4P's in E
For a brief moment in time, the Internet was the last wild frontier. Make that, the last virtual wild frontier. Even though people connected to the internet were the same people that have been marketed to for years in the “old-economy”, the Internet gave the impression that there was a new, untapped market just waiting to be exploited. This new medium of advertising, promotion, shopping and, in some cases, delivery, gave “eTailers” the impression that they could enter a mature industry and quickly become the market leaders. And while there are a few shining stars that found quite a bit of success, many found out the hard way that it takes more than just a lot of money and bravado to win a game that was being played for a long time before you entered the field.
This paper will take a look at four well-known Internet start-ups, paying special attention to how each company addressed and was affected by the 4 P’s of old-economy marketing: Product, Price, Place and Promotion.
Products
Looking back, the prospect of selling books online seems like a no-brainer; but this wasn’t always the case. Some might claim that if it were such an obvious decision, Barnes & Noble would have opened its web site years earlier than it did. This may be an incorrect assumption, however. Who would have expected Amazon.com to see the success that it did? It’s clear that Barnes & Noble didn’t, and at the time the B&N decided to start playing the game, it was the general notion that they’d crush Amazon.com. Amazon was able to get its start by helping people find specialty books and other hard-to-find books for a price that was attractive. In hindsight, it’s easy to see that Amazon.com chose a great product as its flagship offering—almost everybody reads books, and most people generally want to save money on the books they buy. That said, there were some strategic maneuvers that Amazon made that provided this David a leg up against the Goliath Barnes & Noble; we’ll take a further look at those tactics throughout this paper.
For many “etailers” Amazon.com showed them that the internet was a viable way to sell products that many people already loved. It came as no surprise, therefore, to see the emergence of a company devoted solely to the online sales of toys. Granted, when you’re shopping online or in a catalog, you can’t touch and play with the toy for which you’re considering a purchase; however, the same could be said of book browsing and buying—yet, look at how successful Amazon has been (or at least that was the logic). And so, eToys.com was born to be, as they put it, “…the only on-line toy retailer to provide a comprehensive selection of nationally advertised and specialty toy brands.” (Scally). The product category wasn’t (isn’t) a bad one—although toys are such a seasonal product, it is conceivable that the convenience of avoiding the toy stores during the holidays could be enough to get enough business during the lucrative Christmas season to float the company for the rest of the year (in truth, that’s a strategy many retailers find themselves resorting to); but, as we’ll see, choosing the right product is only the beginning.
When pets.com first opened for business in November of 1998, Michelle V. Rafter of Reuters remarked that while most subjects on the internet were already commercialized by some corporation, “some subjects, pets among them, have remained virtually untouched by commercial interests--until now.” (Rafter)
Pets.com offered a site that provided a library of news, tips and resources for pet owners, plus 100 category-specific message boards, a memorial area for deceased pets, and databases for locating veterinarians, breeders, groomers--and even hotels that accept four-legged guests. It’s primary product, however, was pet supplies that can typically be found at most brick-and-mortar pet supply stores like Pet Smart. The site touted the benefits of not needing to go to travel to the store anymore to purchase the items for your pet. However, the discounts on the products weren’t steep enough to counter the delivery costs that were passed on to customers in hopes to eventually gain a profit. This only made it more difficult for pets.com, which ultimately resulted in it closing its virtual doors after only being in business for about a year.
And then there’s eBay. EBay arguably has the best product in the world: whatever the world wants. It’s probably the closest thing that we have to a dynamic, efficient market. And again, auctions are nothing new, but allowing anybody with access to the Internet to participate in an auction—now that’s big.
Price
Price is a delicate subject in any industry. Online retailers are particularly price sensitive due to the number of substitutes that consumers can quickly click to, and the added cost of shipping a product—for which consumers usually must foot the bill, a fact which typically doesn’t escape their radar when shopping for a retailer with the lowest prices. True, online stores do have the benefit of not paying expensive leases on buildings across the country; nor do they need to worry about staffing those brick-and-mortar locations; however, there are always trade-offs, and the fact that a company’s only real estate holdings are virtual, doesn’t necessarily imply that they can offer products for a lower price. One need only look at the immense losses that were abundant during the dot com boom to realize that many of these companies were not charging a sustainable price for the products and services that they offered.
