Sendwine.Com Case Study

Sendwine.com Case Study

Background Information

In 1995 a recently unemployed but successful business man named Mike Lannon sensed a business opportunity that would allow consumers to send wine across state borders as gifts. Unfortunately, he discovered that this was not going to be a mundane task due to variances in state laws across the country that prohibit the shipment of alcohol. Most of these laws date back to the prohibition era and nearly all states have strict rules that only allow liquor to be sold by licensed retailers within that state.

Undeterred, Mr. Lannon began extensive market research and developed a business plan. After his research, he discovered that most Americans have either given or received wine as a gift but have never sent wine. His exploration validated his instincts and his new venture became clear. His mission was now committed to creating an avenue that made sending a gift of wine as fast and easy as sending flowers. Due to obvious legal constraints, his only option was to create a network of wine merchants throughout the country that shared his interest. In 1997, Mr. Lannon invested his entire life savings into his new company called The Wine Line. In its beginning stages, The Wine Line primarily took orders by phone and the orders were then executed by a network of wine and liquor stores across the United Sates. After receiving the order, they would be faxed to a retailer in the same state as the gift recipient. The retailer selected and packaged the gift and hired a courier service to deliver the gift. After the completion of the delivery, the retailer would receive reimbursement for courier charges, retail price of wine, and taxes incurred. He based this model around successful flower delivery services like FTD.

In 1998, Mr. Lannon decided to expand his business out into the e-commerce market. With the help of investors and $500,000 he converted The Wine Line into Sendwine.com and used the money to fund website development, marketing and operations. Along with purchasing the rights for sendwine.com, he also purchased the URL "send.com" to give him the option of expanding into other gift sending category websites in the future. His determination in joining the e-commerce market paid off and Sendwine.com's sales quadrupled over the 1998 holiday season. With the success, came confidence from investors and sendwine.com was eventually able to earn over $10 million dollars from venture capitalist firms. Financiers were intrigued by Mr. Lannon's successful wine gift service and furthermore, the potential to expand into other gift classifications through ownership of send.com.

Obstacles affecting Growth

While entering the online retail industry during the e-commerce revolution proved to be successful for sendwine.com; they still had obstacles to overcome to remain successful and continue to grow. One major hurdle was building trust online. During Sendwine's beginning stages their ultimate goal was to form confidence with online consumers and ultimately gain repeat business and word of mouth respect. Online consumers tend to trust online retailers in different ways than physical stores due to the fact that they are not actually seeing and walking away with a tangible product. In Sendwine's case, the buyer never saw the product at all since they were delivered to the recipient immediately after purchase. Ultimately, Sendwine had to address issues related to credibility and quality. Mr. Lannon felt that these issues would be pacified by affectively executing their website design and content and through marketing strategies.

When sendwine.com launched, the website was very linear, only displaying the gift options and then checkout information. There was really no option to move about freely or browse. Lannon knew that this must be addressed in order to create a more well-rounded and convincing shopping experience with complete functionality and flexibility. Another point of concern was the lack of content on the Sendwine's website. A survey that Sendwine conducted revealed that almost half of their customers desired more content and selection. Sendwine struggled with content issues and deciding whether to add more content for consumers who were just browsing or repeat customers looking for greater selection opportunities.

Sendwine also struggled with determining which media outlet would give them the greatest return on investment while increasing their credibility and market share. They needed to build brand awareness but also strike the right emotional chords with their target market - gift givers. Lannon wanted to create a market leader brand in his category but also did not want grow too quickly and not have the means to handle the exponential growth. He explained that quick growth and heavy traffic on the website before they were ready to handle the business would prove to be expensive and incompetent, which would lead to disappointed customers who are the ultimate deciding factor to Sendwine's success or failure. A well thought out and efficient advertising campaign had to be developed to coincide with Sendwine's desired growth rate.

Threats to Sendwine.com

As more and more consumers began to feel comfortable with purchasing online, Sendwine.com saw their profits grow considerably each year. Online retail sales were projected to reach $29 billion in 2002 compared to $5 billion in 1998. Inevitably, the idea of online shopping became the wave of the future. Websites offering gift items increased exponentially and so did the threats to sendwine.com.

Sendwine's main source of competition was other online gift merchants like Amazon.com, 911gift, eGift, and countless others. These retailers overlapped Sendwine in terms of target customer segments and price ranges. This ultimately affected Sendwine's ability to conquer in terms of market share. Consumers literally had endless choices when it came to gift giving via the internet. Therefore, Sendwine had to constantly discover ways to set itself apart and create a niche market within the over populated online retail environment.

In addition to online gift giving sites, came another threat in the form of online wine retailers. Virtual Vineyards, now known online as Wine.com was able to raise $30 million dollars from venture capitalists and another startup called WineShopper.com raised $46 million. Similarly to Sendwine, both of these companies planned to employ a network of local wholesalers to avoid regulatory issues. Unlike Sendwine, these companies aspired to offer huge selections of different wines. WineShopper also had desires to form marketing agreements with companies like Amazon.com. Mr.