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Founder and CEO of Molzi.
Today’s e-commerce landscape is almost unrecognizable compared to how it looked just over a year ago. The pandemic has caused online retail to step into the spotlight and become a necessity for many brands. Online retail sales as a percentage of total retail sales were sitting at around 19% in February 2020. A year later, it had skyrocketed to close to 35%.
The rise of e-commerce has brought about many changes, most of which are happening behind the scenes. This article shines a light on just a few of the significant changes I have witnessed and the lessons we can learn from them.
Supply Chain Disruptions
It wouldn’t be right to discuss the past year of e-commerce without delving further into the retail market. The shift toward e-commerce is nothing new; traditional retail has been under extreme pressure for years. Before the pandemic, there was always talk about how retailers needed to create in-store experiences to slow down the tide. But many consumers have resolutely disagreed: They want choice and convenience. And this is where e-commerce excels.
While global lockdowns forced brick-and-mortar stores to close, shoppers began buying trampolines and bakeware, and online retailers were busier than ever before. Traditional retail was on pause, but e-commerce was on fast forward. I can’t count the number of times I’ve heard people recall that their previously skeptical parents or grandparents were forced to use Amazon for essential purchases during the lockdown and now get packages through the door every other day. This is arguably more damaging for traditional retailers than the store closures themselves.
There is no better word to use to describe the uptick in complete sell-outs on Amazon in the spring than the 2020 buzzword, “unprecedented,” as April revenues soared beyond even the previous Christmas period. However, no part of the supply chain was prepared for such a surge in orders, and brands began to experience stock shortages and reduced production capacity. The reality is, although many brands have made huge Amazon gains over the past year, I believe very few have captured the full potential they could have experienced without the supply chain hiccups.
A year later, supply chains are only starting to recover, and this will give brands the opportunity to reach full potential and have a chance of matching March and April 2020 revenues.
Brands should have learned a valuable lesson from these supply chain disruptions. In a time of huge e-commerce demand, it is not glamorous content creation or advertising that pushes sales. Instead, the logistics and inventory teams are the real heroes that ensure the brand is able to capitalize on the increase in demand. It is essential that those managing ad campaigns for a brand are involved with the operational performance of the account, or companies will risk wasting a lot of money and missing a lot of opportunities.
Fulfillment By Amazon
One of the most fascinating trends to rear its head over the past year has been the vast amount of money that is being thrown at companies that focus on fulfillment by Amazon (FBA) businesses. Thrasio made the concept popular, but since then, almost every week, there has been another company replicating the same model and relatively easily securing 8-figure sums to start making acquisitions.
But it’s not as simple as raising money and hoping to ride on Amazon’s coattails. The Amazon platform can be an enigma even to experts but more so to those who don’t know the intricacies inside and out. Part of Thrasio’s success stems from their investment in specialist teams that can grow the businesses they buy. Meanwhile, their competitors are rushing to build teams that aren’t quite fit for purpose.
There have been countless companies attempting to capitalize on e-commerce’s booming success, but unless they build a genuine knowledge of platforms like Amazon, they risk quickly disappearing.
The Future Of E-Commerce
E-commerce is showing no signs of slowing down in 2021: Amazon’s latest earnings call revealed another bumper quarter for the Seattle-based giant, topping $1 billion in revenue for the second quarter in a row.
But competition for brands is huge, both from recently reopened brick-and-mortar stores and from the countless other businesses that flocked online to stay afloat during the pandemic. E-commerce managers already need to be looking ahead to the next big trend to stand out from the crowd. This ever-changing industry can be tricky to master, but those who strive to become true experts will be able to reap rich rewards.
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Co-founder and CEO of Choco Up, one of Asia’s leading revenue-based financing and growth platforms.
Staying on top of e-commerce trends is not an option — it’s a necessity.
For e-commerce business owners, keeping abreast of industry trends is particularly important for you to stay competitive and identify new opportunities.
As the past year draws to a close, this article highlights three e-commerce trends to watch in 2022. I also discuss challenges ahead and how to overcome them. Let’s get started.
Trend 1: The e-commerce landscape is getting more competitive.
According to a recent industry report, e-commerce will account for 20.4% of global retail sales by the end of 2022, up from only 10% five years ago. In other words, the e-commerce space is becoming more crowded.
The rapid growth of e-commerce can be attributed to many reasons — Covid-19 being a major one. In times of uncertainty, fears of the virus and stay-at-home policies have driven changes in consumer behavior, bringing offline footfall to online stores. Large numbers of e-commerce businesses emerge as the times require.
