Craft.com another dot-com dud?

The e-commerce site suspends promotional programs and delays its launch. Is that a creative way of saying it's in trouble?
Written by Margaret Kane, Contributor

The arts and crafts supply site last week told subscribers the company was "eliminating all membership programmes and benefit programmes, effective immediately".

Craft.com cited a change in its e-business strategy that had also delayed its grand opening.

Craft.com CEO Brad Roberts had no comment on the changes. Instead, he referred questions about the new strategy to the public relations department, which did not immediately return phone calls.

The change has angered many of the company's subscribers, judging by the company's message boards. Postings included one titled "great craft tip!" with the message "Don't shop at Craft.com".

"I'm very mad at them right now," said Linda Smith, an aspiring artist. Smith said that when she signed on a as a charter member in December, she handed over personal data -- including her name, address and email address -- and filled out a survey in exchange for the promotions.

In return, Smith said she was promised goodies including a $25 gift certificate, free shipping for a year, and a $5 credit for each person she referred to the site.

On Friday, she got an email saying: "Well, we changed our minds."

"They were collecting info," she said. "I wonder if they ever intended to fulfil their end of the bargain at all. If they had investors, I'm sure it looked better having this big database of users."

Eliminating loyalty programmes can backfire on dot-coms, even though it can save them money, Jupiter Communications analyst Ken Cassar said.

"Generally speaking, any e-commerce player that takes the focus off retention is making a huge, colossal mistake," Cassar said. "Success in this business is absolutely, totally, driven by retention over the next three years."

However, companies need to be smart about the promotions they offer, he said.

They should plan 'exit strategies' for short-term promotions such as free shipping, so the programmes don't eat away at profit margins forever, he said. And they should be clear about the difference between promotions and loyalty programmes.

"Loyalty programmes should encourage behaviour that is in the long-term interests of company," he said. "A perfect programme for a music seller, for example, is not giving away CDs, but giving away CD case or a CD player, because that not only rewards people but encourages future purchases." If Craft.com has hit on hard times, it would be in good company. The past few months have seen a slew of dot-coms go bankrupt, lay off workers or struggle to find new investment sources.

A new list of possibly sick dot-coms was published today by Barron's, which hired Pegasus Research International to study companies' cash flow and other financial statistics.

An update of an earlier study, released in March, the list is topped by marketing firm Genesisintermedia.com, services firm Convergent Communications, Internet banking and e-commerce firm Netzee, online grocer Peapod and fashion retailer Bluefly.

Take me to the e-commerce special.

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