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8 trends set to shape Southeast Asian e-commerce

Southeast Asia’s e-commerce market is set to exceed US$102 billion by 2025, according to a study by Google and Singapore’s Temasek.

As more and more consumers are attracted to shopping online for convenience and they build trust in the channel, investors in the e-commerce industry are gaining confidence and seeking opportunities. That helped startups raise and estimated $9.1 billion in the first half of last year, almost as much as for the whole of 2017.

If last year was dubbed ‘The Year of E-commerce’ for Southeast Asia, what can the industry expect this year? We speak to industry leaders to discover the anticipated trends for online retailers and brands in Southeast Asia.

  1. Brands shift their focus from data gathering to data use

The biggest differentiator between online and offline retail is the ability to track, collect, monitor, and manage information, all in real time. Through online channels, brands are able to access customer data through chats, social media, and their own websites. This information can be used to devise online strategies. Globally, 73 per cent of brands plan to allocate their e-commerce budget on data and analytics services this year.

However, despite general agreement of its importance, many brands have no concept of how to use data to their advantage.

“Even today, not all retailers have embraced data fully to the point where they think of themselves as data companies, and this might be why many companies are suffering,” observes Harvard Business School Professor Srikant M Datar.

Data collection is easy but having and optimising the analytics capability to use it is a completely different ball game.

A survey by ecommerceIQ identified data analysis as one of the most difficult skills to find among the digital talents in Southeast Asia. Brands are constantly searching for data aggregators to consolidate information into one place for convenient retrieval and use to target, retarget, and personalise products and services.

Reagan Chai, head of regional business intelligence and business development at Shopee told ecommerceIQ that data acquisition enables the company to map out and optimise buyer and seller user experience while pre-empting customer demand and anticipating future potential. The company has seen an increase of website traffic in the past year that even surpasses the other regional players.

In China, Alibaba and JD have taken this a step further by using the data gathered online to improve inventories and experiences at their physical stores. Alibaba chief marketing officer Chris Tung said the company wants to help brands find the right consumers by tracking them throughout Alibaba’s system.

“We’re finding all data that has to do with people, their behaviour, what they like, what they buy and binding this online data to real people,” concluded ChrisTung.

Last year, the region’s leading brand ecommerce enabler, aCommerce, launched a data analytics platform BrandIQ to enhance their capabilities as a data partner to help brands centralise their customer data and offer customised products or services to each target group.

The capabilities of BrandIQ that aim to enhance brands’ performance on online marketplace. BrandIQ
The capabilities of BrandIQ that aim to enhance brands’ performance on online marketplace. BrandIQ.

This leaves brands with two options: find an economical way to use the data or continue looking for a needle in a haystack.

  1. Social-commerce channels are brands’ new sales outlets  

Social commerce in this region boomed before the rise of e-commerce as we know now. Facebook groups have long established as an online space where people connect to buy and sell goods, even before the launch of Facebook’s Marketplace feature. The rapid growth in Southeast Asia is propelled by the mobile adoption and smartphone, where 90 per cent of the online population access the internet via smartphones. For some, Facebook even defines the internet itself.

With multitudes of potential customers gathered via social media platforms, brands naturally saw alternative sales channels. Following Facebook’s footsteps, social platforms like Instagram and Pinterest have also developed their own shoppable features.

“Brands will miss out if they don’t have a social media presence. The best way to get feedback from consumers is by having a direct conversation,” Deb Liu, VP at Facebook Marketplace in an interview with Forbes.

Line recently acquired social-commerce management startup Sellsuki in Thailand, where it has the second-biggest user base, to build a strong foundation for its e-commerce business. The company has also formed a joint venture with three local banks to offer personalised loans to SMEs.  

A few big brands like L’Oreal have already equipped their social media page with ‘Shop’ feature that allows consumers to purchase the order directly on the page and it is only a matter of time before more brands activate the platforms as one their sales channels and remove another layer between them and the consumers.