The Challenge: Increasing Advertising Costs And Reduced Campaign Effectiveness
The Way Forward: Maximizing Your Customer Lifetime Value To Customer Acquisition Cost Ratio
Apple’s advocacy for privacy and Covid-19 aren’t going anywhere soon. Against this backdrop, e-commerce companies have started exploring new and unsaturated marketing channels. Snapchat and TikTok are popular options to this end.
Amping up efforts on customer retention is another way out of this difficult situation. As customer acquisition costs continue to rise, maximizing customer lifetime value helps maintain profitable margins for your business.
Trend 2: More e-commerce businesses go global to overcome growth bottlenecks.
Total addressable market (TAM) is a common limiting factor of growth. As businesses reach their growth limits in the domestic environment, the world will see more e-commerce brands expand into the global stage.
The Challenge: Navigating Through Obstacles Of Foreign Expansion
The path of international business expansion will not be frictionless. Inadequacy of funding, for one, would limit growth opportunities.
Besides, competition and talent acquisition in an unfamiliar market would pose challenges to the management. Cross-border supply chains could be tricky to manage, too.
The Way Forward: Planning Ahead To Prepare For Growth
There are many ways to grow a business. Apart from internationalization, you could also work on product development and market penetration.
Regardless of the route you take, some considerations are pertinent: When will you expand? How will you do it? What resources will you need? These are serious questions to ponder.
Trend 3: Conventional financing methods will take a back seat.
Alternative financing is gaining popularity among e-commerce companies. Instead of taking out loans or trading equity for investors’ money, many businesses now prefer other means of cash injection, such as revenue-based financing (RBF) and inventory financing.
• Bank loans are time-consuming to apply for.
• They don’t have eligible assets (e.g., cars or property) to pledge as collateral for loans.
• Loan repayments in fixed installments would put pressure on their companies’ cash flow.
Equity dilution is also a common concern among founders who didn’t opt for angel investments or venture capital. After all, giving away equity is expensive.
The Challenge: Weighing The Pros And Cons Of Alternative Financing
A broad range of financial instruments, tailored for the needs of new-age businesses, have emerged over the past decade. E-commerce owners will need some time to familiarize themselves with these financing solutions.
There are both pros and cons to this approach. On the plus side, repayment is flexible. Yet, your business must have recurring revenue in order to use revenue-based financing. These are some aspects to consider before choosing a financing solution for your company.
The Way Forward: Exploring Alternative Financing Solutions To Fuel Business Growth
Market research showed that in 2021 Q2 alone, funding acquired by e-commerce companies worldwide totaled US$16.8 billion. That is a five-time increase compared to the same period in the prior year.
Evidently, e-commerce companies are poised for growth and challenges ahead. As traditional forms of financing cannot aptly address these companies’ needs, alternative financing is here to stay.
Some Last Words
A quote from The Art of War, China’s monumental treatise on warfare goes like this: «Know the enemy and know yourself; in a hundred battles you will never be in peril.»
The 2,000-year-old wisdom still applies in the business world today. Know yourself and your rivals, or you risk losing the e-commerce battle.
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Co-Founder and CEO at Intelligence Node, serving AI-powered e-commerce insights from the world’s largest retail database.
Shopify has been making waves these past couple of quarters due to its unprecedented growth amidst what was one of the most disruptive years for the retail economy. With thousands of businesses migrating to e-commerce as social distancing and quarantine procedures started to slow down traditional retail, Shopify became a go-to platform with its highly diverse and easy-to-use offerings across online and offline retail platforms. It came as no surprise then that Shopify’s revenue grew 96% in Q3 2020 as compared to the same period in 2019. Furthermore, one million merchants in 175 countries generated a whopping $5.1 billion in Black Friday/Cyber Monday sales on Shopify’s platform, representing a 76% YoY increase.
Shopify is democratizing e-commerce.
Shopify’s business model of providing an all-in-one e-commerce platform aims to help businesses set up their online stores and enable retailers to sell directly to their customers across the globe. Unlike Amazon, which has a reputation for pitting retailers against each other in a price war, Shopify allows retailers to sell online, in-store, on social media or even on-the-go by offering end-to-end services from billing to shipping.
During the Covid-19 pandemic, with the shuttering of brick-and-mortar stores across countries, many retailers had to pivot to e-commerce overnight and Shopify rolled out new features and applications to make the transition to e-commerce easier. Last year, Shopify CEO Tobias Lutke said in a tweet, «Amazon is trying to build an empire. Shopify is trying to arm the rebels.» Shopify lives by this philosophy and is working toward building a more democratic e-commerce environment where even small and medium-sized businesses can thrive and create a unique space for themselves in a marketplace predominantly run by retail giants like Amazon, eBay, Walmart and the like.
