Thursday, January 29, 2009

Pets.com failure and its causes

Pets.com sold pet accessories and supplies direct to consumers over the World Wide Web. The site was launched in November 1998, founded by company web developer Greg McLemore. It rolled out a regional advertising campaign through TV, print, radio and yet a Pets.com magazine. The company was known for its wildly popular mascot, the Pets.com sock puppet, and Pets.com site design had attained several advertising awards.

Pets.com is a former dot-com enterprise that ceased operations in November 2000. The company went public in February 2000; the former NASDAQ stock symbol was IPET. Pets.com made significant investments in infrastructure; these resulted in the company needing a critical mass of customers to break even. Its management maintained that the company needed to get to a revenue run rate that supported this infrastructure buildout. They believed that the revenue target was close to $300 million to hit the breakeven point and that it would take a minimum of 4 to 5 years to hit that run rate. This time period was based on growth of Internet shopping and the percentage of pet owners that shopped on the Internet.

By fall of 2000, after the bursting of the dot-com bubble, the Pets.com management and board realized that they would not be able to raise further capital. However when PetSmart offered less than the net cash value of the company, Pets.com's board turned down that offer. Pets.com stock had fallen from over $11 per share in February 2000 to $0.19 the day of its liquidation announcement. While the offer from PetSmart.com was declined, some assets, including its domain, were sold to PetSmart.com. The pets.com management stayed on to provide an orderly wind down of operations and liquidation of assets.

Obviously, the poor business plan of company led to Pets.com failure. First of all, Pets.com had overestimated the market trend. The company optimistically assumed that the revenues would grow rapidly and allow them to hit their rate. However, the estimation was based on the current market without analyzing the future trend and risk. This unsustainable business model facing downfalls when dot-com failure.

Furthermore, the company did not bring up a good proposal in opposing its competitors. Pets.com advertised extensively and selling its products at low prices to maintain competitive. High cost of delivering and low profit margins caused the company facing crisis in generating revenues. Nine months after securing $82.5 million in investment the company went bankrupt.

Pets.com never had a unique selling proposition. There is no reason to convince consumers to buy pet foods and accessories through the site. Since it is available within neighbourhood, purchasing online is inconvenient as customers have to wait for days to receive their orders. The cat may already poop all over the floor when the cat litter arrived. There is no benefit regards price nor convenient.

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  1. UnknownJune 23, 2010 at 3:50 AM

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