Online store, online market space – part 2 and bringing your products and services into focus

A few days ago I ran the first part to a new series on online storefront businesses and my focus there was in setting up a series of questions about products and services to be offered, and market space to be developed. My intention there was to offer these questions so you could apply them as a short check list to your own business plans so that you plan and develop with an understanding of the target demographics that would connect your products and services to a real, understood marketplace.

I kept on thinking about a very particular startup as I wrote that, and I want to pick up on this topic with that business, as a mini-case study in applying these and similar questions as tools. The company I had in mind is a failed online store called Pets.com and I want to look into the questions I posed in that first posting with this as a working example and continue on to discuss costs and price point considerations.

As a disclaimer, I admit that I had quite a few dealings with quite a few pre-bubble burst dot-coms in the late nineties and I saw their operations and their planning close up and in detail. But I never worked in any way with Pets.com. So I pick this as a business for which I know something of the story, but it is one where I do not come in with a bias of any sort from personal connection to it. I will add and point out, Pets.com actually did some of the key things very well and it is mostly the issues I will discuss here that brought them into trouble.

Looking ahead and predicting is never as easy or clear of vision as is looking back in retrospect and I acknowledge that decisions made looking forward can make sense when they are made, even when they look more questionable later on in hindsight. Still, this business and its story offers some insight into the questions raised in the first part to this series and it serves as a basis for outlining the next steps beyond those questions.

1. What products and/or services do you wish to offer online?
Pet supplies of all sorts including pet food products, grooming aids and other products directed to pet owners for their pets.
2. Who would, by demographics, constitute the natural target market for these products and/or services?
Pet owners and for a wide range of types of pet. I am not sure how actively this business pursued serving the needs of exotic pet owners but they certainly focused on dogs, cats, hamsters, gerbils small birds such as parakeets , fresh water aquarium fish and other more common pets – and their owners.
3. Do these potential customers actively, research possible purchases online and if so where and for what?
I do not know how thoroughly the founders of this business researched how their potential market demographics researched pet supplies online but the common perception was that everyone would soon be buying everything online.
4. Do they then buy online or do they primarily use online for research alone?
Pre-bubble burst, the received wisdom for online startups was that more eyeballs on the web site automatically and directly translated into more sales and greater market share. A process of looking online, to finding online, to buying online and then going back for more was the basic assumed dynamic that for its failure led to the first big bubble burst in online business as a whole.
5. If you are going to offer physical products are they products that the average consumer would want to pick up and hold – physically see and touch before making a buying decision? What types and levels of information detail would they need to make a purchase decision?
This is an area I will discuss below but I will add as a foretaste to that, that the types of products that people would just buy without needing to see and touch can be skewed towards the more commonly purchase items where price point and profit margin competition can be fiercest – here with the bricks and mortar businesses these potential customers are going to anyway such as big box supermarkets and discount stores.
6. If you will be selling services, what would these potential customers want to see and experience as they conduct their purchasing decision due diligence?
Pets.com was not primarily focusing on selling services.
7. Would your products and/or services primarily address the needs of impulse buyers, or at least of customers when they are susceptible to this type of purchasing?
Ongoing repeat business shopping for mainstream product types and favored brands does not generally fit an impulse buying pattern, except where a customer accidently runs out of something they would normally be keeping in stock, such as their preferred brand and variety of dry cat food (their cat’s preferred brand and variety that is.) Online with shipping delays does not connect very well to the dynamics of immediate need impulse shopping.
8. Would your natural customer base primarily be making planned purchases, and perhaps with a requirement that they consider several sources for any purchase over some threshold cost level?
People do often look for competitive prices for their main, ongoing pet supply purchases. Coupon shopping can be very popular as a way to save money for a variety of demographics and loss leaders and loss leader marketing and sales can work very effectively for drawing in broad-based market share. I will add here that the loss leader need not be from pet supplies here to significantly capture pet supply purchasing for people already drawn into the store – to get discounted paper towels, for example.

Questions 5, 7 and 8 above are crucial to understanding what happened to this business, along with that final question I added in the first posting:

9. Who is already selling the same or similar products and services?
The basic point I raised in the first posting in connection to this question cuts to the heart of what happened to Pets.com and why they failed. The demographics they needed to reach were comfortable purchasing most of their routine pet supplies – pet food in particular from the same general grocery stores and supermarkets they bought all the rest of their household supplies and groceries from. Or they went to a Wal-Mart or other discount store and bought there. These were and are intensely competitive businesses and operate for products like pet food on a very narrow margin. This was a highly competitive marketplace with established supply chains that for many purposes was partly covered in cost as amortized across specific products, by a much wider range of products than Pets.com could ever realistically offer. This was not blue ocean strategy they were getting into even as they saw themselves starting out with a defining difference that would set them apart. The problem is that they saw a distinction that none of their potential customers would see as a significant difference, and certainly not one worth paying to a higher price point for.

Pets.com did a lot of things very, very well. If the only deciding factor had been marketing, they would own the pet supply market by now, Their dog-design sock puppet marketing “spokesperson” became an icon for online marketing and people knew and instantly recognized this marketing campaign and its representations whether they had pets or not. Everyone knew that sock puppet and immediately thought of that company. But marketing was not enough because they failed at step one, in really understanding their products and their intended market. They were blindsided by what in retrospect – that easy perspective, should have been obvious in this. And their financial models and predictions suffered for accuracy and relevance accordingly and never worked for them.

Pets.com came a small step closer to going under every time they shipped a bag of dog chow, or any other product that their intended customers could get locally and from familiar sources they went to anyway, for their own food, for household cleaning supplies and for much more.

So I add another core question to the list from posting one in this series, for you to measure your own business plans against, which I will look into in more detail in the next posting in this series.

• How have you developed and benchmarked your financial model and your predictions for financial growth and performance? The idea here is to develop a financials section of a business plan that can carry you further than Pets.com was able to go with theirs.

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