As the Covid-19 pandemic disrupted economies across the world and retail sales collapsed, e-commerce grew at an unprecedented level in 2020. To put this growth in perspective, e-commerce sales grew all of 8% over nine years from 2010 to 2019 and then accelerated to 5% growth in just months during 2020, as per the US Department of Commerce.
Social distancing and quarantine measures led to many first-time shoppers getting comfortable with online shopping and the trend will surely continue going forward. In fact, per a recent Intelligence Node survey, 72% of consumers plan to shop online as much or more in 2021 as they did this year. These growth figures emphasize the enormous role the pandemic has played in further accelerating e-commerce adoption and subsequently in the growth of e-commerce businesses and platforms like Shopify.
Shopify is a testament to the permanent shift in e-commerce, as, amidst the lockdown, Shopify saw a 71% increase in online stores built on its platform in the second quarter of 2020 and has continued to publish enormous growth figures.
As e-commerce continues to grow, the fight to convert today’s comparison shoppers will intensify and retailers big and small will have to strategize smartly to be able to cope.
Pricing is still king.
One key aspect of shopping online is that consumers have access to multiple data points, websites and search engines while making a purchase decision. As per Intelligence Node’s survey of 1,000 US shoppers, 94% of shoppers compare prices at least once in a while, when buying online. Additionally, with recession and the global pandemic affecting jobs and creating a volatile economic environment, shoppers are more sensitive to prices than ever before and look for better pricing options before purchasing an item online. This makes pricing a key player in converting shoppers into loyal customers. Mere product differentiation will no longer make the cut and retailers across e-commerce platforms — including those on Shopify — will have to revisit their pricing strategies to win the race for customer acquisition and loyalty.
The e-commerce space will continue to evolve but one thing that will never change is the comparative nature of shoppers and their eternal quest to find the best prices for their purchases. As a testament to the importance of this behavior, Amazon reviews its prices for millions of its SKUs every 10 minutes in order to ensure it offers the best prices to its competitors.
1. Adopt an omni-channel business approach to offer a unified shopping experience.
2. Invest in automated supply chain and delivery solutions for faster, on-time fulfillment.
3. Analyze consumer data and utilize it to create data-driven consumer experiences.
4. Offer around-the-clock customer support and quick query resolution.
5. Execute a superior loyalty program to retain customers.
6. Curate engaging content and visuals for better experience and higher ranking on search engines.
7. Deploy smart and flexible assortment and pricing strategies to stay competitive.
8. Listen to your customers and adapt to their changing needs to ensure customer satisfaction.
But with so much ambiguity, it’s no wonder that most businesses struggle with where to invest their resources. In fact, the lack of clarity also mistakenly leads many companies to create false perceptions of their need for a digital commerce business model: in 2021, less than two-thirds of small businesses have a website, while 41% of small businesses claim they do not need a website. But with consumers riding the wave and spending more online than ever before, businesses must awaken to the reality.
And so, many companies feel that they are looking in the rearview mirror, trying to distinguish just how many eCommerce models are out there and how to choose the one that is best for their business – the one that will drive that much sought after “seamless customer experience”, AND align with their digital business goals.
But before we get into the models, it is important to ask a few questions first. If the eCommerce trends of 2021 have taught us anything, it is that a good digital commerce strategy starts with the basics. Without solidifying a few simple answers, businesses lack the clarity that is crucial to ensure a successful transformation and create forward momentum.
So, where do we begin? By answering these questions:
- What does your business provide, and how is your product or service unique? Depending on your product, some models will serve you better than others. Build around your existing strengths and the customers that are already energizing you.
- Where are your customers located? Are they both geographically local and online? How will they find you?
With these basic questions answered, we can now move ahead and explore the five different models, breaking them down to help you make an informed and empowered choice. We will be taking a look at:
Let’s dig in!
B2C (Business to Consumer)
Additionally, categories such as grocery eCommerce and delivery rely more heavily on mobile apps to place orders, track delivery routes, text customers, and process credit card payments on the go, benefitting both the consumer and business.
B2B (Business to Business)
A B2B eCommerce model is when an online order or transaction occurs between businesses such as wholesalers, manufacturers, or distributors. Interestingly, there can be a B2C component to B2B models where services are sold to the consumer, but the business is the broker of the products (to another business) and the service (e.g., installation to the consumer). The global B2B eCommerce market was recently valued at $12.2 trillion—or six times as much as the B2C market and continues to see close to double-digit growth YOY.
