Rise and decline of the pet supply retailer
Inc.: Rise and Decline of the Pet supply RetailerKenita Kyle 3/29/2015 ANDERSON UNIVERSITY -CERTIFICATE OF AUTHORSHIP?I certify that I am the author of this paper and that any assistance received in its preparation is fully acknowledged and disclosed in the paper. I have cited any source from which data, words, or ideas, either quoted directly or paraphrased, has been used.? (Student Name and Signature)?Corporate Background Greg McLemore registered the name in 1994 and is best known for his prior start up, . Greg McLemore and his colleague Eva Woodsmall set up the online store and relocated to San Francisco. In February 1999, Inc. was incorporated as an online retailer of pet supplies and the website was launched. During this time online companies had the opportunity to enter into an establish industry without huge capital investments in a retail distribution channels. In March 1999, Julie Wainwright was named Chief Executive Officer after being the CEO of an online video store which Amazon .com recently surpassed. Many analysts believed the online pet store industry would have great growth. Forrester Research forecasted online pet products sales to be more than $4.5 billion dollars by 2004. was hoping to capture a large part of the market. McLemore succeeded in retrieving 2 million in funding from The Silicon-Valley-based Hummer Winblad Venture Partners. Hummer Winblad focused exclusively on software and internet investing. The main focus in this case is creating a successful strategy for Inc in such an opportunistic market in order to become an industry leader. Most of the key players in the company include: Greg McLemore founder of Inc, Julie Wainwright CEO, John Hommeyer vice president of marketing, and . Management’s main problem was convincing consumers of the superior value of online shopping compared to regular shopping trips. In this industry online competitors needed to quickly establish a clear identity in the market. The company’s most important objective was becoming an industry leader. In 1999, there were at least 6 major online competitors. The greatest competitors were , , and . An alliance was formed with , which was an early success because it eliminated a strong competitor, enabled to use their expertise and created a strong competitive advantage in the industry. This partnership set the platform for being an industry leader of online pet supplies by joining a dominate player in the online retail industry. SWOT Analysis StrengthsAlliance with Having an experienced senior management teamSuccessful launch on company’s mascot the sock puppet Weaknesses Company needs very high level of sales in order to be profitable Sold merchandise at prices below costExpensive outlays of money which caused them to pursue cost-cutting activities like eliminating customer service call centers Opportunities97 million use the internet worldwide International web shoppers were projected to outspend their US counterparts Many households have pets Internet had not yet captured most Internet using pet owners Space constraints at the super markets ThreatsStrategic partnerships of other domain players Small markets would satisfy consumers impulse buys quicker than online purchasesHave to convince consumers of the superior value of the product compared to regular shopping visitsCustomers don’t have to pay shipping fees at local markets Value Chain AnalysisInbound Logistics- retail suppliers, online databases, inventory storage Operations – process of managing online orders to customers Outbound Logistics- process of shipping orders in a timely fashion to online customers Marketing and Sales- utilizing the company’s mascot well, needing high sales volumes to thrive with their strategy, spending a large amount of money on advertising Service- includes all the activities that keep customers satisfied with their products like: shipping orders effectively and efficiently, having a superior product, and creating value to the customers Firm Infrastructure- the companies significant investments in building market share through promotion and their infrastructure development of needing a very large critical mass of customer to be profitable Procurement – The acquisition of pet supplies and other external resources Human Resource Management- only hiring the best people who have some experience like former Proctor and Gamble marketing executive, John Hommeyer Technology- this is the companies platform; it also includes the industries online databases and cookies Competitive Analysis Rivalry among Competitors: High The industry has other strong companies like , and who have strong capital investors, reputations, and alliances. Bargaining Power of Suppliers: Low Since there are a few dominate competitors in the online market, suppliers have fewer options to reach this market well. Bargaining Power of Buyers: HighMost purchases in this industry are impulse buys, and local markets can satisfy customers quicker than online markets. Threat of New Entrants: ModerateIt takes less initial capital for companies to establish retail distribution channels in the online market. Yet, the market already has its dominate companies in the industry that consumers can trust. Threat of Substitute Products: High Many local markets sell animal products, and this is appealing to impulse shoppers. Families can also decide not to buy extra pet tools and supplies. Strategy of major Funded well with $66 million in investments International growth with partnership opportunitiesPartnered with established pet chain, Petco Petco was a well-known brand The name “Petopia” was intended to convey a “terrific shopping experience for pet owners in a playful, sophisticated way” The company was already an established brick- and – mortar store Strong brand name and customer recognition Main resources include: back-end warehouse and delivery systems, national advertising, and efficient catalog order fulfillment Main resource: first to have a warehouseThe relationship with 12,000 veterinarians with memberships in the American Animal Hospital AssociationKey Success factorsProduct cost which includes low shipping cost or free