Consumers can purchase L’Oreal products on their Facebook page assisted through the Messenger app until the checking out process. L’Oreal Thailand.
Consumers can purchase L’Oreal products on their Facebook page assisted through the Messenger app until the checking out process. L’Oreal Thailand.
  1.  E-marketplaces launch new services to differentiate

Looking at the successful existing e-commerce players in more developed markets, one thing they have in common is full control over their supply chain.

JD’s investment to the development of its own supply chain allows it to scale its technology and offer a Retail-as-a-Service proposition to help other retailers or brands sell online. Alibaba is unrivalled for its extensive ecosystem beyond commerce, including its logistics network Cainiao and payment firm Ant Financial, not to mention its recent foray into the entertainment industry.

The same practice has infiltrated down to Southeast Asia where Alibaba subsidiary Lazada has strengthened its logistics arm FBL (Fulfilled by Lazada) post-acquisition, and although no concrete plans have been disclosed, Shopee has expressed an intention to build its own logistics network.

More e-marketplaces are coming up with new services to get more sellers onboard. Singapore’s Qoo10 is set to launch its blockchain-based ecommerce site QuuBee this year, using blockchain technology to eliminate the transaction and listing fee which in turn increase the retailers’ profit margin and make a more sustainable commerce approach.

In Indonesia, Tokopedia is set to offer “Infrastructure-As-a-Service” with a fresh funds injection of $1.1 billion. It also plans to use AI for customer-care services and to run credit checks on merchants seeking loans to expand their businesses.

Facebook is also showing more intention to jump onto the region’s e-commerce bandwagon. The social network has launched Marketplace feature in Thailand and Singapore without much fanfare, but its recent partnership with Kasikorn Bank in Thailand to allow in-app payments might be the start of the company’s effort to bulk up its commerce capabilities and cater to those that use the platform for their business.

Facebook partners with Thailand’s Kasikorn Bank to enable transfers and card payments on chats from Facebook Messenger. Facebook.
Facebook partners with Thailand’s Kasikorn Bank to enable transfers and card payments on chats from Facebook Messenger. Facebook.

The practice is not exclusively done by the general e-marketplaces. Fashion e-marketplace Zilingo scored $226 million in funding due to its focus on building a fashion supply chain network that any merchant – small or large – can tap into.

“It is imperative for us to build products that introduce machine learning and data science effectively to SMEs while also being easy to use, get adopted and scale quickly,” said Zilingo CTO Dhruv Kapoor in an interview with TechCrunch.. “We’re rewiring the entire supply chain with that lens so that we can add most value.”

In a bid to recruit more brands to sell on their platforms, we anticipate that e-marketplaces will continue to go head-to-head with each other through new services, acquisitions, and partnerships. But are the e-marketplaces ready to burn more cash to win in this battle?

  1. Brands to reinforce reviews and fund user-generated content to win e-commerce consumers

E-marketplaces in Southeast Asia have been upscaling and building add-ons which provide consumers with the utmost convenience. The search for better technology and assistance for the consumers is constant and never-ending.

Lazada has introduced an AI-powered image search feature onto its platform which allows shoppers to take a picture of an item and let the platform suggest similar available items. LiveatPC .
Lazada has introduced an AI-powered image search feature onto its platform which allows shoppers to take a picture of an item and let the platform suggest similar available items. LiveatPC .

Online consumers begin their online purchasing journeys by searching for product information or reading reviews, usually on e-marketplace platforms, before making their purchase decision. They are looking for real opinions and user-generated reviews to validate the products.

The habit of leaving product reviews on an e-commerce platform is not as common in Southeast Asia as it is in the US where Amazon even has a dedicated page for its most prolific reviewers. When they do, the reviewers usually left little information about the product and more about the other aspect of the purchase (for example, comments about the delivery time or packaging).

Platforms like ReviewIQ are used by brands to increase their ratings and reviews engagement on their e-marketplace listings to help consumers make their decision. While the use of chatbots is an increasingly popular solution to help smooth the online customer experience, it is more suitable for generic questions such as “where is my order?” or “is this product available?” instead of personalised questions such as “will this lipstick look good on a yellow-undertone skin?”.

