Southeast Asia is considered as one of the most attractive e-commerce markets in the world. The rate of digital adoption is unmatched by any other geography in the world. The population of 620 million in the region is culturally diverse and has a love for digital technology. It is estimated that only 25% of the people aged above 16 have made a purchase online. Recent surveys done by Bain & Company and Google suggest that an understanding of its unique market and consumer behavior is crucial to make a digital breakthrough.
Of the 400 million population aged 16 and above, 150 million have taken their first step in online marketing by either searching for products or interacting with sellers. And while online retail penetration is relatively small at 3%, compared to 14% in China and the US, consumers seem to be highly influenced by digital content and experience, rather than inclination to lower prices and offers as seen in other markets. Apart from understanding the diverse range of consumers and their volatile behavior, the Southeast Asian market policies and the lack of e-commerce infrastructure also pose a challenge in the growth of e-commerce. But the opportunity remains huge and the number of consumers making the transition from offline to online is growing with millennials leading the way.
What makes this market different?
A huge number of consumers in non-metro regions use mobiles as compared to any other platform, for purchase of online goods. Consumers are highly influenced by explanatory videos about the product or services more so than its advertisement. The e-commerce market is highly fragmented with no retailer being the preferred choice of consumers. In fact, not a single online retailer has a loyal customer base exceeding 20% of the total digital consumers. Consequently, the users tend to use search engines to look for products rather than retailer websites.
This lack of allegiance to a particular retailer results in social commerce via Facebook and Instagram which makes up for 30% of online sales. This attracts a critical mass of consumers due to its more ‘personal touch’ of transaction where consumers get to interact with sellers before purchasing. So unlike other markets, where consumers prefer online over offline retail due to cheaper deals, about 60% of Southeast Asian consumers prefer a personal experience and satisfaction. And 61% mention the variety of options available, while only 45% mention price to be the reason to make the switch to online retail. A majority of these consumers also share their feedback online, which can greatly impact the e-retailers.
The last factor which sets this market apart is payment and delivery. Cash on delivery is widely preferred by consumers because trust is still an issue. Also, consumers opt for pick-up delivery options in non-metro cities whereas door to door delivery is preferred by metro consumers.
Present scenario and how to conquer the Southeast Asian Market:
The future of e-commerce in Southeast Asia is quite promising and many global and regional investors have placed huge bets in the market. Online taxi booking app, GrabTaxi, received $550 million and regional marketplace Lazada received nearly $500 million in investments. China’s JD.com has set up shop in Indonesia. Softbank, Sequoia Capital and SB Pan Asia Fund, all of Japan’s investment giants have invested $100 million in Tokopedia. The e-retailers like Lazada, Amazon, Alibaba, Cungmua, Blibli and Etsy are expanding their e-commerce horizon, while startups like Fastacash, Xoom and GoSwiff and many more are trying to grab a position in the payments infrastructure.
In a series of studies conducted, NPS (Net promoter score), which is a measure of customer advocacy was analyzed for key players in the online retail industry in each country. Local and regional players earn higher on this scale as compared to global retailers like Amazon and E-bay. In Indonesia, local e-retailer Takopedia earned a NPS of 7 whereas Amazon scored a negative 24 while in Malaysia, regional giant Mudah scored an NPS of 12 while E-bay managed a negative 7, implying that it has more detractors than promoters. These local and regional players stand out as they greatly adapt their services according to their consumers. Lazada added motorbike fleets for speedy local delivery, whereas in Thailand chat app Line introduced mobile shopping with next day delivery and expanded the payment options to suit its customer.
In a fast-changing market, innovative strategies are quickly changing the rules of the game. Retailers are experimenting with more efficient physical and digital channels such as pop up stores, as seen in the Singapore, Hong Kong, Malaysia, and Philippines by online fashion retailer Zalora which opens stores across the country for a limited time to introduce its online customers to the products. Social media companies are also not behind in innovations as seen by Instagram, which aggregated the products of sellers. Moreover, Global giants like Amazon and Alibaba, which previously had no major participation here due to complications and fragmented markets, are now investing in the region.
So, what can companies do to be the key player in the Southeast Asian market? The market here is approaching a tipping point with a fully evolved ecosystem. It is no longer a market of small experiments and small bets. In this region, ecommerce players need to think big yet recognize segmented markets requires deeper knowledge of consumer buying behavior in each respective country. Companies must choose a local partner wisely to serve major market categories and geographies. The opportunity is there and ecommerce in Southeast Asia is still in its infancy. So look forward to what is coming – better deals, improved customer service, more variety and faster home delivery.