It's not the name. It is basic management!
Consider Pets.com, for example: I conducted research in 1995 on the growing population of telecommuters. One of the objects of the research was to anticipate opportunities based on the behavior and the desires of early adopters. The research was reported in a 1996 article I co-authored with Margaret Primeau in The Journal of Consumer Marketing. We found telecommuters much more likely to own pets than the average worker. We concluded that the Internet would grow the pet market and, in time, would become an effective way to reach a growing segment of pet owners.
We nodded when Pets.com started its operations in 1998, quickly followed by Petstore.com (May 1999), Petopia and Petsmart.com (July), Petplanet.com (September) and several others. Pets.com appeared to be well financed, and its Web site was efficiently designed. According to Nielsen/Net Ratings, 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, raised $82.5 million, then gobbled up rival Petstore.com. Yet it closed its doors in November 2000. Why did it fail?
* An underfunded land-grab strategy: Like many dot-coms, Pets.com rushed to claim its share of Internet real estate. According to this "land grab" strategy, a business entering a new category should focus on increasing market share. First get sales, then find ways to make a profit. Millions were spent to grab the real estate. But Pets.com seemed to have overestimated the real number of active pet-owning Internet surfers willing to purchase goods on-line. That's bad. A "land grab" strategy assumes a large or fast-growing market so that a profit can be generated before seed money runs out. Pets.com had neither the large, fast-growing market nor the seed money to wait for its growth.
* 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 an admission of its lack of a reason for being. After all, why should one shop for pet supplies in a venue other than the place where one usually purchases groceries? Pets.com did offer a lot of information about pet health, grooming, behavior, etc., but no justification for another shopping trip, even virtual. Supplies for unusual pets with special needs would be the exception, but not enough to make a business.
Without a rationale for its existence, Pets.com turned to the fallback positioning adopted by so many: low prices. Until the end, it sold merchandise at prices below cost.
* 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, customer-list rental and Web advertising. Many customers resist high shipping charges and abandon their virtual shopping cart before the final transaction. As for the use of one's customer list to generate profit, it may be a short term palliative: The deluge of "spam" will make the consumer wiser and withhold information. Also expect our friendly legislators to further curtail the practice. Lastly, there is the issue of "advertising" as a source of profit. There is some revenue potential in banner ads, but it is limited because they aren't really advertising-communication of a sales message with a lingering branding effect-but rather promotional tools akin to store coupons, which aren't usually distributed for their advertising communication value.
* Management myopia: How could they not see it coming? One of the Internet's great advantages is the ability to collect data on the individuals who visit your store. Do customers return after an initial purchase? Is their average check going up or down?
Quick analysis must have pointed out there was a problem with the model. Yet management pursued it to its bitter conclusion.
This is reminiscent of historian Barbara Tuchman's thesis in her book "The March of Folly," that leaders too often continue pursuing their initial strategy in spite of obvious signs of inevitable failure. 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 meme chose
Mr. Chevron is a partner in JRC&A Consulting, LaGrange, Ill., (JRCandA.com), which specializes in branding strategy and new-product development (email@example.com).