Pets.com Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION

The Pets.com was registered as an online retailer in 1996 and the company was founded in 1998 by Greg McLemore in Pasadena, California. In 1999 the website was officially launched as an online retailer of pet products. On the credit of Greg McLemore, Toys.com was his successful venture that was recently acquired by eToys.com. In February 2000, Greg McLemore offered Pets.com in an Initial Public Offering (IPO), which raised $82.5 million and after four months the company acquired one of its key competitors Petstore.com. On 11^th February, Pets.com went public at a price of $11 per share and peaked at $14 per share on the same day that remained high for 52 consecutive weeks. Later on, the value of the shares of Pets.com fell steadily for the next 10 months, which incorporated the company to some serious threats. The firm was backed by a premier venture capital fund and was also partnered with Amazon.com.

To overcome such an unfavorable situation a new CEO from an online video company Reel.com, Julie Wainwright was hired However, Greg McLemore remained with the company as a vice president. Wainwright made several strategic changes in the company to make it competitive in the market. She found that the industry for pet products and accessories was really attractive and it could offer great chances of success for the organization in a short period of time. For getting an immense popularity in the industry, the management of the company heavily focused on a high profile marketing campaign, which allowed pets.com to get recognition across the globe within a short span of time. The most notable advertising actions of pets.com included its appearance in the 2000 Super Bowl National Football League and in the Macy’s Thanksgiving Parade in 1999. It’s popular ‘Sock Puppet’ that was the brand icon of the company, had received matchless popularity and was interviewed by People Magazine and Good Morning America. It also appeared on Nightline, Access Hollywood and others made him a figure of 13 popular TV Spots.

In the list of short lived businesses, Pets.com had a really unique position because the company had experienced rapid and massive success with recognition, which was later accompanied by huge failure. To set up a strong and efficient infrastructure, Pets.com invested heavily in building warehousing, shipping partners, and distribution networks etc. Unfortunately, the fundamentals of the company were very weak. There was a lack of strategic alliance with its management and operations, lack of monitoring and control along with a lack of proper strategic planning and decision-making. As a result, it lost a lot of its money in sales and had overspent in advertising campaigns. Any successful company could bear virtual or physical loss up to some extent, whereas a new firm could not afford to sell its products at prices below costs. The aggressive pricing strategy would have worked if Pets.com achieved a very high level of sales and if it had access to sufficient resources to back itself. Such a strategy could work effectively if it was well planned and effectively executed but in the case of Pets.com, effective planning and execution of aggressive strategy was absent. The aggressive marketing and promotional activities along with the development of infrastructure increased the company’s quest for a critical mass of customers who were financially sustainable. The management of Pets.com believed that to reach a break-even point, they would require to achieve a sales target of nearly $300 million within a period of five years. From February to December 1999, the company had net sales of $5,787 but the net loss was $61,778. Due to the lack of a workable strategy and business plan, Pets.com lost money on sales of every single unit. As a result, the acquisition of a customer grew from $80 to approximately $400 over time. Their key focus was on building a strong customer base for which they neglected the importance of a proper and balanced infrastructure, Pets.com offered massive discounts and free shipping to their customers that further intensified the scenario. All these things made it very difficult and nearly impossible to earn profit and to generate revenues for their business. Pets.com was often cited alongside the New Coke, Edsel and Beta max as one of the biggest marketing blunders ever made by the management of a company.

COMPETITOR ANALYSIS

At that time, the pet industry was very lucrative and attractive. It was acknowledged by the CEO of the company, Wainwright that they would have to face stiffer competition, particularly in the near future. The pet industry was abandoned with numerous opportunities in different categories that included: food, accessories, healthcare and other supplies. Pets were an integral part of the Americans’ life as well as of different European countries. Approximately 60% of all the American households had one pet and about 40% of households had more than one pet. Different types of pets that were mostly owned by the Americans included: Cats, Dogs, Fishes, Birds, Rabbits/Ferrets, Rodents and Reptiles (Haig, M., 2003). According to a survey that was held in 1996, the America people were spending more than $23 billion on their pets and the industry was growing at a rate of $1 billion per year. By 2001, the pet industry was expected to reach at $28 billion or more.

This was obvious that the increase in demand for pet supplies included: food, accessories, gifts, greeting cards, health care, collars, dog chews, pet houses, healthy diet, vitamins and other products would automatically increase the attractiveness of the industry. The pet services category comprised of boarding, veterinary, boarding, grooming and training services that were yielding high margins................

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