An example of an E-Commerce FAILURE and its causes.

ValueAmerica.com






Introduction
ValueAmerica.com, founded by Craig Winn, was created specifically to retail goods from caviar to computers directly to consumers without the need of conventional middleman via the Internet or so-called, business-to-consumer (B2C) company, supported by large sums of money from investors. The idea was not to buy from ValueAmerica.com directly but to use the firm as a conduit between the consumer and the manufacturer. This means that ValueAmerica.com would carry no inventory and the firm would be effectively “free” of overheads. It failed within a few years of its creation.

Just over a year after the stock market floatation in August 2000, ValueAmerica.com filed for Chapter 11 bankruptcy. Company filling for Chapter 11 are allowed to continue trading in hopes that they can solve their problems and become profitable as this is deemed to be better for the economy as a whole then the liquidation of the firm. However, ValueAmerica.com was unable to recover their loses and was sold to Merisel, a company specializing in distributing technology products in November 2000.



Causes
The failure of ValueAmerica.com was simply because it was unable to make sufficient revenues to exceed its costs and the company could not retain customer loyalty, so there were few repeat purchases.

The main cause was the company’s business plan, which relied upon the manufacturers to supply items to the customers whilst ValueAmerica.com itself simply passed on the orders and kept a premium for its services. Unfortunately, many of the manufacturers simply did not have the ability to ship items in small numbers to individual purchasers. This means that there were mistakes with orders and long delays between orders being made and the delivery of the goods. Few customers made repeat purchases, making it difficult for the company to establish a stable client base.

The reason of this company incapable of achieving a level of sales that would make it profitable is because the company could not retain customers. Besides that, the firm’s computer system proved to be incapable of handling such as a high volume of Internet traffic and there were problems with frequent crashes. As a result, a high number of orders were not filled.

Next is when orders were filled incorrectly. This is because this problem stemmed from the fact that many of the manufacturers that were involved with ValueAmerica.com are not capable of shipping a small number of items direct to the public and do not have the appropriate facilities. Their logistics are designed to ship large numbers of items retail outlets, which then distribute the products to the public. The incompatibility between the customer’s requirements and the manufacturer’s capabilities meant there were problems with incomplete orders, incorrect orders and long time delays before consumers received their goods.

ValueAmerica.com has problems controlling the rate at which it spends its available funds. This means ValueAmerica.com spent large amounts setting up their systems and funded generously by individual investors, it was able to pay for massive advertising campaigns before they began trading to publicize its website. Once trading began, however, this firm became notorious for lavish spending on unnecessary items.

Lastly, it is the change in board of directors, management and employees. There were some changes in the Board of Directors in the last few months before the company went into Chapter 11. Craig Winn, the company’s founder, stepped aside as CEO but retained the position of Chairman. Then a new Chief Executive Officer was appointed but resigned in November 1999, complaining that Winn interfered too much. The Board of Directors then said that they had lost confidence in Winn and he was forced to resign as Chairman, although he maintained a seat on the Board until both he and his co-founder, Rex Scantena, resigned in protest at the company’s restructuring plans.

Conclusion
ValueAmerica.com should have improved on identifying the demand and need of the consumers as well as to understand the markets environment. An effective business strategies and a strategic management process should be implemented to companies that desires to achieve a long lasting success as an e-commerce company.