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Petstore Chapter 4, Case 2 PowerPoint PPT Presentation


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Petstore.com Chapter 4, Case 2. internet. business models . text and cases. Steven Young COS498. Overview of Petstore.com Introduction. Introduction Petstore.com offered pet food and supplies online.

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Petstore Chapter 4, Case 2

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Petstore.com

Chapter 4, Case 2

internet

business models

text and cases

Steven Young COS498


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Overview of Petstore.com Introduction

Introduction

  • Petstore.com offered pet food and supplies online.

  • The pet supply business is huge, bigger than books, toys, music, and videos (but not as shipping friendly).

  • The U.S. market for pet food, supplies, and gifts was over 19 Billion in 1999

  • Gross product margin 37 – 43% (gift, novelty, and fish as high as 70%)

  • In 1999, Petstore.com were in fierce competition with three other major players in the pet supply business for partners, customers, and credibility for potential investors (Pets.com, Petsmart.com, and Petopia.com).


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Overview of Petstore.com Mission and Vision

“All things Animal“

  • Shopping

  • Community

  • Directory and resources

  • Educational and entertaining content

    Establish a leadership position through innovation which caters to the “emotional bond that exists between people and their pets,"


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Overview of Petstore.com History

History

  • Petstore.com is based in Emeryville, CA, and was created in October 1998 by a seasoned founding team with more than 50 years of combined experience in technology, Internet businesses and the pet industry.

  • Petstore.com launched in May of 1999

  • The first major online retailer offering full line pet food and supplies

  • Invested 40 Million in customer acquisition advertising in 1999

  • Partnered with the Discovery Channel’s Animal Planet in 1999

    Partnership with Discovery Channel was:

    • Positive in that Animal Planet is a well established brand name (with 10 Billion in net equity value)

    • Problematic in that the merger will reduce flexibility, and there is a possibility of the Petstore.com customer getting “lost” in the Discover site.

  • Petstore.com has been named by USA Today as a "Hot Site of the Day" and received top marks from Gomez.com.


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Goal

Goal

  • To become the dominant provider of pet products and services over the internet.


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Strategy

The company adopted the following strategic objectives:

  • Offer complete pet care solutions to customer needs

  • Provide a superior customer experinence

  • Built strong brand identity by:

    • establishing exclusive or semi-exclusive relationships with portals such as Yahoo and Lycos, as well as targeted websites (Women.com)

    • Communication with potential customers through opt-in emails

    • Off-line advertising in top 20 internet-pentrated markets

    • Ongoing public relations campaigns

    • Capitalize on association with American Animal Hospital Association (AAHA) an umbrella organization of over 6,000 veterinary clinics.

  • Strengthen and expand strategic partnerships (Discovery channel)

  • Build a sustainable business model

  • Maintain technical leadership


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The FactsValue Proposition

Value proposition

  • To provide efficient one-stop shopping for all of your pet care needs while providing highest quality customer service.


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The FactsCompetitors

Competitors

Grocery stores (supply approximately half of the pet food market)

  • Pets.com, Petsmart.com, and Petopia.com

    All three others entered strategic partnership in 1999.

    • Pets.com getting $55M in equity from Hummer, Winblad, and Amazon.com (who funded 50% of this.

    • Petsmart (the leading brick and mortar pet supply company w/7% share) merged its online business with petjungle.com, andPetopia received a major equity investment from Petco (the #2 brick and mortar chain w/3% share).


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The FactsEconomics / Revenues

Industry Economics

Pet food market 12.1 Billion in 1999

  • 52% dog food

  • 40% cat food

  • Premium foods 30% of market

    Pet supplies market = 4.5 Billion in 1999

    Pet-related gifts / novelties = 2.5 Billion in 1999

    Online market for pet food and supplies = 3-6 Billion

    Petstore run-rate of $3M for year, w/gross margin of 52%


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Primary Stakeholders

Discover Channel (Animal Planet)

Joshua Newman, President and CEO

  • Harvard MBA, former CEO and Marketing Director, Amerigon

    Chris Luhnow, Senior VP, Corporate Development

  • Wharton MBA, former President and CEO of Flightways Manufacturing

    Brian Sherman, VP Merchandizing

  • Stanford MBA, founder of Sammy’s Pet World (largest pet store chain in San Francisco)

    Mark Reilly, VP Inventory Management

  • Stanford MBA, former VP of Inventory Control and Merchandising Planning at Petco


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GBF Analysis - Winner takes all?

Network Effects

  • None

    Economies of Scale

  • Yes, and high profit margins

    Customer Retention Rates

  • Low


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GBF Analysis

This is a hard business to capture market share, especially because…

  • pet foods are the biggest ticket, of which…

  • dogfood comprised over 50%... and

  • dogfood is heavy and bulky (therefore hard to ship efficiently)


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GBF Analysis

  • $40 Million in advertising / 100,000 unique Petstore.com customers = $400 unique customer acquisition cost


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Success or Failure?

The goals and strategy failed as Petstore.com was bought out by Pets.com in June of 2000

  • Pets.com gave Petstore stockholders 6.61 million shares of stock, worth $13.6 million at $2.06/share.

  • Pets.com received:

    • $3 million cash infusion from Petstore investors, largely Discovery Communications Inc.

    • Petstore's list of 100,000 customers (not duplicated in Pets.com),

    • Petstore's live-fish business, called Flying Fish, and

    • key marketing partnerships.


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Update

  • Pets.com went out of business in November of 2000

  • Petsmart.com (going strong)

    • $3.36 billion total sales for 2004

    • Two year comps of 13.3%

    • Services sales up nearly 24-1/2 %

    • Opened 83 net new stores

  • Petopia.com now operating under Petco.com

    So…

    The only players left were the #1 and #2 brick and mortar businesses!


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