Pet Project

It wasn’t exactly an epiphany that made Dr. Race Foster, a veterinarian and co-founder of Drs. Foster & Smith Inc., realize that the company’s days as a catalog-only operation were numbered.

Rather, it was the growing number of sales resulting from Drs. Foster & Smith’s early and aggressive move into Internet retailing and the chance to use the web to better manage all of the company’s distribution channels, including eight pet supplies catalogs, that made Foster realize the company’s growth was clearly tied to e-commerce.

Today, Drs. Foster & Smith generates about $85 million, or 45%, of sales from the Internet and expects the web to account for as much as 60% within two years. “We originally viewed the Internet as just another way people could order from the catalog, but it didn’t take us long to change our minds,” Foster says.

New web resources

As Drs. Foster & Smith looks to maintain market share in the $400 million online pet supply business and compete even more effectively against bigger chain retailers such as Petco Animal Supplies Inc. and PetSmart Inc., the company is dedicating additional resources to its web business, which includes its core e-commerce site, DrsFosterSmith.com, and three pet owner companion sites: PetEducation.com, LiveAquaria.com and eTropicals.com.

Drs. Foster & Smith bills itself as the nation’s largest and most comprehensive pet supplies cataloger, publishing as many as 40 million catalogs annually. For now, Foster says the company isn’t planning on making significant changes to its catalog operation. “We’ve been in business for more than 20 years and have been fortunate enough to build one of the most trusted names in catalogs,” Foster says.

But it’s clearly Internet retailing and greater web utilization to more closely integrate its multiple shopping channels, including a store, that are driving the company’s growth and sales. “Once we reached about $65 million in web sales and realized that we could improve operating efficiencies without sacrificing customer service, we knew the Internet would become our main sales channel,” Foster says.

Today more than 1.5 million monthly visitors click on DrsFosterSmith.com to shop for more than 16,000 items in almost a dozen categories covering everything from pet food and squeaky toys to flea collars for dogs and cats, and aquariums. An additional 80,000 pet owners, pet health care providers and animal lovers visit a companion site, PetEducation.com, each day to access an archive of nearly 3,000 articles and other content on animal health, medical conditions, pet care and pet wellness topics.

A seamless experience

“We are a good catalog company and a good Internet company and now we need to become one to present a more seamless shopping experience to the customer,” Foster says. “You can have great educational subject matter on your web site and great merchandise both on the Internet and in the catalog, but those two factors alone won’t keep customers coming back if it’s not easy to order or we don’t have truly integrated customer service.”

To create a single company across online and offline channels, Drs. Foster & Smith is investing more than $2 million in initiatives such as integrating all e-commerce applications and databases into its back-end order management systems to create streamlined shopping. The company is also overhauling its e-mail and search engine marketing program and developing new applications and procedures that will expedite merchandising.

Customer service integration starts with the order. Like many catalogers who moved to the web, Drs. Foster & Smith started out processing all online orders manually, re-typing into the company’s order management system all the information the customer had entered into the online order form. At the company’s two Wisconsin call centers, a customer service representative could sometimes spend as much as 4 minutes entering just one order. The time-consuming process of having call center employees enter on average 2,250 daily Internet orders into Drs. Foster & Smith’s order management and fulfillment system, coupled with the time spent correcting mistakes on already-entered information, resulted in the company spending as much as two days processing, packing and shipping an order.

Now, as the importance of the web site has grown, the company is automating the process. A team of Drs. Foster & Smith web developers and information technology managers spent three months developing a web order interface application that links directly to the company’s legacy-based order and inventory management systems. The interface application scans all pending web orders and automatically submits eligible orders into the legacy system. Any web orders requiring human assistance are flagged and brought to the attention of a customer service representative, who manually corrects the mistake.

Out the door

Today about 70% of web orders are entered into the streamlined order management system and Drs. Foster and Smith is cutting at least 12 hours, and in some cases, almost an entire day, off its product shipping time. It’s another example of how the web is changing the way traditional catalogers such as Drs. Foster & Smith operate. “This new program allows us to reduce our order processing time,” says Joseph Voellinger, Internet marketing manager. “This ensures we can maintain the goal of getting all orders out the door within 12 hours of receiving it.”

Drs. Foster & Smith was an early believer and user of the Internet as a new merchandising channel. In 1998, a year before now defunct Internet retailers such as Pets.com spent $50 million on sock puppets and Super Bowl commercials hyping the ease and convenience of purchasing pet supplies online, Drs. Foster & Smith launched an e-commerce site that quickly amassed a core audience of loyal customers. Within two years, DrsFosterSmith.com was producing about $800,000 in monthly sales and monthly traffic of 125,000 visitors. “We learned pretty early on the value of promoting the web site in our catalogs and telling customers how easy it is to place a catalog order online,” Foster says.

IRCE 2008 Conference Multi-Media CD-ROM

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.