Egghead: Not Bright Enough

“Another one bites the dust,” just as Queen sang. announced on Wednesday, July 15, that it was filing for chapter 11 bankruptcy.

While stories of e-crashes are more and more common these days, this one was special to me. First, because I worked for Egghead a couple years back, when it was just getting going online. Second, because Egghead was one of the original big-time e-commerce sites.

Egghead shuttered its retail stores and opened up online in 1998. It joined et al. as one of the darlings of the Internet age. The stock hit a high near $100 briefly one day in late 1999, but it has been below $1.50 for all of 2001.

So what happened? Where did the magic go? And what lessons can we learn?

Although in its move online it had vision, Egghead forgot to keep an eye on the most important thing: its customer base.

When it closed its retail stores, it left its customers bewildered. I remember seeing the locked doors of an Egghead store — and no signs telling people to look for it on the Internet. Many people simply believed that the company had gone away. For the price of a bunch of printed banners, Egghead could have held on to those customers.

Egghead’s customer discount card, the CUE card, was not usable online. Although Egghead would plan for years to bring the CUE card back, the reality was that it left its best customers out in the cold for no reason.

Lesson 1: Don’t shut the door in your customer’s face.

The customers that Egghead did have were not always pleased. Surveys often pointed out shortcomings in customer service. Even in the brick-and-mortar world, Egghead had a reputation for turning a deaf ear to customers.

One marketing professional took issue with Egghead’s policy of turning a $29.95 regular price into a “discounted” CUE card price of $29.95 by making the regular price $31.03. He wrote, “Does Egghead think their customers are idiots?” He went on to say, “If you take care of your customers, they’ll take care of you and your family for a long time in the form of repeat business.” The subtext of this is that if you don’t, you will end up in bankruptcy court.

Another time, an Egghead mistake caused $335 memory modules to be sold for $34.85. It then cancelled those orders. Customers were angered. One said that other companies would have done something to make reparations, “but not Egghead.” Some customers filed a complaint with the Better Business Bureau, and others considered legal action.

Lesson 2: Be nice to your customers — always.

There was also the time that hackers broke into Egghead’s computer systems and attempted to access customer credit card information. There was debate about the extent of the damage in fraudulent credit card usage, but the damage done to Egghead was obvious. Online shoppers already nervous about security were taken aback by an e-commerce leader’s being caught unawares.

Lesson 3: Be lucky.

Egghead’s business model of selling new, liquidated, and refurbished goods at super-low prices fell prey to reality when advertising and co-op marketing dollars failed to materialize in a significant fashion, just as for other Internet players. High revenue and no profit do not a thriving business make.

Lesson 4: You can’t buy high, sell low, and make it up in volume.

In the early days, Egghead was competing against other e-commerce leaders to introduce the features of online shopping that we all take for granted today. However, when it came to customer-friendly features, Egghead seems to have been one step behind.

Amazon provided access to accounts so customers could track their own orders or look at their order history. Onsale, which later merged with Egghead, had a sophisticated online customer service system that helped customers solve their own problems and send questions to subject-matter experts. Egghead had none of these. On average, it forced returning customers to take twice as many actions to purchase something as Amazon’s returning customers would take.

Lesson 5: When it comes to your customers, do everything you can.

Still, it’s sad that Egghead is gone. Millions of shoppers got great prices on a lot of stuff. Like the coyote that runs off the cliff in the cartoons, though, you can’t defy common sense for long. The field is now open for others who can learn from these lessons.


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