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Google’s Brand Team for Consumer Apps has released a report on the definition of “Cool” for Generation Z in the United States. Unironically, Google has named the report “It’s Lit”.

Cool is what these Post-Millennials – teenagers aged 13-17 – are paying attention to, it’s what gets them excited and what determines which brands they choose to spend money on. This new generation has gained media attention because of their influence as truly digital natives with high degree of brand awareness. They are ultimately the next wave of shoppers.

Gen Z has the power to define which business has the capacity to do well and which will slowly fall into irrelevancy.

There are approximately 60 million Gen Z teenagers in the United States, more than 25.9% of the country’s population. Collectively, their purchasing power is at $44 billion annually and could reach $200 billion if we factor in their impact on household purchases.

As the influence of the United States can be witnessed throughout Southeast Asia from music taste and fashion trends to dining choices, businesses should be aware of what’s factored as ‘cool’ in the west because it will very likely make its way east.

Pink represents female choice. Blue represents male choice. Source: It’s Lit report.

So what do these teens find cool?

“Cool” in Google terms means to bring joy or happiness and stands out from everything else.

According to 13-17 year old boys, they find: technology, sports/outdoor activities and video games the coolest (no surprises here) and choose their activities based on friends and fads.

According to 13-17 year old girls, clothes/fashion/beauty, music and technology rank among the coolest activities because of the way it makes them feel.

Brands such as NYX is popular with younger girls as it is affordable, sold at mass stores such as Target and has a strong online presence, as they tap into the influence of bloggers and social media.

Out of the biggest brands circulating around today, Youtube was ranked as the ‘coolest’. Out of the top 10, six of them involve digestion of media i.e. Netflix, Xbox, Google, Playstation, GoPro and Chrome.

Source: It’s Lit report

The other brands on this list are consumer brands with a strong online presence. Doritos, for example, released the most viral advert during 2016’s Superbowl and Oreo has successfully reinvented its traditional ‘pantry’ brand to become “an agile, culturally prolific marketer”.

This was thanks to Oreo’s aggressive pushes online through its “Twist, Lick, Dunk” mobile app and cheek-in-tongue tweets that garnered a lot of attention among young people. The app became the the best performing branded game ever launched.

“We have a lot of mature brands and culture gives brands rebirth, it breathes life into the room,” says Dana Anderson, CMO of Mondelēz International, parent company of Oreo.

Social media use?

For Gen Z, social media is for consuming and connecting, not sharing.

The most popular social media platforms are Snapchat, Instagram and Facebook. And while this makes them potential marketing channels for brands, only Facebook has a streamline ad platform whereas Snapchat lacks the ability to accurately target certain audiences.

Source: It’s Lit report

New tools for brands range from Instagram stories to Facebook Live.

Being connected all the time means Gen Z consumers have a constant pulse on trends.

Below is a spectrum of brands ranked based on their prevalence in the minds of Gen Z out of 122 brands in total.

(Click to enlarge) Source: It’s Lit report

Tech companies with a ‘cool’ factor:

  • Facebook
  • Instagram
  • Samsung
  • Amazon
  • Apple
  • Snapchat

Who has lost a bit of ‘cool’ factor?

  • Line (this would be very different in Asia, where 69% of its 1 billion active users reside)
  • Zara
  • Uniqlo
  • Lululemon
  • Supreme

What can businesses learn from this?

Gen Z never knew the world without the internet. Teenagers around the world today value stimulation, instant gratification and information and this in turn, changes the way brands need to position themselves.

Gen Z consumers are familiar with finding information and tech products, which means that brands need to appeal to this new wave of consumers by attaching a strong message to its product instead of trying to promote a meaningless item.

There are good ways to do this – see Nike – and terrible ways to achieve this – think Pepsi’s PR disaster with Kendall Jenner.

Among the top 10 brands that Gen Z strongly identify with, all have been documented to make efforts to appeal to digitally dependent consumers through apps, viral ad campaigns and a strong social media voice.

Nike has released a stream of buzzy marketing collateral such as its “Pro-hijab campaign” and using high profile Asian celebrities to promote products (Kiss My Airs). Consulting firm Accenture found that more Americans are streaming shows through Playstation Vue and Netflix, making cable TV almost obsolete.

Southeast Asia’s young population is young, over 70% are under 40 years of age and experiencing a surge in spending power – set to contribute 34% to consumption growth by 2030, compared with the global figure of 25%.

A maturing consumer demographic, combined with flexibility to spend means that Southeast Asia’s Gen Z are ones brands have the opportunity to target early, especially knowing the trends overseas.

Google “It’s Lit’ report can be found here.

Here’s what you should know before the weekend.

