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Pets.com Inc.

Rise and Decline of a Pet Supply Retailer
by

Cho bronson

on 24 July 2013

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Transcript of Pets.com Inc.

Pets.com Inc
Competition
What is
PETS.COM?
Pet Industry
Rise and Decline of a Pet
Supply Retailer
Epilogue
2011221542 Cho Young Hoon
Pets.com?
1994 Greg McLemore registered the Pets.com name.
1999 Pets.com, Inc., was incorporated as an online retailer of pet products
Pets.com Website was also launched.
1999 the world encountered the Industrial Revolution.
The Internet
Internet
New Companies
opportunity
Existing Companies
Amazon.com
top
Dot-com
Amazon.com's strategy

-making the customers to order easily books and music online

-choosing growth than revenue
After the success of Amazon.com
Selling pet suppliers online mirrored that of online bookstores
In March 1999
McLemore succeeded receiving $2 million
from a premier venture capital fund,
Hummer Winblad
1999
Pets.com named Julie Wainwright as CEO
The Pet Industry
1998
The pet industry was large and growing
US$53-billion-a-year global marketplace.
Americans spent nearly $23 billion on their pets annually
Households in 1996
a pet 60%
more than
one pet 40%
They loved to spend money
soiling their pets
Of the total pet products and services industry,
approximately half was accounted for by the pet food category.
non-premium supermarket brands
premium brands
Non profit supermarket brands
-55 percent of all pet food supplies
(Alpo, KalKan and Purina)

Through grocery and convenience stores,
as well as through other mass merchant outlets
slow annual growth rates
small gross margins
low nutrient-levels
compared with their premium counterparts
1980~1990
Supermarket pet food brands began losing market share
amid growing concern for animal welfare and nutrition.
1994~1999
Premium brand sales
18% (annual growth rate)
The pet services category
veterinary
boarding
grooming and training services
They yielded higher margins
1991-1999, U.S. veterinary expenditures grew 9.5 percent annually.
1998
Internet-connected housegolds who went online at least once a day increased by 60% compared with only 35% the previous year. (became a part of daily American life)
Internet and Retail e-Commerce Trends
through personal PC
Internet economy
Of the nearly 30 percent of Internet users who had purchased from an online pet store,
more than half reported being very satisfied with their buying experience, and many intended to shop online again.
Women comprised 68 percent of all online sales
and spent nearly double the online pet supply purchases of men.
Toy 40%
food or treats 30%
non-food accessories 26%
health products 17%
Purchase proportion
THE COMPETITION
-THE BEGINNING OF WAR-
465 stores nationwide
100 international stores
- "pet" + "utopia"
- Well known for its quality products
and its commitment to animal care.
- By The bricks-and-mortar pet chain Petco
-The Petco & Petopia brought about leverage effects
to both their assets.
In total...
Petopia.com had managed to secure $66 million in investment,
one of the largest sums ever for an Internet start-up

However, Petopia joined Pets.com in an already crowded market.
-One of Petco's main bricks-and-mortar competitors.

-launched its online presence, PetSmart.com, in 1999.

-Nearly 500 stores nationwide & 100 international stores. ($2 billion a year in sales)

-Strong points
(a strong back-end warehouse and delivery systems, purchasing power,
vendor relationships, national advertising and brand name.)
-By Venture capital firms that believed
in the pet market's online potential.
- 3th main competitor of Pets.com

- The first to have a warehouse in operation.

- Focused heavily on advertising (with Yahoo),
capitalized on both its name and its exclusive relationship
with 12,000 veterinarians and targeted its marketing efforts
to drawing users to the site's content.
PETS.COM'S STRATEGY
1999 Wainwright had been hired to lead the company and establish it as the market leader of the online pet supplies category.
She chose to make the threatening competitor, "Amazon.com", a friend.
Through offering shares to Amazon.com
Positive effects
Pets.com
Amazon.com
Eliminated a strong potential competitor

Used the experience and strategic assets
of Ammazon

Obtained a link on Amazon.com's home page
Obtained shares

Took a seat on Pets.com's board
Wainwright's strategy
- To partner with the industry leader

- Hiring the best people

- Bringing in the best advertising talent

- Focusing on a business model
that had worked for Amazon.com

Aggressive marketing strategy

-Pet.com needed to be seen as the leader of the online pet supplies industry,

in the same way as Amazon.com was seen as the leader of the online books industry.

