The Global E-commerce Opportunity [PDF]

books, fashion accessories, and travel packages. According to US-based market research company eMarketer, global B2C e-c

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Strategy & Marketing

The Global E-commerce Opportunity Vijay S and Dhrubajyoti Kalita STRATEGY & MARKETING

Commerce Then and Now

T

he Silk Route was a loosely connected network of Asian trade routes that made up one of the most hazardous but economically valuable land passages in the ancient and medieval eras. It was 4,600 miles in length and took at least six months to cross. During the summer,

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traders were exposed to temperatures of up to 500C (1220F), while in winter temperatures plunged to -200C (-40F). Traders were also bereft of any defense against outlaws and robbers. Consequently, very few traveled its entire length. Two thousand years later, in this dynamic age of the Internet, retailers are cashing in on the convenience of “click and pay”, all protected by invisible but

robust security walls—a far cry from the treacherous days of the Silk Route. Unquestionably, technology has transformed commerce. Computing and networking technology have improved at an exponential rate over the past 30 odd years. Powerful personal computers linked to global information networks have powered a whole new world of intellectual, social, and financial interactions.

E-commerce – Over a Trillion Dollar Market and Growing Over the past three years, e-commerce has grown by leaps and bounds globally, thanks to increasing internet penetration in Asia and the emergence of non-banking players in the payment industry (Fig. 1). Retailers around the globe are venturing into online retail, as an increasing number of consumers in both developed and emerging markets flock to virtual marketplaces to buy products. Today, one-third of the world’s population has access to the Internet and approximately 1 billion people every year are expected to shop online for products such as clothes, electronics, books, fashion accessories, and travel packages. According to US-based market research company eMarketer, global B2C e-commerce revenue is likely to grow at a CAGR of 16% between 2014 and 2017. Growth in social computing has driven the transition to eCommerce 2.0—an enhanced technological version that is easier to use and drive better economics. Retailers have started networking to target individuals, and are using social networks to interact with people they would not and could not have reached earlier. Customers often prefer to shop with close, personal friends or family and then share that experience with their peers. eCommerce 2.0 addresses this challenge by allowing shoppers to read customer-generated reviews on

Figure 1 – Global B2C E-commerce Market Size and Growth, 2012–2017F ($ trillion, % change) 2.4 2.1 1.8 1.5 1.1

1.3

22.3

18.3

20.2

17.7

15.9

14.8

2012

2013

2014E

2015F

2016F

2017F

B2C e-commerce sales

% change

Source: eMarketer

Facebook, Twitter, Google+, Tumblr, Pinterest, and various e-commerce platforms, instead of relying on marketing material from sellers.

Trends Within this growth context, several key trends are evident in eCommerce 2.0. Rise of Emerging Markets. Asia Pacific is expected to take the lead in 2014, garnering ~$525 billion in sales against North America’s ~$483 billion. The growth in sales in emerging markets is primarily attributed to their large populations coming online. Asia Pacific is likely to account for more than 46% of digital buyers worldwide in 2014, though these users will account for only 16.9% of the region’s population. Indian consulting firm Technopak Advisors estimates India’s digital economy at $600 million as of 2014, with a potential to balloon to $70 billion by 2020. Going Local. Emerging markets and the demand for foreign goods are certainly driving the growth of online spending. However, consumers still prefer local e-commerce companies, as evident from the increasing popularity of Flipkart in India and Tmall in China.