With those kinds of numbers, it is obvious that B2B is currently a robust market. But what is especially exciting is that it is growing at unprecedented rates as more and more business buyers congregate online. American B2B eCommerce transactions are expected to reach $1.8 trillion by 2023, which would account for 17% of all B2B sales in the country. But it gets even better—it is currently predicted that by 2025, 80% of all B2B sales interactions between suppliers and business buyers will take place online.
B2B eCommerce has the potential to permanently change the playing field for the brands involved. And while B2B has traditionally been more labor-intensive than its B2C counterpart (involving costly manual sales and marketing strategies), eCommerce helps automate and improve efficiency, thereby reducing costs. Much like the individual consumer, many businesses appreciate the simplicity of ordering online as opposed to working with a sales representative. By including smart strategies in your B2B marketing plans, your business can expect to reach a larger audience while participating in one of the fastest-growing markets.
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One of the newer eCommerce business models, a D2C transaction takes place when a manufacturer sells its product directly to the consumer without using a distributor or retailer. This is where the important distinction between D2C and B2C comes in—D2C differs in that manufacturers sell directly to consumers while B2C usually relies on a retailer stepping in between a manufacturer and customers. You can think of D2C as an updated mail order catalog for the digital age.
As we’ve mentioned in the past, D2C is a popular choice for brands that want to enter the market quickly and with a lower entry-level cost. With the rise of eCommerce, more and more businesses are seeing the opportunity to go direct and sell directly to the consumer, thus cutting out the middleman and lowering costs. There has been explosive growth in D2C over the past three years from a high of 57% in 2018. In fact, growth in the D2C market holds great promise for certain consumer segments. While only 4% of millennials prefer D2C brands over traditional retailers, this grows to a whopping 40%-45% for Gen Z-ers. With trends shifting rapidly and younger generations expressing different needs and expectations when it comes to how they prefer to shop, the D2C model should be considered very seriously when looking at your own eCommerce strategy AND the answers to those questions above.
At their most basic level, online marketplaces connect buyers and sellers on a proprietary platform. Most often, the marketplace operator does not hold any type of inventory but rather helps buyers and sellers facilitate a transaction. A marketplace’s operator usually performs tasks such as handling logistics or facilitating payment, thus allowing sellers (merchants) to focus on their core competency: providing customers with the most relevant products.
While it may seem abstract, eCommerce marketplaces play a huge role in the overall eCommerce landscape. These platforms can facilitate tremendous exposure for a company (and the sellers), thus resulting in massive sales. In fact, the average sales price of a third-party Amazon business leaped by about 80% between 2019 and 2020, jumping from $298,558 to $538,742.
Many people are incredibly familiar with the marketplace model in B2C, thanks to AMAZON. Amazon sells other merchants’ inventory (and their own) directly to customers while making 50% of revenue from commissions taken from vendors selling out of the marketplace.
A relatively recent twist on the marketplace model in B2C is typified by etsy.com, where the marketplace operator does not own any merchandise but rather simply offers a platform for other people to use. By doing so, inventory risk is removed, and these marketplace owners make money by taking a commission from each sale.
Covid has demonstrated how critical online consumer services and technology are for many aspects of society and the economy. The continued evolution of marketplace models, with startups colliding with the offline world, speaks to the long-term viability of this model.
Hybrid eCommerce models ultimately unite the best of B2C and B2B into one easy-to-use platform. With such dramatic shifts in eCommerce, companies have been forming strategies to successfully target both markets with their products and services. With the use of a single hybrid platform, companies can streamline their initiatives while effectively targeting both markets—all without duplicating efforts and wasting valuable time.
A successful hybrid eCommerce platform offers businesses a streamlined view of customer data from a single dashboard. Businesses can track customer journeys and interactions. Marketing teams and merchandisers can then utilize this data to gain a holistic view of B2C and B2B customers across multiple channels.
Creating and maintaining separate content and product catalogs for various eCommerce platforms is expensive and inefficient. A hybrid eCommerce platform relieves businesses of content duplication—it offers a single source of truth to deliver content and data to various teams. Even though target markets between B2B and B2C differ significantly, product information is identical across channels and can be used universally with a hybrid eCommerce model.
Identifying your eCommerce business model gives you a distinct advantage over your competition. Once you have identified your target market and the business model that best meets your needs, you can focus your marketing efforts and fine-tune your business initiatives to maximize returns and expedite growth.
