Page 351 - E-Bussiness and E-Commerce Management Strategy, Implementation, and Practice

M05_CHAF9601_04_SE_C05.QXD:D01_CHAF7409_04_SE_C01.QXD 16/4/09 11:12 Page 318

318 Part 2 Strategy and applications

also local prices. Orders were fulfilled and shipped out problems with technology. It also gave rise to negative
of one of two warehouses: one in Louisville, Kentucky PR. One reviewer explained how he waited: ‘Eighty-one
and the other in Cologne, Germany. This side of the minutes to pay too much money for a pair of shoes that
business was relatively successful with on-time delivery I still have to wait a week to get?’ These rates did
rates approaching 100% achieved. improve as problems were ironed out – by the end of the
Boo possessed classic channel conflicts. Initially, it week 228,848 visits had resulted in 609 orders with a
was difficult getting fashion and sports brands to offer value of $64,000. In the 6 weeks from launch, sales of
their products through Boo.com. Manufacturers already $353,000 were made and conversion rates had more
had a well-established distribution network through large than doubled to 0.98% before Christmas. However, a
high-street sports and fashion retailers and many smaller relaunch was required within 6 months to cut download
retailers. If clothing brands permitted Boo.com to sell times and to introduce a ‘low-bandwidth version’ for
their clothes online at discounted prices, then this would users using dial-up connections. This led to conversion
conflict with retailers’ interests and would also portray rates of nearly 3% on sales promotion. Sales results
the brands in a negative light if their goods were in an were disappointing in some regions, with US sales
online ‘bargain bucket’. A further pricing issue is where accounting for 20% compared to the planned 40%.
local or zone pricing in different markets exists, for The management team felt that further substantial
example lower prices often exist in the US than Europe investment was required to grow the business from a
and there are variations in different European countries. presence in 18 countries and 22 brands in November to
31 countries and 40 brands the following spring.
Making the business case to investors Turnover was forecast to rise from $100 million in
2000/01 to $1,350 million by 2003/04 which would be
Today it seems incredible that investors were confident
driven by $102.3 million in marketing in 2003/04. Profit
enough to invest $130 million in the company and, at the
was forecast to be $51.9 million by 2003/4.
high point, the company was valued at $390 million. Yet
much of this investment was based on the vision of the The end of Boo.com
founders to be a global brand and achieve ‘first-mover
advantage’. Although there were naturally revenue The end of Boo.com came on 18 May 2000, when
projections, these were not always based on an accurate investor funds could not be raised to meet the spiralling
detailed analysis of market potential. Immediately before marketing, technology and wage bills.
launch, Malmsten et al. (2001) explains a meeting with
Source: Prepared by Dave Chaffey from original sources including
would-be investor Pequot Capital, represented by Larry Malmsten et al. (2001) and New Media Age (1999).
Lenihan who had made successful investments in AOL
and Yahoo! The Boo.com management team were able
to provide revenue forecasts, but unable to answer Questions
fundamental questions for modelling the potential of the 1 Which strategic marketing assumptions and
business, such as ‘How many visitors are you aiming for? decisions arguably made Boo.com’s failure

What kind of conversion rate are you aiming for? How inevitable? Contrast these with other dot-com-
much does each customer have to spend? What’s your era survivors that are still in business, for
customer acquisition cost. And what’s your payback time example lastminute.com, Egg.com and Fire-
on customer acquisition cost?’ When these figures were box.com
obtained, the analyst found them to be ‘far-fetched’ and 2 Using the framework of the marketing mix,
reputedly ended the meeting with the words. ‘I’m not appraise the marketing tactics of Boo.com in
interested. Sorry for my bluntness, but I think you’re the areas of Product, Pricing, Place, Promo-
going to be out of business by Christmas.’ tion, Process, People and Physical evidence.
When the site launched on 3 November 1999, around 3 In many ways, the vision of Boo’s founders
50,000 unique visitors were achieved on the first day, were ‘ideas before their time’. Give examples of
but there were only 4 in 1,000 placed orders (a 0.25% e-retail techniques used to create an engaging
conversion rate). Showing the importance of modelling online customer experience which Boo adopted
conversion rate accurately in modelling business poten- that are now becoming commonplace.
tial. This low conversion rate was also symptomatic of