How online pet care platforms can build highly defensible moats
Pet care market has a tremendous potential for growth. The question, however, is how does an emerging player in pet care vertical defend itself against horizontal marketplaces? Is it possible to create a long-term winner in this segment? Read more to learn how.
Remember Pets.com, the company that raised $82.5 million during the 2000 dotcom era, and then filed for bankruptcy nine months later? Fast forward to present day, and the world has drastically changed since.
When the pandemic hit in 2020, the global pet care market was already USD 179 Bn+ in size. The repeated lockdowns of the pandemic served as a boon for offline-to-online transition of the industry. Globally, the pet care market is expected to grow at a CAGR of 5.2%. However, even though the Indian share of the total global pet care market stood at 0.8%, it has been seeing a CAGR of 17%, making it one of the most promising vertical commerce segments.
The key question that arises, though, is how does an emerging player in pet care vertical, find a way to battle Amazon? Is it even possible to run away with a winner in this segment?
With Amazon’s ability to offer deep discounts, its incredibly powerful logistics and delivery network, the Amazon Prime ecosystem, and the infinitude of its marketplace model, any player dipping their toes into ecommerce faces a number of existing moats:
- Diversity of products, a natural strength for Amazon.
- Reputation and trust, built through a history of customer reviews.
- Delivery and logistics muscle.
So, how does an emerging online pet platform battle the Goliath in the room?
The answer, I believe, lies in looking at the problem as a social engineering challenge more than anything else.
Let’s dive in.
Potential Moat #1: Powerful Community Behaviour
Pet owners form a tight community, both offline and online. So much so that a number of dating apps have emerged, which specifically target pet owners.
Think of a pet as a social filter, a lens, through which pet owners view others around them, which forms the basis of why they naturally bond.
I believe that the strong community behaviour that pet owners exhibit is one of the key social feature to tap into.
Afaik, none of the current marketplaces have focussed on tapping into the natural network effects that community platforms enjoy. Furthermore, an engaged community forms a great starting point for identification of microgroups and signals for future moats (more on this later).
Potential Moat #2: Content for Engagement and Virality
Pet lovers have always been one of the strongest consumers of online content. Furthermore, they are also some of the largest producers of user-generated content online.
This can form a key pillar for building a highly sticky and engaging userbase, leading to reduced churn and higher brand recall. Content naturally also forms a key mechanism through which to drive viral growth.
Online pet platforms should, therefore, enable content producers to generate visual content and share outwards, helping build out viral engines that lead to organic growth.
Potential Moat #3: Product Niches and Micro-verticals
A third natural moat for a pet platform comes from its ability to build out niche product offerings that do not make sense for horizontal marketplaces.
There has been a rising demand for organic and natural pet foods, which are free from synthetic fertilizers, pesticides, antibiotics, coloring, and chemical by-products. They offer several health benefits for pets, including boosting immunity, reducing skin ailments and allergies, minimizing digestive disorders, improving life expectancy, and maintaining a healthy weight.
The market for organic and natural pet food is expected to grow at 10.6% CAGR between 2021–2026, forming one of the key USPs that pet platforms can offer. A key signal for this is the growth in veterinary occupations, driven by expanding treatment options for pets, ageing pet population, and higher pet population.
Pet health products, therefore, form a natural product niche that pet platforms can build upon.
Potential Moat #4: Platform and Ecosystem Play
Pet care ecosystem forms the fourth pillar for growth that a pet platform can build on. Pet sitting or boarding, pet adoption, veterinary care, ambulance and transportation services, there are several natural ecosystems that can form within a pet platform, thereby driving further engagement, adoption and retention.
Here’s how to think about this: Come for the store, stay for the community, and discover new ways to simplify your life as a pet owner.
Pet platforms, therefore, form a great case study for building the Content-Community-Commerce-Ecosystem flywheel, with strong intrinsic network effects and highly defensible long-term moats.
But how do you beat discounting?
Yes, its possible!
Here’s the playbook — monetize the community and the ecosystem, pay it back through discounts. Use a club-like model with high margins to subsidize the lower margin growth play.
Amazon regularly subsidises its marketplace through a host of other products. For a vertical player to defend itself, it needs to discover revenue streams within the ecosystem it is building for, which can serve to strengthen its commerce play.
Summary
Online pet platforms form one of the most powerful usecases for social commerce, with Content-Community-Commerce-Ecosystem forming the key pillars for growth. By tapping into the deeper aspects of vertical play, online pet care platforms can defend themselves from horizontal marketplaces in the long run and create moats that are difficult to displace.
Original post appeared on Sixthdot Labs website here.
Disclaimer: All views and opinions expressed in this piece are personal and belong to the owner, and are not intended to malign any religion, ethnic group, company, individual or organization.