There is great insight in better understanding the five eCommerce business models. And while growth in D2C eCommerce has slowed in the US, its expected growth of almost 20% YOY is not to be ignored. Similarly, B2B revenues are on the rise, with an anticipated growth of 9%. Both Marketplaces and Hybrids are gaining momentum and will likely become permanent fixtures in the eCommerce business model landscape.
When all is said and done, a key component of your eCommerce strategy is determining the best model that best fits your business. It should focus on the customer experiences and your internal goals and objectives, not just today but with an eye toward the future.
The past few years have been transformative for the e-commerce industry, with the COVID-19 pandemic leading to a surge in online shopping. This has resulted in the global e-commerce sales exceeding USD 5.211 trillion, according to Statista.
As we look towards the year 2023, it is important for online retailers to keep up with the latest e-commerce trends in order to stay competitive and attract new customers. In this article, we will identify the top e-commerce trends for 2023 and provide actionable insights to help you optimize your online store for maximum conversion rates and customer retention.
The COVID-19 pandemic has also accelerated the adoption of new technologies, such as AI and AR, which will play a crucial role in shaping the future of e-commerce. By embracing these technologies and incorporating them into their e-commerce strategy, retailers can offer a more personalized and immersive shopping experience, leading to increased customer loyalty and higher sales.
To help you navigate these trends, we have created an informative infographic summarizing the key takeaways. So, whether you’re just starting out in e-commerce or looking to take your online store to the next level, this article will provide you with the insights and inspiration you need to succeed.
#1 Personalization through AI
If an email is not personalized, 52% of consumers indicate that they would seek their desired products or services elsewhere.
With AI-powered personalization, retailers can deliver more relevant experiences to their customers. By 2025, it is estimated that the global market for AI in retail will reach $19.9 billion.
According to McKinsey, 71% of consumers expect a customized experience when they shop, and 76% of them feel frustrated when this is not the case. According to the study, companies that excel at customisation processes generate an average of 40% more revenue than their competitors.
#2 AR and VR
Augmented Reality (AR) and Virtual Reality (VR) technologies are becoming increasingly popular in the world of e-commerce, and for good reason. They offer an immersive and interactive experience for customers, allowing them to visualize products in a way that was previously impossible.
By leveraging these technologies, retailers can provide their customers with a more engaging shopping experience, resulting in increased brand loyalty and higher sales. It is predicted that the VR retail solutions market will grow to approximately $5.5 billion by 2028, whereas the AR retail market is projected to reach around $6.7 billion in size.
#3 Subscription models
The subscription-based business model has seen remarkable growth in recent years, with McKinsey reporting an annual growth rate of over 100% for the subscription e-commerce market over the past five years.
This surge in popularity can be attributed to the convenience and personalization that subscriptions offer to customers. Subscription-based businesses can provide a consistent revenue stream and foster long-term customer loyalty.
Customers also benefit from the convenience of having products delivered regularly without having to worry about reordering. As the e-commerce landscape continues to evolve, subscription-based businesses are likely to remain a popular option for both consumers and retailers alike.
#4 Understanding of customers’ beliefs
According to a recent study conducted by NielsenIQ, 78 percent of consumers in the United States consider a sustainable lifestyle to be significant. It is important for companies to understand their customers’ beliefs and values to create more meaningful connections with them.
By aligning with customers on social and environmental issues, companies can build trust, loyalty, and a sense of community with their audience. Moreover, it can enhance brand reputation and increase sales. Therefore, companies that prioritize sustainability and transparency in their operations and communication can benefit from a competitive advantage in the market.
#5 Conversational marketing
Conversational marketing is a growing trend in the e-commerce industry, leveraging technology such as chatbots, messaging apps, and voice assistants to interact with customers in a more personalized and engaging way. This approach allows for real-time, two-way communication between brands and customers, enabling businesses to address customer needs more effectively and build stronger relationships.
Re-commerce, the practice of reselling used goods, is becoming a mainstream trend. As consumers become more conscious of the environmental impact of fast fashion and fast consumption, they are turning towards buying and selling used goods.
A report by ThredUp reveals that the resale market is projected to reach $64 billion by 2024, a huge increase from its current size. The report also shows that the resale market is growing 21 times faster than the traditional retail market. With the rise of online marketplaces for secondhand goods, re-commerce has never been more accessible, convenient, and profitable.
Buy online, pick up in-store (BOPIS) is a shopping model that allows customers to purchase products online and pick them up in-store, saving time and hassle. BOPIS has become increasingly popular in recent years, and its popularity skyrocketed during the COVID-19 pandemic when customers were hesitant to enter stores.
