Question

Case Study - Kozmo, the online convenience store to shut down

Read out the case study given below and answer the questions that follow.  

New York-based Kozmo, the 3-year-old company announced that it would stop delivery service in all nine cities it operates. New York-based Kozmo, which dispatched legions of orange-clad deliverymen to cart goods to customers' doors, is the latest dot.com dream to evaporate in the market downturn. Amazon com, venture capital firm Flatiron Partners and coffee giant Starbucks were among the investors in Kozmo.

Kozmo said in December that investors promised a total of $30 million in private funding. But last month the company learned that an investor had backed out of a $6 million commitment. Kozmo executives had been working on a merger deal with Los Angeles-based PDQuick, another online grocer, sources said. The deal collapsed when funding that was promised to PDQuick did not materialize. Sources said Kozmo still has money but decided to close now and liquidate to ensure that employees could receive a severance package.

Just last month, Kozmo Chief Executive Gerry Burdo was upbeat about Kozmo's future, saying he was looking to steer Kozmo away from its Internet-only business model and toward a "clicks and bricks" approach. But some analysts say Kozmo's business model only made sense in the context of a densely packed city such as New York. Vern Keenan, a financial analyst with Keenan Vision, said the service had a chance to work in only a few other cities around the world, such as London, Stockholm or Paris. "This seemed like a dumb idea from the beginning," Keenan said. "This grew out of a New York City frame of mind and it simply didn't translate."

Kozmo was started by a pair of twenty-something former college roommates. They got the idea for the company on a night when they craved videos and snacks and wished a business existed that would deliver it to them. Kozmo offered free delivery and charged competitive prices when it launched in New York. Though customers loved the service, the costs of delivery were high.

After co-founder and former Chief Executive Joseph Park stepped down, Burdo slashed Kozmo's overhead, instituted a delivery fee and oversaw several rounds of layoffs. The company also closed operations in San Diego and Houston. Burdo said last month that profitability was not far away. The company had reached a milestone last December when it reported profits at one of its operations for the first time. Kozmo later saw two more operations reach profitability as a result of brisk holiday business.

Online delivery companies have been among the most ravaged by the Internet shakeout. Kozmo's rival in New York, Urban fetch, shuttered its consumer operations last fall. Online grocers such as Webvan and Peapod have also struggled, and smaller operations such as Streamline.com and ShopLink.com have dosed down. Peapod was days away from closing last year when Dutch grocer Royal Ahold agreed to take a majority stake.

From the very beginning, supply chain management was to be a core competency of Kozmo. The promising dot.com would deliver your order everything from the latest video to electronics equipment in less than an hour. The technology was superior, the employees were enthusiastic, the customers were satisfied. But eventually, Kozmo ran out of time and money.

Questions:

  

2. Based on your reasoning, List the factors and reasons for Kozmo’s failure

  

Answer 1

Kozmo's failure can be attributed to following factors,

1) Lack of strategic planning

2) Promoters were not conducted any survey based on current market challenges

3) Lack of strong motivational business leadership

4) Higher cost of products and services delivery

5) Lack of differential pricing

6) Fail to  attract different segments of customers in the same package of delivery cost

7) Huge competition in the internet based market

Strategic business planning offers a lot of advantages to a business. It also offers reduced cost interventions which ultimately contribute in increased profits. As per case , they were just think one night and started business in a hurry. This is not a good approach. It is better to have detail market analysis before launching innovative business model.

If, there was a leader who can motivate team members not to leave the organization then operational cost along with delivery cost can be reduced. People having motivation may offer huge amounts of productivity. Cost of delivery should be designed in such a way that offers some benefits too. For example, All the customers can be served in a row when get a particular delivery in a location. It will reduce cost of operations or delivering the quality products.

Charging different prices to different types of customers and segments will be a good idea. It will be a step which may reduced the cost of delivery as in a row more customers will have to be served. Internet based business model will offer huge competition . A company will be successful when it will design a unique business model.