Amazon.com has always been about getting the book you want for the best possible price. Low prices have always been a component of Amazon.com’s marketing mix—notice: it has always been an important element, but not the only element. After Amazon.com had been live for only around 2 years, it was speculated that BarnesAndNoble.com would soon overcome it. “Barnes & Noble can also afford to give readers books at bargain prices. Since it sells more books than anyone else, it gets the best prices from publishers. Barnes & Noble launched its site with 30% discounts on all hardcovers. Amazon was forced to match the cuts.” (Stross)
As is true with most companies, a focus on low-price leadership is not the best strategy for Amazon to see long-term success. In February of 2002 Virginia Franke Kleist, Ph.D, an assistant professor of management information systems at the West Virginia University College of Business and Economics, wrote an article that stated, “As the B2C Internet markets continue to explode, there are more and more sites that have the ability to undercut Amazon. Internet customers have low search costs and perfect information. Customers can find the same product elsewhere for less money, forcing lower margins, less revenue per sale and more expense per sale gained.” The main point of Virginia’s article was that internet companies that sell physical goods are going to run into the same challenges of brick and mortar companies—mainly inventory management issues. She felt that an internet company couldn’t truly be successful unless it started selling more electronic products—eBooks, music, movies, products that could sold over and over again. As she puts it, “…information goods are just tiny, little bits of electricity that can be sold over and over and over again, without replenishment. Margins can be shaved, products sold at various price points in many different flavors and, best of all, no infrastructure is required other than some really good computers.”
But in the years following that article, Amazon.com has showed that it truly does have staying power. It has been successful at offering a low price and it has branched out to offer many products other than just books. Throughout this journey, low prices have been an important element, but not the only element that has led to success.
eToys had a lot it could have learned from Amazon.com. In many ways it was trying to follow Amazon’s example—but it while it was following its footsteps, it failed to figure out how Amazon knew when and where to step. eToys knew that people visiting an online retailer expected to find low prices. For this reason they offered a 110% guarantee that essentially offered a price-match and an additional 10% discount on any product that could be found in a brick-and-mortar store for a lower price. eToys was hoping that they could capitalize on the sheer number of sales alone to compensate for the poor margins that they had. However, it seemed that eToys was doomed to fail: in January 2000, eToys reported a loss for the previous quarter of $62.5 million, compared to losses of $8.2 million for the year-earlier period. On March 10, 2000, the day the Nasdaq was hitting its all-time high, eToys closed down at $13.06. It was less than a year later that eToys filed for bankruptcy. It wasn’t that they didn’t have sales—they were touted as the most visited site for toys on the Internet, and at one time was even ranked with Amazon.com and eBay as one of the most recognizable internet brands—however, with low prices come low margins, and a company can’t survive forever while operating with major losses.
Pets.com encountered many of the same problems as eToys: the margins on the products that they sold weren’t significant enough to maintain a long-term strategy of heavy discounts and free or low-cost shipping.
Ebay, on the other hand, has perfect pricing. The fees that eBay charges are minimal, and most sellers are happy to pay them because it is relatively inexpensive to have the opportunity to sell their merchandise; besides, if they do have to pay eBay a lot of money, that’s only because their product sold for a lot of money and eBay is just taking their share. As far as product pricing is concerned, consumers determine what they will ultimately buy products for. It isn’t uncommon to hear people brag about how cheap they were able to find an item selling for on eBay, and at the same time hear somebody else exclaim how much money they were able to make on some piece of junk that they decided to sell. eBay doesn’t need to worry about putting items on sale; it doesn’t need to worry about pricing things too high. If a product appears on the site, it will generally sell for what the market wants it to sell for, and thus it will rise to the appropriate price. That’s the beauty of auctions and the key to auction success is a variety of products for sale and a large number of interest buyers and, fortunately for eBay, the internet provides an immense supply of both.
Place
One of the great things about the internet is it’s open 24 hours a day, 7 days a week—and you can shop in the comfort of your own home: there’s no need to wait in long lines with crowds of smelly, grumpy people just to get your christmas shopping done. The internet also makes it easy to shop around for the very best price along with the ability to read customer complaints and recommendations about many products available. In this regard, online company storefronts can be considered to be anywhere that their customers are—providing their customers have access to the internet—the only drawback is: customers can’t see, feel, smell and taste the products that they’re buying. Not only that, but they sometimes have to wait weeks until they actually receive their purchase. It’s almost ironic that people will get such an instant gratification of finding the products they want, discovering the best possible deal, making the purchase and then be left twittling their thumbs until their new purchase finally arrives on their doorstep (that said, it really is a great feeling to come home and see a box sitting next to your door).