Being seen as the number-one company in the online pet products category

espoused among investors a confidence that was critical for providing the funding

required for survival.

-Wainwright seemed to believe that such funding could only come

through rapid growth in revenues, by adopting an aggressive marketing strategy.
Existed risky points.
-Aggressive marketing needed to achieve a very high level of sales because of high cost of marketing.
THE MARKETING MIX
Pets.com went a step further in 2000,
when it launched its private label of cat and dog food,
dog biscuits and cat litter, marketed under the Petsplete
and Pets brand names.
Pets.com was "designed to become a pet portal"
Chat areas for pet owners
Editorial content on pets
A monthly "Pet Lawyer" column
Pet health-related information&
Searchable databases
(ex.listings on hotels that welcomed animals)
Other topics
(veterinarians, dog breediers and boarding facilities)
Customers can use these services by its homepage.
Pets.com relied on two critical elements of the marketing mix
An unprecedentedly aggressive communication strategy

A penetration pricing
These marketing strategies brought about high loss because of high cost of keeping them
Strategy
EPILOGUE
John Hommeyer, the vice-president of marketing at Pets.com
created a stock puppet that would serve as a brand icon for the company.
This character would be the central feature in promotional campaigns
The sock puppet was launched in the autumn of 1999 in an impressive promotional compaign, which, within a few months, was successful at both ingraining the sock puppet in the publick consciousness and making consumers more aware of the availability of online pet products.
However, this was failed, even if it successed because it could bring proper effect of its sales.
Pets.com already got busted.

Because it failed second funding,
Finally, in 2000, it went busted.

Reasons of this
low margin
high cost of transport
high reling on only investment

Discussion
1. Describe the situation faced by Wainwright when she joined Pets.com as CEO.
Multiple stores
like mass merchants

Independent pet stores
Supermarkets
Pet products industry was fragmented.
The sales were implemented by things that are below

Wainwright had been hired by the board of Pets.com Inc, to lead the company and establish it as the market leader of the online pet supplies category. Soon after joining, she wondered whether Amazon.com, which had established itself as the leader in selling books and music online, would also be looking to enter the pet supplies category. Consequently, she decided to offer shares of Pets.com to Amazon.com. Indeed, despite all the competitive activity, the competitor Wainwright had feared most was Amazon.com. "The opportunity just got significantly less resky with Amazon in as a partner, not a competitor," she noted.
2. Pets.com’s growth strategy relied on heavy spending on market communication and low pricing. Critically appraise this strategy. What alternatives did Wainwright have?
I think its low margin strategy is negative. The reasons for this, first, most people who raise pets think their pets are one of their children. Hence, they do not save money for their pets. So, I want to recommend Pets.com to change its existing strategy, low margins. In my case, my mother spends much more money for her pet than for me. We can know a good point through this case. In conclusion, I strongly argue that it should implement new strategy that is high price strategy.
3. Do you think the creation of a brand icon, such as the sock puppet, was an effective strategy for drawing customers to the Pets.com website?
In only this case, drawing customers to the Pets.com website, I think it was successful strategy. The reason for this, the sock puppet creation was creative. Other companies did not try to implement the strategy like this. Most children like doll. Hence, they are interested in the sock puppet, and try to enter the website to look at the doll more times. At first, first reason was that. On the other hand, there is one lesson related to this case, “There are not parents defeating a child”. According to this, the children who like the sock puppet can lead their parents to buy the products that they want. Therefore, this was an effective strategy for drawing customers to the Pets.com website.
Overall, what do you think are the main reasons for Pets.com’s failure in the market? How would you have done things differently?
In my view of the reason of the Pets.com’s failure, I think its strategy was wrong. Main three reasons for this, they are low margin, high cost of transport and high reling on only investment.
I think its low margin strategy is negative. The reasons for this, first, most people who raise pets think their pets are one of their children. Hence, they do not save money for their pets. So, I want to recommend Pets.com to change its existing strategy, low margins. In my case, my mother spends much more money for her pet than for me. We can know a good point through this case. In conclusion, I strongly argue that it should implement new strategy that is high price strategy.
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