Community-crowd models like one popular with travel platforms such as Airbnb might also be suitable for e-commerce in the region, to help consumers overcome their apprehension about online shopping. This is something that Edouard Steinert, aCommerce Thailand’s director of channel management, is investigating to help the company’s clients as this model has proved to save time, increase results, and keep costs low.

“Consumers today want to hear genuine feedback and reviews about a product and they are becoming more averse to hard-sell methods. User-generated reviews, especially from people who share the same passion with them, drive better conversion for the brand,” he adds.

  1. Brands use direct-to-consumer strategies to acquire direct consumer data

Some 89 per cent of companies are now competing mostly on a customer-experience playing field. The direct-to-consumer (DTC) approach is becoming more important for these brands because it allows them to gain insights into their end users and anticipate their needs.

One trend observed among brands to promote DTC is e-commerce subscriptions. From a consumer perspective, subscriptions offer a convenient, personalised, and often cheaper way to buy what they need. For brands, it is a subtle method to create customer loyalty in the digital landscape.

One brand adopting subscription e-commerce in the region is Nescafe Dolce Gusto, which offers free coffee machines in exchange for a minimum 12-month subscription of coffee. Besides witnessing sales growth, Nescafe Dolce Gusto also noticed that consumers continued to purchase goods from its brand despite dropping out of the subscription plan.

“They may have dropped out of the subscription, but not the brand,” says Bhuree Ackarapolpanich, brand director & digital expert at Nescafe Dolce Gusto. “They still buy capsules from different channels: e-commerce websites, online marketplaces and supermarkets. A subscription strategy is not just a long-term consumption enabler but also a consumer acquisition channel for the whole brand,” he says.

Acommerce’s regional director of project management, Mandy Arbilo said e-sampling is a popular strategy used by brands to evaluate demand, especially for e-commerce.

While normal sampling techniques used by offline retailers are expensive, e-sampling saves brands up to 40 per cent as well as providing essential customer data.

Mars Petcare is one of the e-sampling pioneers for aCommerce. The campaign prompted up to 25 per cent of pet owners to try Pedigree. aCommerce.
Mars Petcare is one of the e-sampling pioneers for aCommerce. The campaign prompted up to 25 per cent of pet owners to try Pedigree. aCommerce.

As DTC becomes widely adopted, consumers will see brands coming up with attractive gimmicks using digital tools to gain insights and entice consumers to spend more on their brands.

  1. This year will finally see regulation of e-commerce across the region

E-commerce has remained largely unregulated across the region until now, but as the industry grows, it is only a matter of time until governments step in to tax this fast-growing segment, levelling the playing field for foreign companies to offer digital services and goods locally.

Discussion of the implementation of e-commerce tax regulations in Southeast Asian countries has been noticeable since the beginning of last year but nothing concrete has yet materialised.

Late last year, economic ministers from ASEAN signed an agreement to facilitate cross-border e-commerce transactions within the region.

While nothing has yet been written in stone, predictions abound concerning the impacts of an e-commerce tax on goods imported into the region. In Indonesia and Thailand, e-commerce tax is predicted to bolster the growth of social commerce because, unlike marketplaces, they are uncontrolled.

“If tax regulations restrict e-commerce platforms, making selling in Bukalapak complicated, there will be an exodus of people who prefer selling on Instagram and Facebook,” said Bukalapak co-founder and CFO Muhamad Fajrin Rasyid. “These platforms are uncontrolled and not chased for tax because they sell through the back door.”

Singapore might also see a decrease in cross-border shopping as prices increase with the introduction of GST)on goods and services bought online from overseas. Currently, 89 per cent of all cross-border transactions in Asia Pacific are conducted by Singaporeans.

A snapshot of the state of e-commerce tax regulations across six major Southeast Asian markets.  ecommerceIQ.
A snapshot of the state of e-commerce tax regulations across six major Southeast Asian markets.  ecommerceIQ.

Another e-commerce market with strong potential, India is to introduce new e-marketplace laws that indicate the prohibition of marketplace “owners” to sell products on their own marketplace through vendor entities in which they have an equity interest. It also prevents marketplaces from making deals with sellers that grant the marketplace exclusive rights to the product. Could we see such laws be applied in Southeast Asia?