Amazon.com was able to be successful by providing a unique shopping experience that made it easy for customers to find specialty and hard-to-find books. The site provides customized information that highlights other products that similar customers have been interested in. It also boasted that it was the world’s largest bookstore—something made possible by the unique distribution methods that it employed: rather than keeping all of the listed books in its own inventory, Amazon.com worked with publishers to drop-ship the books that they sold on their site and by so doing were able to leverage the vast warehouse space of publishers across the country. This was another factor that helped keep costs down, although it wasn’t clear in the beginning that it would actually be a benefit when going toe-to-toe against Barnes & Noble.
eToys was proud of its ability to deliver 90% of its christmas sales to customers on time. Some might think that a 10% fulfillment gap was deplorable, but with eToys, it didn’t really seem to matter much: even with record sales during the 2000 Christmas season, eToys still realized losses of over $60 million for the quarter. eToys had a very recognizeable brand—something that could be compared to a prime retail location in the brick-and-mortar world—but it wasn’t enough to save them. The key difference between Amazon.com and eToys was that eToys didn’t present an overt benefit that could give consumers a reason to buy their toys from them rather than from Toys R Us or any other toy retailer. Price is never enough to win consumers over long-term; it’s only enough to attract them, and it can be a very expensive game to play. Not only did eToys not have a way for customers to handle the toys they were buying, it didn’t provide a benefit that outweighed this disadvantage, and thus, they were left being little better than a giant toy catalog. As an article in ecommercetimes.com states, “In a way, eToys was the standard bearer for a vision of e-commerce that barely exists anymore. Multichannel retailing is the path to success now, most analysts say. However, for all its flaws, eToys helped shed light on that path -- something worth remembering as the company takes its ball and goes home.” (Weisman)
Pets.com encountered a similar problem: why should people pay to have dog food delivered to their home when they can just pick it up while they’re at the grocery store? An article in the San Jose Business Journal offers the following: “It was too narrow of a focus," says Clay Jones senior vice president and group manager for the Venture Banking Group. "People don't need pet food delivered once a week. We live in a pretty online world in Silicon Valley, but the way I look at it I have a Webvan truck in front of my house every week, why not just throw the dog food on there? Only one truck should have to pull up in front of your house every week." "The online consumer has gotten very smart," Mr. Jones says. "People were logging on when it was free, free, free, but when Pets.com started jacking up delivery costs, people thought 'Oh well, I'll just go back to shopping at Safeway."'
Petopia CEO and co-founder Andrea Reisman remains optimistic, despite weakness among other online pet supply retailers and more than half of the company's employees being laid off. "The category as a whole actually works if you look at it from a financial standpoint," she says. "It can be profitable if you have a brick-and-mortar partnership." (Lacy)
Again eBay is left with one of the easiest lots of the bunch when it comes to product placement and distribution. When the site was originally conceived by the owner, he was simply trying to create an easier way for his wife to collect antiques. He decided to try to create a place where antique enthusiasts could gather to buy and sell their products. Who would have guessed it could get so big. As was said previously, and auction is enhanced by the a large number of buyers and sellers—the more buyers and sellers, the better the auction. eBay joins millions of users all around the globe to help them either find the unique items they’ve been looking for, or sell some unique items that they may already own. The site allows users to purchase only from local sellers, or look around the world for a product they may need. Shipping of course is an issue, but the burden it imposes is minimized by the fact that consumers are choosing the prices and when they find something that they decide (after a few other people start bidding on the same item usually) that they can’t live without it, shipping doesn’t seem like such a big deal—waiting for your product to arrive ends up seeming more like waiting for Christmas to finally approach, rather than feeling inconvenienced for not having a product you could be using right now if you had only driven over to the store.