1. WeChat to roll out paywall for publishers

China’s WeChat is testing out a paywall that will allow media outlets and bloggers to set a pay-per-read price. Like Facebook, WeChat has brand accounts used by media outlets, celebrities, bloggers, and companies of all sizes.

The paywall gives publishers an alternative to WeChat ads and tips for monetization. Some bloggers also resort to sponsored posts for major companies.

Read the rest of the story here.

 

2. CMA CGM joins Alibaba’s freight booking system 

Shipping company CMA CGM announced that it has agreed to allow Chinese exporters to book container space on two of its service routes using Alibaba’s “OneTouch” cargo booking system.

For now, CMA CGM’s participation in OneTouch will be limited to container service to the Mediterranean and Adriatic area, using the carrier’s MEX1 and BEX routes.

The OneTouch system allows exporters to send their containers to the destination of the customer’s choice.

Read the rest of the story here.

 

3. Logistics expected to make up 8-10% of Vietnam’s GDP by 2025

To achieve the goals, the plan suggested improving policies, attracting more investment into logistics infrastructure and fostering cooperation between local logistics firms and international partners.

It also hopes to enhance logistic infrastructure connectivity to link Vietnamese ports with neighbouring countries.  Investment is called for the construction of type I logistic hubs in Hanoi and Ho Chi Minh City and type II logistic in locations such as Lang Son and Lao Cai.

Read the rest of the story here.

Customer support plays an integral role in delivering an enjoyable online shopping experience. Your online store could be optimized with tips from beautyIQ series, but a poor customer experience will drive 89% of consumers to go to a competitor. The last article of the beautyIQ series will provide guidance on how to best support your Southeast Asian customers online and keep them loyal to your brand.

The importance of customer service seems obvious in traditional brick-and-mortar shops – your salesmen on the floor represent your brand’s image and values through interactions with customers. This is especially true in Thailand and China where shoppers rate customer service as one of the most important factors driving their favorite retailer perception.

For ecommerce, customer care is more integral to the experience as shoppers lack the touch and feel of a product and convenience of a friendly salesperson ready to address any questions. Customer support is also important to containing the damage of a negative review spreading on social media, where more than 50% of consumers in Southeast Asia turn to read product reviews.

Providing excellent customer support can be the make or break of a company as demonstrated by Zappos.com, an online shoes, clothing and accessories store owned by Amazon. Just this July, the company set a new internal record with a customer-service call that lasted 10 hours and 43 minutes. It is stories like these that keep Zappos in the online shopping spotlight and customers coming back.

To be as accessible as possible for online shoppers, brands and merchants should ensure the following:

1. Make Customer Service Contacts Visible

45% of respondents to PwC retail study say reviews, comments and feedback found on social media influence their shopping behavior. This means it is extremely important to quickly diffuse a frustrated customer as they are more likely to turn to social media and post a negative comment regarding your brand.

Mitigate this situation by making your phone number or other contacts highly visible to increase trust in your online store and give browsers a ‘shopping safety net’.

Bobbi Brown’s online store in Thailand lists a live chat button at the top of its webstore and uses large icons for email, chat and phone communication at the bottom of the page, leaving no questions where customers should turn for answers.

customer support

customer support

 

Clinique also lists customer service contacts at the top of its webstore under ‘Help’, which is easy to see and comprehend.

customer support

2. Support Customers on Channels They Use

As internet users spend from 1.6 hours in Singapore to 3.7 hours in Philippines on social media every day, consumers in Southeast Asia show a stronger desire to communicate with brands through social media than consumers elsewhere in the world.

Facebook is the most popular social media network and a quick look at local pages of popular beauty brands show that customers don’t hesitate to express their positive and negative experience online. Developing a capability to respond to customer reviews online will help brands improve their relationship with customers.

In Thailand, global beauty brands state on their local brand.com webstores (Bobbi Brown, Kiehl’s, Estee Lauder, MAC Cosmetics, Clinique, L’Occitane and Laura Mercier) that they mostly provide customer support either by phone on weekdays from 9 AM to 6 PM or email.

Bobbi Brown is the only brand that offers a live chat on weekdays, while Laura Mercier has official account in LINE, one of the most popular chat apps in Southeast Asia. All brands mentioned engage with customers and their inquiries on social media channels like Facebook and Instagram, but the response time varies.

3. Train Customer Service Agents to Listen, Reply and Execute

“I want it all, I want it all, I want it all, and I want it now,” sings rockband Queen, and it sums up quite well the expectations of customers nowadays. Every third customer who has attempted to contact a brand for customer support through social media expected a response within 30 minutes. Research shows that customers even value a quick response over a more informative one.

