In its second-largest acquisition, Amazon buys the company for $970 million.
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Foster characterizes pets supply retailing as “a razor-thin-margin business where the average ticket is very low.” The company’s biggest concern, he says, is the competition from newcomers such as Drugstore.com and niche players who may concentrate on a single, or just a few, market segments such as pet grooming products or tropical fish, not from the big chain retailers such as Petco and PetSmart. “We are always concerned about the ones that can pick away at you,” he says. “They’re the ones we need to be the most aware of.”
An R&D; arm
It’s no surprise that the pets supply market is attracting newcomers. “Total online spending on pet supplies is growing by double digits, and that makes this segment a growth market,” says Patti Freeman Evans, retail and e-commerce analyst with Jupiter Research Inc. “The space will also draw more retailers. Pet owners are very loyal and can be very brand-conscious. Who can ask for a better starting market demographic than that?”
Competition in the online pets supply segment is increasing because unlike the heavy start-up costs and ongoing expense of publishing and mailing multiple editions of a catalog, the web levels the playing field, allowing newcomers-or chain retailers-to quickly enter the market and take their best shot at building a sustainable e-commerce base.
One of theways that web retailing changes catalogers’ business is that the Internet can quickly and efficiently meet shifting customer demand for pricing, products and shopping options. Drs. Foster & Smith, is using the web as a research and development arm of the catalog. The company is utilizing the Internet to preview new products and get an instant read on their viability as part of the Drs. Foster & Smith product assortment. Drs. Foster & Smith tests 10 unique products each month on a new-products web page to solicit customer feedback before including those items in the catalog. Instead of trying to predict what may or may not interest customers prior to publishing the catalog-and then waiting weeks to see which new products actually produce sales-Drs. Foster & Smith now knows, sometimes as soon as within several days, if the items will be featured in the next catalog. The speed with which the company gets an answer would be impossible for a catalog-only company to achieve. “When we just sent out catalogs we used to have to wait days or weeks to see which items were the top sellers,” Voellinger says.
But using the web as a test bed for catalog products, images and text is becoming a common marketing strategy other online pets supplies retailers can-and will-adopt.
Another way Drs. Foster & Smith is looking to stay ahead of the competition and drive more new and repeat customers to its web sites is by overhauling its search engine marketing strategy and analyzing more closely which pet supply words and phrases generate the best response. For instance, a new bid management application is helping the company reduce by 50% the amount of money it bids at times on words such as “Frontline,” a leading flea collar brand, which may generate thousands of click-throughs per month, but delivers only about a 1% sales conversion.
Getting more sophisticated
“We’re looking for a better return on investment for our online advertising dollar,” Voellinger says. “We’re getting more sophisticated in how we’re analyzing which words are producing results and capitalizing on sales opportunities when the analysis shows we’re hitting on words and phrases that work.”
The company is also analyzing its e-mail marketing file of more than 2 million names, updating individual buyer histories and then sending targeted e-mails to specific segments of shoppers offering them the chance to sign up for a topic-specific newsletter on pet care and education or receive a notice when a product or line of accessories they may be interested in is going on sale. On the web site, all of Drs. Foster & Smith’s 17 newsletters are now featured on a single page with a check box and subscription button for easy sign-up. “The online process is segmented and produces very quick results. Now we know from a centralized source who is signing up for our newsletters and when and we can use that information to better identify new sales and cross-selling opportunities,” Voellinger says.
The measures Drs. Foster & Smith is taking with its various e-commerce initiatives are tools and strategies other direct marketing companies and Internet retailers are also adopting. Petco.com, for instance, offers home delivery of pet food and cat litter through its “Bottomless Bowl” program and PetSmart continues to consolidate all of its direct marketing, product fulfillment and e-commerce operations into a central unit in Brockport, N.Y.
But what impresses analysts such as Jupiter’s Freeman Evans is the fact that an established direct marketing firm such as Drs. Foster & Smith is willing to invest in the web and make wholesale changes to the way it sells online before other players figure out ways of chipping away at the company’s market share.
“You build up an element of trust with your veterinarian and tend to take his or her advice, so it’s clear that through its deep content and merchandise mix that this is the shopping experience Drs. Foster & Smith wants people to have on its web site,” Freeman Evans says. “People who shop online there expect a good bargain on pet supplies as well as great content on keeping and owning a pet.”
In recent months, the conversion rate at DrsFosterSmith.com has approached 7%, a figure Foster says will likely increase as the company introduces changes to the site, such as a policy guaranteeing a phone call or e-mail response to a web shopper’s inquiry within 12 hours.
“Using the web to enhance our total shopping experience is what we’re spending a lot of time on these days,” Foster says. “It’s important to remember that many of our visitors have already made their purchase decision based on a catalog they received and are simply choosing to place their order online. It’s up to us to take advantage of what the Internet and web technology have to offer and process and fill that order as quickly and efficiently as possible.”
Mark Brohan is principal of the Milwaukee, Wis.-based Brohan Group, providing professional editorial and publishing services.