According to a report by Adobe, BOPIS orders increased by 259% year-over-year in May 2020. This trend is likely to continue as consumers seek out more convenient and contactless shopping options. Retailers that offer BOPIS can benefit from increased foot traffic and customer loyalty, making it a win-win for both customers and businesses.
Sensory shopping is an emerging trend in the retail industry that allows customers to experience products through all five senses, resulting in a more immersive and memorable shopping experience. This approach aims to stimulate emotions and create a stronger emotional connection between customers and brands.
According to a report by ResearchAndMarkets, the sensory marketing market is expected to reach $62.8 billion by 2025. This growth can be attributed to the increasing demand for unique and personalized shopping experiences that go beyond traditional retail environments.
Sensory shopping is set to play a key role in shaping the future of retail, providing brands with a competitive edge in the crowded e-commerce landscape.
#9 Unified commerce
Unified commerce is a retail strategy that seeks to provide a consistent and seamless shopping experience across all channels. It aims to break down the silos that exist between different sales channels, allowing customers to seamlessly move between them as they shop. This can include online, mobile, and in-store channels.
According to a report by MarketsandMarkets, the global unified commerce market is expected to reach $3.07 trillion by 2023, growing at a compound annual growth rate of 25.2%. This growth can be attributed to the increasing demand for a more integrated shopping experience and the adoption of new technologies that enable retailers to achieve this goal. By adopting a unified commerce approach, retailers can improve customer satisfaction and loyalty, as well as increase sales across all channels.
#10 OOH Delivery
Out-of-home (OOH) delivery is a growing trend in the world of e-commerce, as consumers seek more convenience in their shopping experiences. OOH delivery refers to the delivery of products to public locations such as parks or offices, making it easier for consumers to receive their purchases without having to be at home.
According to a report by McKinsey, 60% of consumers are willing to try OOH delivery. This trend is expected to continue to grow in popularity as more retailers and delivery services adopt this model, offering greater flexibility and convenience for consumers.
First-Mover Advantages & Increasing Sales in the Ecommerce landscape
Taking a closer look at Brazil, the region’s largest domestic economy and the biggest e commerce growth in Latin America: it is home to over 207.5 million residents and has an area that covers over half of the continent of South America.
In 2017, Brazilians spent USD 2.7 billion purchasing from cross-border ecommerce sites as reported in the WebShoppers 2018 edition, supported with data collected by Ebit. The report also calculated that over 55 million Brazilians made at least one online purchase throughout the year, which was an increase of 15% compared to 2016. This trend is set to continue as more merchants enter the ecommerce market offering a wide range of products and services, coupled with accepting local payment methods.
Supported by the high e commerce sales volume in Brazil, Mexico and Argentina, the entire region of Latin America is on track to surpass USD 84.75 billion in online sales by 2019, according to Statista.
Selling to the Fullest Potential in Latin America
For merchants interested in the immense growth potential regarding ecommerce in Latin America and what it offers, it is important to understand and adopt cultural purchasing preferences. This includes gaining consumer trust by offering local payment methods. It involves accepting alternatives such as cash payment options, domestic credit cards and providing installment purchasing plans, as the payment strategies that support for strong ecommerce sales in North America and Europe, often do not work in this region.
Today, around 49% of the adult Latin American population is unbanked, according to 2015 data of the World Bank. Therefore, these individuals have no access to credit cards and without the ability to pay with local payment methods they are unable to make ecommerce purchases. Cross-border ecommerce merchants must take into consideration the risk of losing these customers.
Adding fuel to the fire, banked Latin Americans with credit cards often experience their attempts to pay for cross-border ecommerce purchases declined. This is due to limited card permissions, which restrict card transactions for only domestic purchases. Eager consumers throughout the region have the money to complete their purchases, but no way to pay merchants that only accept credit cards that transact internationally.
However, the demand for popular cross-border products and services, such as fashion and accessories, music streaming, electronics, unique accommodations and experiences while traveling, appliances, online gaming subscriptions and health and cosmetic products continues to grow.
Today, merchants who enter the Ecommerce Landscape in Latin America with a payment strategy that supports cultural preferences ensure market access to the entire population. The solution to a successful market entrance in Latin America relies on offering local payment methods which include:
- Accepting cash/voucher payments;
- Enabling bank transfers;
- Providing the option to pay in installments.
Adopting these culturally specific payment preferences is a market entrance strategy on the Ecommerce Landscape in Latin America that cannot be stressed enough because ecommerce merchants who enter the region only accepting international credit card payments instantly limit their market.