Promotion
The glorious age of the Internet bubble—characterized by delusional investors, unprofitable companies and stock prices that weren’t even in the same galaxy as a true valuation would put them—will fondly be remembered by a brief legacy of loud commercials and a new medium of advertising that will haunt us for many years to come. Pop-up ads, banner-ads and spam were three of the most common mediums for web sites to advertise—all of which never existed before the World Wide Web was invented (thank you Al Gore). The logic behind this decision is fairly clear: if consumers are already surfing the web, why not advertise your web site on the page that they’re already looking at—even if they find the form of advertising annoying, they’ll eventually thank us once they realize how great our product is. As a result, most internet advertising is relatively ineffective as customers seldom seem to notice banner ads, and new programs are announced monthly to help fight the deluge of pop-ups and spam.
Promotion is one area where Amazon definitely rose above its competitors and showed an example to its peers. As was stated previously, Amazon.com was able to create a highly-customized shopping experience; the more customized it became, the more products Amazon.com was able to sell. The key to this customization was using a no-pressure sales approach that promoted books and other items to people with similar tastes to those of the purchasers of said products. Using advanced data mining techniques, Amazon.com was able to profile their customers based on searching and purchasing trends after which it would group similar profiles and simply inform members of the purchasing habits of people with similar profiles.
It worked. It worked very well. Customers felt like they finally had a really useful salesperson at their side that could make intelligent suggestions without pressuring them to buy; They were not alone in their tastes and found some level of comfort knowing that people like themselves were also buying these books. On top of that, they were able to see that people did more than just browse the same types of books: they actually purchased them—from Amazon.
EToys and Pets.com fell into the same promotion traps that most of the internet-only retailers fell into: trusting hype to see them through the dark days. The problem was, people finally woke up and were not able to find a compelling reason to continue (or begin) purchasing their toys and dog food from these companies. Both companies had plenty of positive media exposure as they were starting out, and many people were hoping to see them not only survive, but flourish. It was during this sweetheart time when the companies were courting consumers that the needed to provide more than just hype and low prices. Pets.com boasted of their chat rooms and bulletin boards where pet owners could discuss whatever pet-related issues they wanted to, but they failed to really capitalize on the selling power that a community of pet-owners could provide. If Pets.com had taken a page from Amazon.com’s promotion playbook, they would have come up with a way to tell customers essentially “pets like yours prefer Purina,” or something to that effect. In Pets.com’s defense, they did have a very recognizable mascot, the sock puppet, but it was little more than a Muppet that didn’t sell enough pet supplies. Let’s assume Pets.com adopted the internal brand positioning statement of, “Pets.com helps pet lovers take the best care of their pets. That’s because only Pets.com offers the largest selection of pet supplies, information and communities that are customized to their specific pets.” Now, if all of their marketing had this focus in mind, they would have developed slogans like, “No two pets are alike—isn’t time to start letting them know you know that?” then, every time a consumer sees the sock puppet, they’re reminded that Pets.com is the place to find products and services tailored to their pet. Not even Amazon.com had the power of a mascot—it’s a shame Pets.com wasn’t able to better leverage theirs.
eBay doesn’t have a mascot either—but it never really needed one. It has a spokesperson in almost every person that’s used the site. eBay’s promotional challenges were essentially these: 1) let people know we’re here; 2) let people know we’re easy; 3) let people know it’s safe to make purchases on our site. Again, eBay didn’t need to resort to a lot of marketing to get their message across—but they did need to make a wise use of community. They realized that no matter how safe they claimed to be, customers would still be hesitant to send money to other consumers that “promised” to send them goods in return. And while 3rd party payment providers and eBay auction insurance helped, nothing was more powerful than the rating system that they implemented. With eBay’s rating system, buyers would rate and leave comments on their shopping experience with various sellers. Sellers had every incentive to work towards a high rating. This resulted in a high level of customer service from sellers and satisfaction from buyers. Buyers were also comforted by the fact that they weren’t the only ones trusting that they’d get the products they were paying for—it helps to not feel foolish if hundreds of people have done the same thing before you, especially when they’ve all been happy with the process.
Conclusion
Sadly, the Internet boom has already bubbled and burst, but at least it provided us with an accelerated lesson in the importance of incorporating time-tested truths in the “new-economy”. First of all, no matter how you sell it, you need to offer a product that people want at a price that works for them. And secondly, if you are going to have an internet-only business, utilize your user communities--when consumers can’t have the satisfaction of physically handling the product, it seems that they can gain confidence by knowing that there are other people “out there” just like themselves that have purchased the same product and have been happy with it.
