtained at nearby retail stores and pet information about health, grooming, behavior, etc. that did not justify a virtual shopping trip.

Alternatives to problem:

1. Decrease the advertising and marketing budget: It would provide an opportunity to relocate funds elsewhere to make up for low sales volume. Wasting less money on expensive promotions such as 1.2 million super bowl ads. There are also some cons such as exposure to market could decrease by not advertising enough. Mascot may lose popularity.

1. Set up warehouses across the country and increase distribution to decrease the cost of transportation and more readily available products for easier delivery and exchanges. The cons are the initial costs of building new warehouses. It might be counterproductive if the sales volume continues to be low.

Recommendation:

I would recommend that pets.com should redefine its pricing structure for more competitive pricing which would make profits on the product and not on the inflated shipping costs. They should offer free shipping promotions without selling at a price below costs. A reputation of quality will help retain the existing customers and introduce new ones. Cutting marketing and advertising costs allows money to be allocated to building new warehouses. This would ensure faster transportation which will increase competitive advantage and overall customer satisfaction as they don't have to wait longer to receive the product.