To track your customer inquiries, use software like Zendesk, as used by Lazada, one of the biggest marketplaces in the region. Keeping track of customer inquiries is important to calculate customer response time and ensure customers who have turned for support have actually received it.

Having knowledgeable customer service agents who are familiar with product properties, brand policies and other issues will speed up time taken to reply to customers and positively impact the chance of a returning shopper. ecommerceIQ sent inquiries to the above mentioned global beauty brands and they all responded within 24 hours.

Customer complaints may not be the most pleasant thing to handle, but it is the best feedback a business can receive as it highlights holes in its business model. Internal data from aCommerce, service provider for ecommerce fulfillment in Southeast Asia, shows that concern about expiry date of skincare or cosmetics products are among the most common complaints in Thailand. Shoppers may ask for a refund or return the product if, for example, two years have passed since the manufacturing date.

It is the responsibility of customer service agents to communicate these problems to the right departments and ensure the same issues do not arise again.

Customer care is the key factor impacting consumer trust – not surprisingly a good customer experience will bring shoppers back for more, while bad support will drive them away. With the widespread usage of social networks in Southeast Asia and across the world, word of mouth has never traveled faster. 47% of digital consumers in Southeast Asia inevitably go online to share their experience, which will impact decisions of other potential customers for buying online.

With this article beautyIQ series finishes. We hope you found the tips useful in creating an enjoyable online shopping experience for your customers. You can read all articles on ecommerceIQ.  

For more insights about ecommerce trends in Southeast Asia, visit the report section on  ecommerceIQ.

 

BY AIJA KRUTAINE AND ANUTRA CHATIKAVANIJ

 

We’d love to hear your feedback,

find us on Facebook, LinkedIn or Twitter.

 

Asia’s mobile phone penetration matched with the high popularity of social networks has paved the way for social commerce to flourish in Southeast Asia. More and more online shoppers are using social media channels like Facebook and Instagram to browse and to negotiate a purchase of beauty products, apparel and other goods instead of buying it on typical ecommerce websites.

Thailand is the world’s biggest social commerce market where 51% of online shoppers have purchased goods directly via a social media channel.

Social commerce has been practiced by every third online shopper in Malaysia and Indonesia, while globally around 16% of online buyers have shopped directly via social media.

Across the region, Facebook and Instagram are among the most popular networks and on average, internet users spend from 1.6 hours in Singapore to 3.7 hours in Philippines on social media every day. This, the fact that Southeast Asians are reluctant to share their financial information online and less than 20% of population (except Singapore) use either debit or credit card to make payments drive social commerce in Southeast Asia.

How Social Commerce Works in Thailand

Usually merchants set up ‘shops’ on Facebook or Instagram, or both, and post images and details of goods for sale. Potential shoppers can browse and inquire about product availability and arrange a method of payment, typically a bank transfer, through a popular chat app such as LINE.

In social commerce, the order is usually made online while the payment – offline.

Social media ‘shops’ offer nearly anything from food, beauty and health products of various brands to apparel and accessories, sometimes secondhand or with minor defects. 

How Big is Social Commerce in Thailand?

The consumer-to-consumer (C2C) market size in Thailand is significant. Page365, a startup that helps small retailers sell products via social media, estimated that social commerce is worth more than $500 million per year in the Land of Smiles alone. However, it is difficult to accurately measure the market size as majority of sales from social media are conducted via bank transfer and merchants refrain from disclosing their real revenues.

ecommerceIQ decided to test one of several popular forums where shoppers frequently discuss favored and reliable Instagram/Facebook stores for makeup. The team chose an Instagram makeup shop by user @lachompshop due to popular word of mouth and recommendations on Pantip forum.

Case Study: The Social Commerce Journey

The search for products takes place by scrolling through @lachompshop picture gallery on Instagram. ecommerceIQ decided to purchase a MAC lipstick, which surprisingly was selling for 550 Thai baht, 300 Thai baht cheaper than in MAC’s official online store.

social commerce

social commerce

On social commerce shops products usually are browsed by simply scrolling through the seller’s Instagram picture gallery.

social commerce

A lipstick on MAC’s official online store costs 850 Thai baht while @lachompshop offered to sell it for 550 Thai baht.

The seller indicated her LINE account in the Instagram ‘About Me’ section so she could be easily reached for further product inquiries. The seller replied on LINE within one minute of the team’s question and confirmed product availability with a screenshot of the product from her Instagram page. The exchange was short – the seller noted delivery would take 3 days and after the team negotiated for express delivery in 2 days at no additional charge, she outlined more details – payment had to be made before shipping of product.