Ecommerce landscape in Latin America and Local Payments
Regardless of bankarization, one-hundred percent of the population can access and pay using cash/voucher payment methods. Consumers in Latin America trust this local payment method, as they have been using it to pay for household utility bills and government taxes for years. Merchants also benefit by accepting this payment method as it is chargeback free.
As strange as it may seem for those who have used credit cards or e-wallets for as long as they can remember, Latin Americans have a preference to pay with cash/voucher payments for ecommerce purchases.
The process includes generating a voucher or numeric barcode and physically going to a bank or an authorized payment location such as a kiosk, lottery store, supermarket, or gas station to pay the balance. Additionally, some consumers generate their cash payment voucher and then complete the payment process through online or mobile banking apps. With both options, consumers remain in control of their personal and financial data, know the total amount to be paid and receive instant confirmation of their completed payment.
Some of the most popular and trusted cash payment methods in Latin America are:
- Boleto Bancário in Brazil;
- OXXO voucher in Mexico;
- Cupón de pago paid at Pago Fácil, Rapipago and Cobro Express in Argentina;
- Vía Baloto in Colombia;
- Sencillito and Multicaja in Chile;
- Pago Efectivo and Safety Pay in Peru
Some of the most popular and trusted cash payment methods in Latin America. Source: EBANX
Interestingly, a survey conducted by EBANX in July of 2017 showed that consumers in Brazil view paying with the Boleto Bancário as a preference and not only an alternative payment method used by the unbanked population. Even those with access to financial services and credit, choose to complete their ecommerce payments with cash/vouchers.
The Time to Expand on the Latin America E commerce landscape with a Local Strategy is Now
Expanding on the Ecommerce Landscape in Latin America has never been easier for digital merchants. With the ability to understand how customers purchase and meet their desires with popular products and services, the time for Latin America is now. With local partners, the Latin American ecommerce market, inclusive of local purchasing and payment preferences is your company’s next big market.
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Southeast Asia (SEA) has all the elements for explosive e-commerce growth: a huge population driving high consumer purchase activity, improving digital and financial inclusion metrics, and start-ups facilitating easier online consumption activity. The ongoing pandemic forcing Southeast Asian countries to implement their own quarantine protocols also furthered the growth of this sector.
According to the most recent study of Google, Temasek, and Bain & Company, the SEA e-commerce market grew 63% from 2019 to 2020 and is seen to grow at 23% CAGR from 2020 to 2025. The top countries in the study are Indonesia, Vietnam, and Thailand.
The biggest markets in SEA are Indonesia, Vietnam, and Thailand
SEA E-commerce Value Chain
The figure above shows how the e-commerce value chain works, particularly in SEA, from the sellers down to the buyers. The sellers peddle their products through online platforms, and they need to build relationships with payment systems and logistic companies for buyers to purchase and receive their products. Warehousing and fulfillment are mostly done by either the seller or the logistics facility.
It is also important to note that Amazon is a popular e-commerce platform in SEA. This means that Southeast Asians have a substantial cross-border online shopping appetite.
Shopee and Lazada lead the race for online marketplaces
Social commerce is an emerging channel in e-commerce, and it is powerful in SEA, with Thailand, Vietnam, and Indonesia as the top markets. Social commerce delivers quick and personalized experiences that SEA consumers want. Through social commerce, consumers gain the ability to customize products, bargain, and ask for advice and clarification on products in a very efficient manner.
Social commerce is a new growth channel for online retailing
According to a study done by iKala in 2020, consumers in Southeast Asia find it quick and easy to shop via social media channels leading to growth in both the number of orders and gross merchandise value (GMV).
Social commerce is growing exponentially in Southeast Asia
Social commerce is not showing any signs of slowing down that there are now startups taking advantage of this trend. KitaBeli, for example, is an app-based platform that offers group-buying solutions, and Chilibeli, an online community-based platform offering agricultural products.
After transacting online, either through social or online commerce, the next step is paying for your purchase. In SEA, cash is still king, with most online purchases still paid via cash-on-delivery (COD). However, there is an increasing trend of SEA consumers using digital channels for their payments mostly through bank transfers and credit cards. Digital wallets are also gaining traction and are seen to be used more in the future.
Cash-on-Delivery is still the preferred payment method in Southeast Asia
Last Mile Logistics
The last step in the value chain is last-mile logistics, including warehousing, fulfillment, and delivery. The last-mile logistics industry is enjoying the growth of e-commerce. As more buyers are purchasing online, more parcels need to be delivered.
