Shutterfly 2009 Annual Report Download - page 26

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If we are unable to manage future expansion, we may not be able to implement improvements to our controls, policies and systems in an
efficient or timely manner and may discover deficiencies in existing systems and controls. Our ability to provide a high-
quality customer
experience could be compromised, which would damage our reputation and brand and substantially harm our business and results of operations.
We recently implemented a new enterprise resource planning system ("ERP") as part of our strategy to provide scale in our operations. The
ERP system is complex and could have flaws that could negatively impact our business and operations. Moreover, our internal processes may
not be entirely compatible with the ERP system, which may require additional resources to ensure compatibility.
Competitive pricing pressures, particularly with respect to 4×6 print pricing and shipping, may harm our business and results of operations.
Demand for our products and services is sensitive to price, especially in times of economic slowdown and consumer conservatism. Many
external factors, including our production and personnel costs, consumer sentiment and our competitors’
pricing and marketing strategies, can
significantly impact our pricing strategies. If we fail to meet our customers’
price expectations, we could lose customers, which would harm our
business and results of operations.
Changes in our pricing strategies have had, and may continue to have, a significant impact on our net revenues and net income. From time to
time, we have made changes to our pricing structure for 4×6 prints in order to remain competitive. In December 2007, one of our competitors
lowered its list prices on 4×6 prints from $0.12 to $0.09. During the third quarter of 2008, we lowered the list price of 4x6 prints from $0.19 to
$0.15. We expect to continue to test other pricing, promotion and bundled service offerings, however, a significant drop in our 4×6 prices,
without a corresponding increase in volume, or decreases in volume as a result of competitive pressures would negatively impact our net
revenues and could adversely affect our gross margins and overall profitability.
We generate a significant portion of our net revenues from the fees we collect from shipping our products. For example, these fees
represented approximately 17%, 19% and 20% of our net revenues in 2008, 2007 and 2006 respectively. We offer discounted or free shipping,
with a minimum purchase requirement, during promotional periods to attract and retain customers. If free shipping offers extend beyond a
limited number of occasions, are not based upon a minimum purchase requirement or become commonplace, our net revenues and results of
operations would be negatively impacted. In addition, we occasionally offer free or discounted products and services to attract and retain
customers. In the future, if we increase these offers to respond to actions taken by our competitors, our results of operations may be harmed.
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