Regardless, brands will have very little influence on how the new tax policies take root but they will be behoven to anticipate the ruling and adjust online strategy accordingly to mitigate the impact of a shift in customer behaviour. This ASEAN agreement will encourage more local entrepreneurs to create new products and venture online to access a larger and more diverse market. Brands will now need to be nimble and innovative to adapt to local nuances and preferences.

  1. Grab and Go-Jek challenge logistics providers to capture e-commerce and online food delivery

Since Uber’s Southeast Asian exit last March, Grab has inherited a monopoly in countries like Thailand, the Philippines and Malaysia, leading to complaints about falling service standards and increasing prices.

But with the recent regional expansion of Indonesia’s Go-Jek, the competition between the two will only get more fierce. Go-Jek has successfully carved niches in Vietnam, Singapore and Thailand last year alone. In addition, Grab’s competitor in Malaysia, Dacsee, has also hinted at  expanding into Thailand.

Neither company is racing to be the best ride-hailing provider; they are aiming for something much bigger: superapps. Go-Jek has secured $1 billion in funds from Google, Tencent and JD, already halfway towards its goal of raising $2 billion for the venture. Meanwhile, Grab recently secured a $200 million investment from Thailand’s Central Group, boosting its valuation to $11 billion to date.

This year, these two competitors will steer towards the same goal of food and e-commerce delivery, which Google and Temasek predicts will grow 73 per cent on a CAGR basis this year. By 2025, they predict online food delivery growth of 36 per cent CAGR with online transport only growing by only 23 per cent. 

The market size of Southeast Asia’s ride-hailing industry. e-Conomy SEA 2018 Report by Google and Temasek.
The market size of Southeast Asia’s ride-hailing industry. e-Conomy SEA 2018 Report by Google and Temasek.

“We will be expanding our GrabFood and delivery business and deepening our relationships with restaurant merchants and key partners in some markets,” said Grab’s head of regional operations Russell Cohen.

Same-day delivery providers can expect more competition during the next year. The impact of Grab and Go-Jek on market vibes will definitely raise the bar for the logistics and delivery sector.

  1. Brands and retailers will double down on omnichannel as Southeast Asians prefer pure-play e-commerce

The omnichannel shopping experience is not a new concept, but companies do have diverse interpretations of the concept. Headlines reveal that online retail behemoths such as Amazon and Alibaba are moving into physical retail.

Alibaba’s decision to venture offline reflects its determination to solve core problems of the shopping experience, such as scattered operations and lack of payment transparency.

JD, meanwhile, pipped Alibaba in Indonesia by opening the first unmanned convenience store in the region. Its goal was to use and refine its enormous database by offering beneficial insights to brands such as the best products to stock and advertise. Through their joint venture with Central Group in Thailand, JD Central is planning a similar concept there this year. X-Mart, the first unmanned store to open in Southeast Asia, launched in Jakarta. X-Mart, the first unmanned store to open in Southeast Asia, launched in Jakarta.

Pure-play e-commerce retailers and brands recognise drawbacks in online marketing channels with fragmented infrastructure and a limited pool of shoppers. That is why they began to promote offline as an attractive option to push sales growth.

Elsewhere in Southeast Asia, companies are slowly but surely adopting this strategy across all categories. E-commerce fashion players like Thailand’s Pomelo and Singapore’s Love, Bonito have opened physical stores in their respective countries.

Last year, Pomelo opened five new outlets, initially away from Bangkok’s prime shopping areas before moving into CBD locations like Asoke and residential areas like Bangna, once it refined the model. Love, Bonito has 17 retail outlets spread across Singapore, Malaysia, Indonesia and Cambodia.

Rachel Lim, co-founder of Love, Bonito told Peak Magazine: “Data can tell you what’s selling but being on the ground tells you why something is not selling and what the customer is looking for.”

Visiting shopping malls is a popular social activity in Southeast Asia and this trend is not set to disappear anytime soon.

Brands should take advantage of dual physical and online presence.

  • Nichakorn Prateepsawangwong is Strategic Communications Executive with aCommerceAdditional editing by Rara Kinasih.

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