While it was interesting to see how this new medium of communication was able to make so many mature markets new again, it also demonstrated that a market is a market, and markets will never respond better in the long-term to hype than with proven marketing techniques.
This paper will take a look at four well-known Internet start-ups, paying special attention to how each company addressed and was affected by the 4 P’s of old-economy marketing: Product, Price, Place and Promotion.
Products
Looking back, the prospect of selling books online seems like a no-brainer; but this wasn’t always the case. Some might claim that if it were such an obvious decision, Barnes & Noble would have opened its web site years earlier than it did. This may be an incorrect assumption, however. Who would have expected Amazon.com to see the success that it did? It’s clear that Barnes & Noble didn’t, and at the time the B&N decided to start playing the game, it was the general notion that they’d crush Amazon.com. Amazon was able to get its start by helping people find specialty books and other hard-to-find books for a price that was attractive. In hindsight, it’s easy to see that Amazon.com chose a great product as its flagship offering—almost everybody reads books, and most people generally want to save money on the books they buy. That said, there were some strategic maneuvers that Amazon made that provided this David a leg up against the Goliath Barnes & Noble; we’ll take a further look at those tactics throughout this paper.
For many “etailers” Amazon.com showed them that the internet was a viable way to sell products that many people already loved. It came as no surprise, therefore, to see the emergence of a company devoted solely to the online sales of toys. Granted, when you’re shopping online or in a catalog, you can’t touch and play with the toy for which you’re considering a purchase; however, the same could be said of book browsing and buying—yet, look at how successful Amazon has been (or at least that was the logic). And so, eToys.com was born to be, as they put it, “…the only on-line toy retailer to provide a comprehensive selection of nationally advertised and specialty toy brands.” (Scally). The product category wasn’t (isn’t) a bad one—although toys are such a seasonal product, it is conceivable that the convenience of avoiding the toy stores during the holidays could be enough to get enough business during the lucrative Christmas season to float the company for the rest of the year (in truth, that’s a strategy many retailers find themselves resorting to); but, as we’ll see, choosing the right product is only the beginning.
When pets.com first opened for business in November of 1998, Michelle V. Rafter of Reuters remarked that while most subjects on the internet were already commercialized by some corporation, “some subjects, pets among them, have remained virtually untouched by commercial interests--until now.” (Rafter)
Pets.com offered a site that provided a library of news, tips and resources for pet owners, plus 100 category-specific message boards, a memorial area for deceased pets, and databases for locating veterinarians, breeders, groomers--and even hotels that accept four-legged guests. It’s primary product, however, was pet supplies that can typically be found at most brick-and-mortar pet supply stores like Pet Smart. The site touted the benefits of not needing to go to travel to the store anymore to purchase the items for your pet. However, the discounts on the products weren’t steep enough to counter the delivery costs that were passed on to customers in hopes to eventually gain a profit. This only made it more difficult for pets.com, which ultimately resulted in it closing its virtual doors after only being in business for about a year.
And then there’s eBay. EBay arguably has the best product in the world: whatever the world wants. It’s probably the closest thing that we have to a dynamic, efficient market. And again, auctions are nothing new, but allowing anybody with access to the Internet to participate in an auction—now that’s big.
Price
Price is a delicate subject in any industry. Online retailers are particularly price sensitive due to the number of substitutes that consumers can quickly click to, and the added cost of shipping a product—for which consumers usually must foot the bill, a fact which typically doesn’t escape their radar when shopping for a retailer with the lowest prices. True, online stores do have the benefit of not paying expensive leases on buildings across the country; nor do they need to worry about staffing those brick-and-mortar locations; however, there are always trade-offs, and the fact that a company’s only real estate holdings are virtual, doesn’t necessarily imply that they can offer products for a lower price. One need only look at the immense losses that were abundant during the dot com boom to realize that many of these companies were not charging a sustainable price for the products and services that they offered.