shipping Accessibility- if a company has a long delivery time than it must have a premium product Good marketing and sales plan Great support from investors Engaging website appeal and usability Driving industry Factors Customers economic status- items sold are necessitiesThe number of household pet owners The inconvenience of internet purchases Potential high grow rates in the market Technological change/ market innovation The External EnvironmentAmericans spent nearly $23 billion on their pets annually, according to the Pet Industry Joint Council, that rate was growing $1billion dollars a year. In the United States Pets are an important aspect in family households and 60 percent of all households own pets and 40 percent of all households own more than one pet. Many household pet owners were moderately affluent. According to the American Veterinarian Medical Association, nearly 65 percent of households’ pet owners earned $60,000 or more. Families with children between the ages of 5 and 15 were most likely to own pets. The International Data Corporation estimated that 97 million people were using the internet world wide with projections of 320 million users by the end of 2002. It was believed that the internet had not yet captured the attention of most of the internet using pet owners. The NPD suggested that convenience was the top reason for online pet supplies purchases. Women purchased more items online than man. Customer Analysis strategy focused on all household pet owners who had higher disposable incomes. The company’s mascot appealed more to households with children. In order for business model be successful, the company needed to have a high level of sales. So, the company attempted to appeal to a board audience in order to reach high sales expectations. Revenue from customers was vital because the company had to reach $300 million in sales in order to break even. Marketing Mix Product- product selection was fairly board, offering many different pet products for cats, dogs, and fish in stock keeping units than any other supplier. Price – ran numerous product specials, and its prices were low across the board. In order to get quick revenue, the company sold merchandise at prices below cost. Promotion- The sock puppet was created to serve as the brands icon. The sock puppet made many appearances at major events and television broadcastings. The company also made strategic alliances that would promote the brand like Yahoo. Place- The Company had an online platform for business.Marketing slashed shipping prices and on numerous occasions offered free shipping to entice customersAggressive pricing in attempt to run other competitors out of the industry Utilize family friendly brand Icon ( The sock puppet) at opportune times Creating the perception of being the leader of the online pet supplies industry Financial AnalysisMarketing Budget Percentage Change Statement of Financial OperationsQuarter End 6/30/1999Quarter End 9/30/1999Quarter End 12/31/19992/17/1999 – 12/31/1999Net Sales395685,1685,787COGS761,76611,57013,412Gross Margin-37-1,198-6,402-7,625Operating ExpensesMarketing and Sales1,12210,69330,67642,491Product Development1,6242,1942,6466,481General and administrative8381,2052,2114,254Amort. Of Stock Based Comp-1,1399792,118Total Operating Expenses3,58415,23136,51255,344Operating Loss-3,621-16,429-42,914-62,969Interest Income1235774911,191Net Loss-3,498-15,852-42,423-61,778Percent Increase In Marketing853%187%39%Total Marketing Percentage of Operating Expenses31%70%84%77%Table 1Table one indicates the percentage increase in the marketing budget in correlation to the total operating expenses. At the end of the 12/31/1999 quarter, 84% of the company’s budget was utilized for marketing purposes. Decision/Problem ’s main problem was their business model required high level of sales in order to generate revenue. This business model was hard to maintain which caused them to spend millions in advertising. tried many endeavors in order to maintain their cost model like: selling products below cost, reducing or eliminating shipping cost, renting out customer lists, and online advertising. These endeavors generated revenue but were not sustainable endeavors over time. Critical Issues The company’s stock price continues to drop Spending millions on advertising and selling products below the list of 475,000 customers became folly Didn’t have the desired success after the firm became public Faced with large layouts of money just to attract traffic to the web site Need a very high level of sales to generate revenue Alternatives A) Management could create a new business strategy that does not require high levels of sales in order to generate revenue. Advantage –A completely new strategy could balance advertising spending in relationship to revenue from products. Disadvantage- Creating a new strategy will take lots of resources to execute it well. Resources- A significant amount of time, money, and research will be needed in order to design a new strategy. B) could open a warehouse to increase distribution and decrease media marketing budgets. Advantage-Shipping would be quicker and more effective; product would be more readily available. Disadvantage- Building a warehouse takes time and decreasing its media budget could possibly decrease brand awareness in the market. Resources- Financial resources would be needed for construction RecommendationsThe management team at should restructure their business model relating to their marketing and sales strategy. Less money needs to be spent on marketing and a more effective way to gain revenue has to be established. This could prevent the company from needing a very high level of sales to be profitable, selling merchandise at prices below cost, and limiting customer services that add value. The internal success of this recommendation can be measured by the profitability of the company in correlation to the money spent to attract consumers. The external success could be measured by analyzing the strength of the company compared to its competitors in addition to brand awareness and recognition with the market. ................
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