Social Media Driving Sales Growth. Increasingly, sales are being driven by social media networks such as Facebook and Twitter. Consumers make purchase decisions after visiting forums and discussions, where experts discuss product features and functionalities. Firms are using social media analytics to measure their efforts to woo buyers with incentives such as discounts and loyalty programs. Data Analytics Used for Customized Marketing. According to Harvard Business Review, Walmart collects 2.5 petabytes of data every hour from its customer transactions. E-commerce companies have been quick to latch on to the data collection trend. US-based e-commerce player Gilt Groupe sends 3,000 highly targeted emails a day across its 3.5 million registered member base. These emails are based on data pertaining to the shopping behavior of its customers. Some companies, e.g. Target, collect and use data at such a granular level that they can even predict if a female customer is “expecting” and launch targeted marketing communications. M-commerce. Mobile devices are not only influential in the overall THE SMART CUBE | NOVEMBER 2014 | Cubisms

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Strategy & Marketing

eBay.com

While Bezos and his team were busy packing books in 1995, Pierre Omidyar (founder of eBay) started coding a simple website that he called AuctionWeb. He wanted to know whether people would use the Internet to bid on second-hand consumer goods. Pierre was surprised to find there was even a market for broken goods– eBay was born. In 2013, the company’s revenue was $16 billion and has 145 million active buyers worldwide. Interbrand estimated eBay’s brand value at $13 billion in 2013.

buying e-commerce process, but are also beginning to drive a meaningful percentage of digital commerce. Leading players Amazon and eBay have succeeded in popularizing their mobile shopping apps in the US. Latin American e-commerce company MercadoLibre has also managed to augment the share of m-commerce in its total sales to more than 10% through apps and mobile websites.

The Pioneers Amazon and eBay are widely regarded as pioneers of the e-commerce revolution. At the same time, the two stalwarts represent two different growth trajectories. Amazon’s Bezos sought to achieve rapid growth during the company’s early years to distance it from competitors and ensure long-term viability. For eBay, the focus was on being profitable. In line with that vision, eBay continues to be the cheapest way of selling products online.

Adoption Across Industries Over the course of the last 19 years, many industries have integrated e-commerce with their core businesses, but at different levels (Fig. 2). The level of sophistication ranges from having static online presence to online sales of goods and services, and, eventually, complete control over internal functions such as operations, marketing, finance,

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Figure 2 – E-Business Stages of Growth High Travel and Tourism

Investment requirement

Amazon.com

In 1995, Jeff Bezos (founder of Amazon) shipped the first book from his garage in Seattle. Within 30 days, the company which came to be known as “Earth’s Biggest Bookstore” made its presence felt in the whole of the US and 45 other countries. It went public in May 1997. In 2013, the company reported net sales of $74 billion and has 237 million active customer accounts worldwide. Interbrand estimated Amazon’s brand value at $23 billion in 2013.

Automobile Pharmaceuticals

No presence

Static Static online online presence presence

Low

Interactive online online

Retail

Telecom

External integration Internal integration

Electronic commerce

Level of sophistication, potential benefits

For B2B

High

Source: E-business Stages of Growth

and human resources with external functions such as vendor management, CRM, and, eventually, customer outreach. Retail and CPG. It all started with retail. By virtue of being ahead in the learning curve, companies selling B2C consumer goods, such as electronics, books, apparel, household goods, and packaged goods, have built a strong foundation in e-commerce. And the ability to deliver orders to consumers more quickly than others has become a clear competitive advantage. In the US, Amazon has started opening smaller distribution facilities to offer same-day delivery. Retailers are also increasingly adopting an omnichannel strategy that seamlessly

integrates different channels, such as stores, the Web, and/or mobile phones, into an integrated shopping experience. In 2013, US-based department store Macy’s announced its intentions to extend online fulfillment from 292 stores to 500 stores by the end of the year. The integration of online and brick-andmortar channels has allowed customers to pay online and collect from the store. In recent years, US-based retail giant Walmart has invested millions of dollars in e-commerce. The company’s global e-commerce sales crossed $10 billion for the fiscal ending January 31, 2014, and are projected to increase to $13 billion for the fiscal ending January 31, 2015. Telecom, Entertainment, and Media. The telecommunications market has