Amazon.com has always been about getting the book you want for the best possible price. Low prices have always been a component of Amazon.com’s marketing mix—notice: it has always been an important element, but not the only element. After Amazon.com had been live for only around 2 years, it was speculated that BarnesAndNoble.com would soon overcome it. “Barnes & Noble can also afford to give readers books at bargain prices. Since it sells more books than anyone else, it gets the best prices from publishers. Barnes & Noble launched its site with 30% discounts on all hardcovers. Amazon was forced to match the cuts.” (Stross)
As is true with most companies, a focus on low-price leadership is not the best strategy for Amazon to see long-term success. In February of 2002 Virginia Franke Kleist, Ph.D, an assistant professor of management information systems at the West Virginia University College of Business and Economics, wrote an article that stated, “As the B2C Internet markets continue to explode, there are more and more sites that have the ability to undercut Amazon. Internet customers have low search costs and perfect information. Customers can find the same product elsewhere for less money, forcing lower margins, less revenue per sale and more expense per sale gained.” The main point of Virginia’s article was that internet companies that sell physical goods are going to run into the same challenges of brick and mortar companies—mainly inventory management issues. She felt that an internet company couldn’t truly be successful unless it started selling more electronic products—eBooks, music, movies, products that could sold over and over again. As she puts it, “…information goods are just tiny, little bits of electricity that can be sold over and over and over again, without replenishment. Margins can be shaved, products sold at various price points in many different flavors and, best of all, no infrastructure is required other than some really good computers.”
But in the years following that article, Amazon.com has showed that it truly does have staying power. It has been successful at offering a low price and it has branched out to offer many products other than just books. Throughout this journey, low prices have been an important element, but not the only element that has led to success.
eToys had a lot it could have learned from Amazon.com. In many ways it was trying to follow Amazon’s example—but it while it was following its footsteps, it failed to figure out how Amazon knew when and where to step. eToys knew that people visiting an online retailer expected to find low prices. For this reason they offered a 110% guarantee that essentially offered a price-match and an additional 10% discount on any product that could be found in a brick-and-mortar store for a lower price. eToys was hoping that they could capitalize on the sheer number of sales alone to compensate for the poor margins that they had. However, it seemed that eToys was doomed to fail: in January 2000, eToys reported a loss for the previous quarter of $62.5 million, compared to losses of $8.2 million for the year-earlier period. On March 10, 2000, the day the Nasdaq was hitting its all-time high, eToys closed down at $13.06. It was less than a year later that eToys filed for bankruptcy. It wasn’t that they didn’t have sales—they were touted as the most visited site for toys on the Internet, and at one time was even ranked with Amazon.com and eBay as one of the most recognizable internet brands—however, with low prices come low margins, and a company can’t survive forever while operating with major losses.
Pets.com encountered many of the same problems as eToys: the margins on the products that they sold weren’t significant enough to maintain a long-term strategy of heavy discounts and free or low-cost shipping.
Ebay, on the other hand, has perfect pricing. The fees that eBay charges are minimal, and most sellers are happy to pay them because it is relatively inexpensive to have the opportunity to sell their merchandise; besides, if they do have to pay eBay a lot of money, that’s only because their product sold for a lot of money and eBay is just taking their share. As far as product pricing is concerned, consumers determine what they will ultimately buy products for. It isn’t uncommon to hear people brag about how cheap they were able to find an item selling for on eBay, and at the same time hear somebody else exclaim how much money they were able to make on some piece of junk that they decided to sell. eBay doesn’t need to worry about putting items on sale; it doesn’t need to worry about pricing things too high. If a product appears on the site, it will generally sell for what the market wants it to sell for, and thus it will rise to the appropriate price. That’s the beauty of auctions and the key to auction success is a variety of products for sale and a large number of interest buyers and, fortunately for eBay, the internet provides an immense supply of both.
Place
One of the great things about the internet is it’s open 24 hours a day, 7 days a week—and you can shop in the comfort of your own home: there’s no need to wait in long lines with crowds of smelly, grumpy people just to get your christmas shopping done. The internet also makes it easy to shop around for the very best price along with the ability to read customer complaints and recommendations about many products available. In this regard, online company storefronts can be considered to be anywhere that their customers are—providing their customers have access to the internet—the only drawback is: customers can’t see, feel, smell and taste the products that they’re buying. Not only that, but they sometimes have to wait weeks until they actually receive their purchase. It’s almost ironic that people will get such an instant gratification of finding the products they want, discovering the best possible deal, making the purchase and then be left twittling their thumbs until their new purchase finally arrives on their doorstep (that said, it really is a great feeling to come home and see a box sitting next to your door).