As shown in the value chain illustration, the winner in this industry is the logistics company with the strongest relationship with e-commerce marketplaces and platforms. Logistics companies are very dependent on the volume assigned to them by the online marketplaces. The more volume given to them by marketplaces, the more parcels they can deliver. And if less volume is given, this can result in tremendous losses for the company.
With the huge volume of online orders, marketplaces and merchants are overwhelmed. They cannot keep up with the fulfillment, online store management, customer service, marketing, and other facets of online selling. This is where e-commerce enablers step in. E-commerce enablers assist merchants and marketplaces in the online selling activity. It can be through software services (e.g., analytics, marketing) or ancillary services (e.g., fulfillment, warehousing). The value chain I had shown before showed the top enablers that provide ancillary services.
Eating the Value Chain
The super ecosystem is a recent trend being done by the top SEA e-commerce startups like Lazada, Shopee, and Tokopedia. These start-ups eat up and down the value chain to get more value from their consumers and improve their margins. Lazada, Shopee, and Tokopedia are doing this by creating super apps, a one-stop-shop app. Using their apps, consumers buy, pay, and track their delivery. There is no need to use other apps for payment and delivery, making online shipping very easy and efficient.
The apps of Shopee, Lazada, and Tokopedia all have online marketplaces, e-wallets, delivery tracking, and even games
The super ecosystem created by the top SEA e-commerce brands might spell a disaster to startups down the value chain, most especially to logistics. If these three will be able to fulfill all of their online orders and process payments there will be no need for third-party companies to provide such ancillary services.
About Rocket Equities
Rocket Equities, a corporate finance and M&A advisory firm for fast-growing mid-sized companies in Southeast Asia.
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Ecommerce is a goliath industry. Ecommerce is constantly evolving and ever-changing. As such, there are abundant opportunities, but it can also be easy to be left behind! Despite its harsh nature, the industry is growing. There has been a fast increase in ecommerce specific events, like Supercharged Commerce and ecommerce Show North, suggesting that traders are starving to grow their retail tool kit. Thus it is no wonder that people are always requesting about the future of ecommerce.
Global ecommerce sales amounted to nearly 3.5 trillion dollars worldwide in 2019, proving ecommerce is a productive option in this digitized world. That’s something big, and the good news is that it surely isn’t a fresh trend. There’s been an average growth rate of 25.6% in ecommerce sales over recent years. That’s evidence, if you ever wanted it, that ecommerce is booming, and it has been for a while. It’s too an industry that is ever-changing. Trends are continuously shifting in an attempt to shape the way that people in every single corner of the globe buy products.
No wonder, this crisis has created a very tough business climate. Companies are being presented with several different challenges as worldwide borders close, bricks-and-mortar companies closed their doors, and people are told to quarantine at home. A lot of companies face provisional or even permanent closures, with staff facing months of financial uncertainty.
Changes To Ecommerce Traffic
We have previously seen big changes in search behavior in the Fashion domain. It’s not rare for fashion brands to have a noteworthy proportion of their traffic coming through branded searches. In an example mentioned below, we can get to know how one UK-based fashion shop’s search traffic drop by about 40% after new actions were presented in mid-March to fight the COVID-19 virus (we’ve seen some other fashion brands fall by as much as 70% in the same time).
Why Invest In Ecommerce Now?
We’re seeing that ecommerce business is growing right now, and the accessibility to consumers coupled with the analytics it delivers to businesses means the trend is going to stick.
It can’t be overstated that the ability to capture and serve clients online is important to business success and durability. It was already true before the catastrophe and is proving to be even extra true now. And that goes for most of the business — retail, small business, big enterprise, and business to business (B2B). B2B ecommerce is likely to be the major area of ecommerce growth amid 2020 and 2025 and two times greater than B2C in 2020, according to Forbes.
If ecommerce website development is more of a sidebar in your business policy or nonexistent, now is the time to revolutionize and rapidly build and deploy an online service offering that will get you through this catastrophe and eventually become part of a well-integrated Omnichannel method.
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Although it may appear like a scary undertaking right now, the silver lining is that numerous ecommerce and website CMS providers are offering additional features and provisions to make the process smoother and aid businesses going through a hard time.
Some other benefits of ecommerce to consider:
- Convenience: Your clients can purchase from you 24/7, from anywhere. It’s simple to find, link, and select products.
- Speed: It’s a lot quicker and simpler to set up and manage than B2B wholesale business.
- Cost: The working costs are also lower than with physical vending, and you can deliver better quality service for less.