What can we learn from these examples of failed digital marketing strategies?
4 examples of digital strategy failures that highlight good practices by showing poor practices.
Despite the fact that boo.com went spectacularly bust over a decade ago, it still offers a unique insight into one of the biggest and most costly digital business failures in European history. Boo.com aimed to become a first-to-market global brand selling sportswear and designer clothes. The business launched in 18 countries in the autumn of 1999, spent £125 million in six months – including £500,000 a month on product photography, significant sums on their own fashion magazine, funding for offices in five countries and $22.4 million on marketing and PR. It then looked for further funding to increase it’s global reach and cover its spiralling costs. They presented expected growth figures in a meeting with respected venture capitalist Larry Linehan, but when they were unable to answer basic questions on conversion rates, customer acquisition costs and required visitor numbers, he’s reported to have told them – “Sorry for my bluntness, but I think you’re going to be out of business by Christmas.” He was wrong. They held out until 18thMay 2000.
- Boo.com clearly had a weak digital marketing plan/team. If Boo.com had a better handle on their key metrics and ecommerce levers such as customer life time value (CLTV).
- The cost to acquire a customer (CAC) derived from the CLTV and a decent view on traffic sources and conversation rates then they might have been slower to expand and controlled their incredible “burn rate”.
Pets.com is another historic dot.com failure. They launched in August 1998, and the following year received significant venture capital including Amazon taking on a 54% share. A lavish advertising campaign featuring a dog sock puppet culminated in a $1.2 million Super Bowl advert in January 2000. The company spent significant sums on warehousing and infrastructure and believed that it would take 4 to 5 years to hit its revenue target of $300 million, however no significant market research had been undertaken prior to launch and so there was uncertainty over whether a significant market existed for their offering. Despite its success at building brand recognition, they had a completely unsustainable business model: they routinely sold products for significantly less than cost and during its first fiscal year it spent $11.8 million on advertising, despite earning revenues of $619,000. On the day of its liquidation in February 2000, its share price had fallen from its IPO price of $11 to 0$.19. The rights to the sock puppet mascot were sold for $125,000.
Lessons from this example: Two main factors contributed to the demise of pets.com.
- Firstly, they acquired significant venture capital and leveraged too much of that on the idea that the market would grow quickly enough to generate profit before funding ran out.
- They also overestimated the size of their market and the ability to generate profit in that marketplace. And just like Boo.com they must have either got the LTV and CAC very wrong or simply refused to adjust their plans once it was obvious that their initial plans were unrealistic.
At the outset Joost looked like a winner. It was set up by the same people who had sold Skype for billions. It managed to raise $45 million in funding from Viacom. It hit an area of the market that YouTube couldn’t and had Free TV early mover advantage. And it created so much pre-launch buzz that an estimated 100,000 people got involved in beta testing and thousands more downloaded its P2P video client. However, soon after launch 250,000 people had downloaded its beta-software and when problems hit they were too slow to react and all the early buzz soon turned negative. Joost was also slow to realise that its client-based video service was losing out to browser-based providers such as Hulu. But perhaps its biggest problem was that, despite investment from CBS and Viacom, it had couldn’t secure exclusive content from broadcasters and failed to aggressively build on its early mover advantage.
- There are two main lessons here: if you’re first to market, then press home that advantage.
- If your business model relies on third party content providers, ensure that you are tied into exclusivity agreements.
Ecomom gives us a more recent example of a failed digital strategy showing that some lessons from the dot.com era haven’t been learned. Ecomom was a startup internet retail company selling earth friendly mom and maternity products including food, toys, apparel, and other baby related items. With headquarters in Las Vegas and San Francisco and a third-party fulfilment in Los Angeles, any volume could be shipped within 24 hours. Founded in 2007, by 2011 it had turnover of just over $1 million. An accountant joining the company in 2011 found that it had a contribution margin of –48% which he identified when he joined the company. In other words, for every additional $60 average order shipped the variable cost was $89 and the company lost $29. This situation was caused by heavy discounting with common use of 50% discounts on daily deal sites like Groupon. To make matters worse, although discounts were meant to be one time only, the company couldn’t limit them by customer, so every discounted order has a 50% reduction regardless whether they were from a new company or an existing company. To make matters worse, the company sales manager was paid based on sales achieved before discounting.
Lessons from this example:
- This example again shows that it is essential to set the right KPIs to review and control a business. The danger of over-reliance on discounting and sales promotion as a sales tactics is also shown the importance of having a balanced management team with different skills and experiences.
- Planning is the first step to start a business.
- Market Research is very important.
- Never predict market changes by your own.
- Learn the basics and then think about investing your time and money.
- Do an extensive research on the product you want to sell.
- Think, analyse and then set a budget for your idea.