Amazon.com was able to be successful by providing a unique shopping experience that made it easy for customers to find specialty and hard-to-find books. The site provides customized information that highlights other products that similar customers have been interested in. It also boasted that it was the world’s largest bookstore—something made possible by the unique distribution methods that it employed: rather than keeping all of the listed books in its own inventory, Amazon.com worked with publishers to drop-ship the books that they sold on their site and by so doing were able to leverage the vast warehouse space of publishers across the country. This was another factor that helped keep costs down, although it wasn’t clear in the beginning that it would actually be a benefit when going toe-to-toe against Barnes & Noble.
eToys was proud of its ability to deliver 90% of its christmas sales to customers on time. Some might think that a 10% fulfillment gap was deplorable, but with eToys, it didn’t really seem to matter much: even with record sales during the 2000 Christmas season, eToys still realized losses of over $60 million for the quarter. eToys had a very recognizeable brand—something that could be compared to a prime retail location in the brick-and-mortar world—but it wasn’t enough to save them. The key difference between Amazon.com and eToys was that eToys didn’t present an overt benefit that could give consumers a reason to buy their toys from them rather than from Toys R Us or any other toy retailer. Price is never enough to win consumers over long-term; it’s only enough to attract them, and it can be a very expensive game to play. Not only did eToys not have a way for customers to handle the toys they were buying, it didn’t provide a benefit that outweighed this disadvantage, and thus, they were left being little better than a giant toy catalog. As an article in ecommercetimes.com states, “In a way, eToys was the standard bearer for a vision of e-commerce that barely exists anymore. Multichannel retailing is the path to success now, most analysts say. However, for all its flaws, eToys helped shed light on that path -- something worth remembering as the company takes its ball and goes home.” (Weisman)
Pets.com encountered a similar problem: why should people pay to have dog food delivered to their home when they can just pick it up while they’re at the grocery store? An article in the San Jose Business Journal offers the following: “It was too narrow of a focus," says Clay Jones senior vice president and group manager for the Venture Banking Group. "People don't need pet food delivered once a week. We live in a pretty online world in Silicon Valley, but the way I look at it I have a Webvan truck in front of my house every week, why not just throw the dog food on there? Only one truck should have to pull up in front of your house every week." "The online consumer has gotten very smart," Mr. Jones says. "People were logging on when it was free, free, free, but when Pets.com started jacking up delivery costs, people thought 'Oh well, I'll just go back to shopping at Safeway."'
Petopia CEO and co-founder Andrea Reisman remains optimistic, despite weakness among other online pet supply retailers and more than half of the company's employees being laid off. "The category as a whole actually works if you look at it from a financial standpoint," she says. "It can be profitable if you have a brick-and-mortar partnership." (Lacy)
Again eBay is left with one of the easiest lots of the bunch when it comes to product placement and distribution. When the site was originally conceived by the owner, he was simply trying to create an easier way for his wife to collect antiques. He decided to try to create a place where antique enthusiasts could gather to buy and sell their products. Who would have guessed it could get so big. As was said previously, and auction is enhanced by the a large number of buyers and sellers—the more buyers and sellers, the better the auction. eBay joins millions of users all around the globe to help them either find the unique items they’ve been looking for, or sell some unique items that they may already own. The site allows users to purchase only from local sellers, or look around the world for a product they may need. Shipping of course is an issue, but the burden it imposes is minimized by the fact that consumers are choosing the prices and when they find something that they decide (after a few other people start bidding on the same item usually) that they can’t live without it, shipping doesn’t seem like such a big deal—waiting for your product to arrive ends up seeming more like waiting for Christmas to finally approach, rather than feeling inconvenienced for not having a product you could be using right now if you had only driven over to the store.
Promotion
The glorious age of the Internet bubble—characterized by delusional investors, unprofitable companies and stock prices that weren’t even in the same galaxy as a true valuation would put them—will fondly be remembered by a brief legacy of loud commercials and a new medium of advertising that will haunt us for many years to come. Pop-up ads, banner-ads and spam were three of the most common mediums for web sites to advertise—all of which never existed before the World Wide Web was invented (thank you Al Gore). The logic behind this decision is fairly clear: if consumers are already surfing the web, why not advertise your web site on the page that they’re already looking at—even if they find the form of advertising annoying, they’ll eventually thank us once they realize how great our product is. As a result, most internet advertising is relatively ineffective as customers seldom seem to notice banner ads, and new programs are announced monthly to help fight the deluge of pop-ups and spam.
