Conducting E-Commerce

Click-Only Versus Click-and-Mortar E-Marketers

Click-Only Companies

From the start, Pets.com tried to force its way to online success with unbeatable low prices and heavy marketing hype. In the end, however, neither worked. During its first year of operation, Pets.com lost $61.8 million on a meager $5.8 million in sales. During that time, it paid $13.4 million for the goods it sold for just $5.8 million. Thus, for every dollar that Pets.com paid suppliers such as Ralston Purina for dog food and United Parcel Service for shipping, it collected only 43 cents from its customers. Moreover, by early spring of 1999, Pets.com had burned more than $21 million on marketing and advertising to create an identity and entice pet owners to its site. Its branding campaign centered on the wildly popular Sock Puppet character, a white dog with black patches. Sock Puppet even made an appearance in Macy's Thanksgiving Day Parade in New York as a 36-foot-high balloon. The singing mascot was also featured in Super Bowl ads that cost Pets.com more than $2 million. At first, investors bought into Pet.com's "landgrab" strategy—investing heavily to stake out an early share, then finding ways later to make a profit. However, even though it attracted 570,000 customers, Pets.com never did figure out how to make money in a low-margin business with high shipping costs. Its stock price slid from a February 1999 high of $14 to a dismal 22 cents by the end of 2000. In early 2001, the once-bold e-tailer retired Sock Puppet and quietly closed its cyberdoors.²⁸

Earthlink.com is an Internet service provider (ISP) that sells Internet and e-mail connection time for a $20 monthly fee. Customer maintenance expenses amount to only $9 a month, leaving an $11 contribution margin. On average, it costs Earthlink $100 to acquire a new customer. Therefore, it takes 11 months before the company breaks even on a new customer. Fortunately, Earthlink keeps its customers for an average of 31 months. This leaves Earthlink with 20 months of net income from the average customer. At a $9 monthly contribution margin, Earthlink makes $180 (20 months × $9) on the average customer. When Sky Dayton, Earthlink's founder, was asked why Earthlink is still losing money, he answered that Earthlink is acquiring so many new customers that it will take a while for the inflow of contribution margin to cover the $100 customer acquisition.

Click-and-Mortar Companies

Setting Up an E-Marketing Presence

Creating a Web Site

The highly entertaining LifeSavers Candystand.com Web site, teeming with free videogames, endless sweepstakes, and sampling offers, has cast a fresh face on a brand that kid consumers once perceived as a stodgy adult confection. Visitors to the site—mostly children and teenagers—are not just passing through. They're clicking the mouse for an average 27-minute stay playing Foul Shot Shootout, Waterpark Pinball, and dozens of other arcade-style games. All the while, they're soaking in a LifeSavers aura swirling with information about products. "Our philosophy is to create an exciting online experience that reflects the fun and quality associated with the LifeSavers brands," says the company's manager of new media. "For the production cost of about two television spots, we have a marketing vehicle that lives 24 hours a day, seven days a week, 365 days a year." While Candystand.com has not directly sold a single roll of candy, the buzz generated by the site makes it an ideal vehicle for offering consumers their first glimpse of a new product, usually with an offer to get free samples by mail. In addition, LifeSavers reps use the site as sales leverage to help seal distribution deals when they talk with retailers. And the site offers LifeSavers an efficient channel for gathering customer feedback. Its "What Do You Think?" feature has generated hundreds of thousands of responses since the site launched five years ago. "It's instant communication that we pass along directly to our brand people," says the manager. Comments collected from the Web site have resulted in improved packaging of one LifeSavers product and the resurrection of the abandoned flavor of another. Candystand is now the number one consumer package-goods Web site, attracting 2.3 million unique visitors a month, more than twice the traffic of the number two site.³⁵

Placing Ads and Promotions Online

Seeking ways to get teenage girls to check out its Clean and Clear skin-care products, Johnson & Johnson created a pop-up microsite from which teens could "send a talking postcard to your friend." The site helped visitors design an e-greeting card, choosing decorations such as animated flowers or messages such as "Best Friends 4ever." Users were also offered a phone number to dictate a short voice message. Friends receiving the e-mail message heard the recording through their computer's speakers. As soon as they played the message, they were invited to click on a button called "Skin analyzer," linking them to Clean and Clear's main Web site.

Gillette used viral marketing to introduce the three-bladed Venus razor for women. To reach college students, Gillette designed a truck that traveled around the Florida spring-break circuit, parking daily near a beach. Women were invited to come in and get some aromatherapy, learn about Venus, enter a "Celebrate the Goddess in You" sweepstakes, and make a digital greeting card with a picture of themselves enjoying the beach. The viral part came when they e-mailed the digital cards to friends. The e-mailed messages automatically included a chance for friends to enter the sweepstakes themselves. If e-mail recipients entered the contest, they saw a pitch for the Venus razor. Some 20 percent of the entries came from the viral-marketing cards, greatly expanding the audience reached by the beach-site promotions.³⁸

The Internet was supposed to be the ultimate ad medium, the killer app that would eclipse newspapers, magazines, even television. But it's become increasingly clear that the online ad boom was largely a mirage, one created by the unfettered spending of the dot-coms themselves. Those days are over.⁴⁰

Creating or Participating in Web Communities

Using E-Mail and Webcasting