witnessed a sea change in the last few decades. Social networking sites have become embedded in the very fabric of daily life, partly because of mobile internet access. All major media and entertainment companies both market their services and allow end users to make purchases on the same portal. For example, India’s Bookmyshow. com is an online ticketing platform where consumers can search and book tickets for movies, plays, concerts, entertainment performances, and sporting events. The website draws more than 7 million visitors and sells over 2 million tickets a month. Another example is of Walt Disney, one of the largest entertainment & media firms globally, which is famous for online sales of Disney-branded merchandise via its e-commerce platform Disneystore.com. The e-commerce website attracts more than 30 million visitors each month. Then, Fandango sells movie tickets for more than 20,000 screens in the US. Its mobile app is used by more than 41 million visitors per month. Travel and Tourism. The Web acts as the perfect medium for consumers to compare options and make an informed choice. Travel product suppliers, such as airlines, car rental companies, and hotels, have grasped this opportunity by launching their products directly on the Internet. The adoption of e-commerce in this industry is high and increasing, as it allows direct association between the supplier and the customer, eliminates information disparity (travel agents and brokers), facilitates equal competition, and reduces price discrimination. “Collaborative consumption” is the latest buzz word and is expected to disrupt conventional hotel bookings. Websites such as Airbnb charge a 3% transaction fee to allow a guest to book accommodation from a list of verified hosts around the world. In April 2014, TPG Capital infused $450 million into Airbnb’s business.

Automotive. The auto business is yet to fully adopt e-commerce as an important and separate channel of distribution. Most dealerships chiefly employ the Internet as a marketing medium and close sales at the dealership. However, some industry giants are increasing their efforts to maximize gains by deploying this channel. In 2013, General Motors launched its e-commerce platform, “shop-click-drive”. The system allows customers to furbish their cars with options and accessories of their choice. The deal can be executed online, and the car is delivered at the doorstep with a final test run, giving customers a chance to hit the road before buying. About 100 dealers have signed up for the GM pilot, and 900 cars have been sold through the e-commerce platform (as of October 2013). Meanwhile, cementing a two-year relationship with eBay, BMW launched a Value Service web page in 2013 to usher in changes in the after-sales market. The web page promotes fixed price servicing for select BMW models. BMW is the first car manufacturer to collaborate with eBay and open a direct store on the platform. It attracts 45,000 unique visitors each month. Pharmaceutical and Life Sciences. As with the auto industry, pharmaceutical companies too have not fully adapted to the online environment. A traditional e-commerce website with presence across different industry segments cannot grab a share of the online pharmaceutical market due to difficulties in obtaining certifications. Selling prescription drugs online is prohibited in many countries, though companies have started using the digital platform to sell over the counter (OTC) drugs and consumer products. GSK Consumer Healthcare plans to double its marketing spend on the digital platform in India by the end of 2014. The company launched its Nutribic biscuits only on Facebook when it unveiled the brand in India in 2013. Around the same

time, Pfizer kicked off a beta launch program for Viagra.com. Through sustained PR efforts, the pharmaceutical behemoth was able to educate men about where to purchase authentic Viagra instead of the counterfeit products available in the market.

Stumbling Blocks for Global B2C E-commerce While the e-commerce opportunity is vast and growing, there are a host of issues to be aware of: Varying compliance procedures around the world. As global online businesses try to expand into local markets, they will have to meet different compliance criteria, which could vary according to region or even country. Companies will have to manage the legal hurdles of regulations with local knowledge and strict business practices. Firms with global operations need to stay abreast of the various regulations and ensure that they meet compliance deadlines. For instance, companies operating in Singapore have to comply with the Personal Data Protection Act, which requires them to adhere to and provide inventory mapping, process audits, and staff training guidelines. In Europe, firms that sell products with batteries contend with Waste Electrical and Electronic Equipment (WEEE) disposal and recycling regulations. To add to concerns, in some of the largest emerging markets, such as China, governments are increasing their control over the industry. On January 26, 2014, the Chinese State Administration for Industry and Commerce (SAIC) announced regulatory measures for internet transactions. The new measures require covered sellers to register with the SAIC and its local counterparts. Business license information of the covered sellers must be accessible on their websites through either a web page or access to a link to their electronic business license.