Promotion is one area where Amazon definitely rose above its competitors and showed an example to its peers. As was stated previously, Amazon.com was able to create a highly-customized shopping experience; the more customized it became, the more products Amazon.com was able to sell. The key to this customization was using a no-pressure sales approach that promoted books and other items to people with similar tastes to those of the purchasers of said products. Using advanced data mining techniques, Amazon.com was able to profile their customers based on searching and purchasing trends after which it would group similar profiles and simply inform members of the purchasing habits of people with similar profiles.
It worked. It worked very well. Customers felt like they finally had a really useful salesperson at their side that could make intelligent suggestions without pressuring them to buy; They were not alone in their tastes and found some level of comfort knowing that people like themselves were also buying these books. On top of that, they were able to see that people did more than just browse the same types of books: they actually purchased them—from Amazon.
EToys and Pets.com fell into the same promotion traps that most of the internet-only retailers fell into: trusting hype to see them through the dark days. The problem was, people finally woke up and were not able to find a compelling reason to continue (or begin) purchasing their toys and dog food from these companies. Both companies had plenty of positive media exposure as they were starting out, and many people were hoping to see them not only survive, but flourish. It was during this sweetheart time when the companies were courting consumers that the needed to provide more than just hype and low prices. Pets.com boasted of their chat rooms and bulletin boards where pet owners could discuss whatever pet-related issues they wanted to, but they failed to really capitalize on the selling power that a community of pet-owners could provide. If Pets.com had taken a page from Amazon.com’s promotion playbook, they would have come up with a way to tell customers essentially “pets like yours prefer Purina,” or something to that effect. In Pets.com’s defense, they did have a very recognizable mascot, the sock puppet, but it was little more than a Muppet that didn’t sell enough pet supplies. Let’s assume Pets.com adopted the internal brand positioning statement of, “Pets.com helps pet lovers take the best care of their pets. That’s because only Pets.com offers the largest selection of pet supplies, information and communities that are customized to their specific pets.” Now, if all of their marketing had this focus in mind, they would have developed slogans like, “No two pets are alike—isn’t time to start letting them know you know that?” then, every time a consumer sees the sock puppet, they’re reminded that Pets.com is the place to find products and services tailored to their pet. Not even Amazon.com had the power of a mascot—it’s a shame Pets.com wasn’t able to better leverage theirs.
eBay doesn’t have a mascot either—but it never really needed one. It has a spokesperson in almost every person that’s used the site. eBay’s promotional challenges were essentially these: 1) let people know we’re here; 2) let people know we’re easy; 3) let people know it’s safe to make purchases on our site. Again, eBay didn’t need to resort to a lot of marketing to get their message across—but they did need to make a wise use of community. They realized that no matter how safe they claimed to be, customers would still be hesitant to send money to other consumers that “promised” to send them goods in return. And while 3rd party payment providers and eBay auction insurance helped, nothing was more powerful than the rating system that they implemented. With eBay’s rating system, buyers would rate and leave comments on their shopping experience with various sellers. Sellers had every incentive to work towards a high rating. This resulted in a high level of customer service from sellers and satisfaction from buyers. Buyers were also comforted by the fact that they weren’t the only ones trusting that they’d get the products they were paying for—it helps to not feel foolish if hundreds of people have done the same thing before you, especially when they’ve all been happy with the process.
Conclusion
Sadly, the Internet boom has already bubbled and burst, but at least it provided us with an accelerated lesson in the importance of incorporating time-tested truths in the “new-economy”. First of all, no matter how you sell it, you need to offer a product that people want at a price that works for them. And secondly, if you are going to have an internet-only business, utilize your user communities--when consumers can’t have the satisfaction of physically handling the product, it seems that they can gain confidence by knowing that there are other people “out there” just like themselves that have purchased the same product and have been happy with it.
While it was interesting to see how this new medium of communication was able to make so many mature markets new again, it also demonstrated that a market is a market, and markets will never respond better in the long-term to hype than with proven marketing techniques.
posted by Dallas Smith at 11:00 PM
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