THE SMART CUBE | NOVEMBER 2014 | Cubisms

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Strategy & Marketing

Lack of Technological Infrastructure in Emerging Markets. Emerging e-commerce markets such as China and India are huge, but nowhere near maturity. The main challenges facing the e-commerce industry are lack of quality infrastructure and establishment of trust. On the infrastructure side, poor logistics infrastructure is a concern in countries such as India and Brazil. On the trust side, there are cultural barriers as well as genuine fraud-related risks barriers, to overcome. Innovative ideas and policies are required to overcome these challenges. For example, eBay India provides the Power Ship service to overcome logistics challenges, and offers Paisa Pay and the eBay Guarantee to build trust. The company provides a 100% guarantee for a full refund or replacement of products for up to 30 days. Fraud and Credit Risk. Also quick to jump on the e-commerce bandwagon are sophisticated new-age hackers. Global online retailers are thus arming themselves with mechanisms such as address matching, card security code validation, and explicit password authorizations to prevent break-ins and minimize risks. A dynamic credit risk evaluation is critical to consider buyers’ capabilities to meet requirements for the products or services being offered. Content Development in Local Languages. Modern content management systems have made the handling of multiple websites in different languages easier than before. However, all content is required to be first translated, then localized, and thereafter tested to make sure it is appropriate for the local population. This is used for site content, shopping carts, sales comparators, and other related tools.

Is Sky the Limit? In December 2013, Jeff Bezos surprised the world by stating that Amazon is testing the delivery of packages through drones.

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The goal is to get packages into customers’ hands within 30 minutes. Indeed, through timeliness, tracing, and tracking, e-commerce is revolutionizing the way goods and services are sold and delivered. It has the potential to virtualize inventory and fundamentally change the relationships between end customers, retailers, wholesalers, and manufacturers. At the same time, the growth of business on online networks brings with it a whole host of challenges in coordinating the supply chain. These challenges pertain to the speed of business and the level of connectivity between customers and partners. Add to that technological developments, regulatory and legal changes, trademark infringements, and hacking, all of which could adversely affect companies as they move from traditional selling to e-commerce. Lessons need to be learnt from the mistakes committed by the likes of Borders and Blockbuster. With many consumers taking to online platforms, it is becoming imperative for businesses across sectors to establish a strong and progressive online presence. In many industries, the rules of the game have changed completely, and a comprehensive e-commerce strategy is not simply a nice-to-have, but a musthave. In fact, the earlier companies realize the following myths, the better: •

Build it and they will come. Not any longer—a simple online presence is not sufficient enough to attract customers. An appropriately customized portal for the target market is a basic requirement to build a substantial customer base.



I don’t need a strategy to sell on the Web! This is one of the most common mistakes that companies make. Many early adopters have shown that successful e-commerce is accompanied by specific digital and e-commerce strategies. Strategies regarding the fulfillment

model (fully owned vs. third-party fulfilled vs. partially owned), digital marketing (choice of platforms and content for marketing), etc,. are key to drive growth through the online channel. •

Mobile. Consumers in the US spend more time dealing with online retailers on smartphones and tablets than on desktops and laptops. According to comScore, 55% of all time spent on online retail in June 2013 occurred on a mobile device, the remaining on desktops and laptops. Mobile commerce is gaining traction, and retailers must adapt to this new trend if they are to thrive in this promising channel.



Social media is a fad. The reality is quite opposite because social media is here to stay as it is part and parcel of the shopping experience. The real solution lies in creating a social layer over online e-commerce sites. This would boost brand awareness with social sharing, increase sales through social recommendation, improve participation and engagement, and help measure trends using social analytics.



It is too late to get on the Web. There is no doubt that early movers have an added advantage. But it is never too late to adopt a phenomenon that has the world in its thrall, and is, frankly, still in its early stages.

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