The seller sent her bank details so that 600 Thai baht (included 50 baht delivery cost) could be transferred to her account. The entire purchase process was simple – a short exchange on the chat app with a following bank transfer compared to filling online forms, payment card details, when buying online.

social commerce

The exchange with the seller took place on March 29, 2016.

social commerce

MAC lipstick that was ordered by ecommerceIQ team

Once the transfer was made, the transaction could not be cancelled. After the payment was done, the seller followed up in LINE with a tracking number from Thai Post so delivery could be followed online.

The MAC lipstick arrived in a brown package, sealed with a protective clear tape, and actually even a day earlier than expected. The delivery time in the end was just 1 day compared to 2-5 days waiting for products bought online from brand.com store or marketplace.  The product was in perfect condition in terms of exterior, in the original MAC packaging and was the right color. However, the lipstick texture was slightly smudged, possibly due to the heat during delivery. There was no pre-delivery text or call as would be in a typical ecommerce purchase.

social commerce

The new lipstick was delivered before expected for a nice surprise after agreeing on the purchase via Instagram shop.

Once the seller was notified of the product arrival, she responded politely within 5 minutes adding an element of personalized contact to make the experience more positive.

The Good and the Bad of Social Commerce

Facebook and Instagram provides an inexpensive opportunity for upcoming, small brands to sell online at a lower cost compared to creating a full-fledged webstore. The direct communication with sellers also adds a personal touch, which Southeast Asian shoppers find important to gain trust in the seller, the brand or product.

However, the same trust with regards to product authenticity and payment is also a concern when buying from sellers who stock various products on C2C platforms. Data from Page365 shows that 74% of consumers are reluctant to shop online because they fear fraud and 33% of consumers have complained about product imperfections when ordering from Facebook stores. There have been cases reported when the customer transfers money to a seller via bank transfer prior to a product delivery just to find out later that the seller took their payment and cut off contact.

There is also risk of receiving fake products and C2C shops are usually less willing to accept returns, as in the case with @lachompshop who explicitly stated that unless the product was damaged or delivered in the wrong color, returns nor refunds would be accepted.

Yet, for many, especially in provinces where malls are not easily accessible, social commerce is an easier way to get products they want without having to shop online and without having a credit card. Although it does takeaway from ecommerce websites, the wave of social commerce allows consumers to adopt online shopping habits and eventually encourage them to trust e-transactions. 

What to Expect Next

Seeing the popularity of social commerce, other businesses are looking for ways to enter the market. This June, Facebook started testing social commerce payments in Thailand and later decided to launch the world’s first Facebook Shop in August. LINE, which is widely used to communicate with buyers of social media shops, launched its own ecommerce app LINE Shop already in July 2014.

C2C marketplace Shopee, which is among the most popular apps in Thailand, is trying to attract merchants currently selling on social networks, to its online marketplace by offering easy integration of their Instagram shops and reimbursing shipping, cash on delivery fees to sellers.

The positive experience ecommerceIQ had testing social commerce shows why for many it may be more convenient to shop via social networks than overcome concerns about the security of digital payments to shop online even if it means a few added small risks. 

As the ecommerce market size in Southeast Asia is expected to increase nearly 15 times to $88 billion by 2025, social commerce will likely grow as well thanks to a relatively low online presence of Western brands

 

BY AIJA KRUTAINE AND ANUTRA CHATIKAVANIJ

 

We’d love to hear your feedback,

find us on Facebook, LinkedIn or Twitter.

Up until this point, we’ve covered driving traffic to your online store, where to best sell your products and the type of content that increases conversions. Now we will be sharing a few tricks to make it easy for store visitors to complete their purchase, something commonly overlooked. From the checkout process to receiving the package, in this article we discuss how to decrease cart abandon rates and last mile best practices.

55% of consumers surveyed by PwC in Southeast Asia report they are shopping online monthly or more frequently, and returning customers are one of the easiest ways to grow ecommerce business. Creating a stress-free checkout process and delivering pretty package on time are vital factors to gain customer loyalty.

Once the shopper is happy with their product selection and ready to checkout, ensure the final steps in their online journey, the last mile, are hassle free. Businesses can do this by:

  • Providing easy checkout process and being transparent about any extra costs
  • Offering a ‘cash on delivery’ payment method
  • Creating the best image of your brand with smooth delivery of the product

 

Optimize your store’s checkout process

Abandoned shopping carts are the worst nightmare of online sellers as they present lost revenue. And it’s usually because every fourth customer is frustrated when there is too much information to fill upon checking out.

An overly complicated checkout form can scare off over 60% of potential buyers therefore the shorter the checkout form and the less clicks your customer has to make, the more likely that she or he will finish the purchase.

For example, Estée Lauder’s checkout form of its Thailand webstore is rather long. It requires, first, user registration and, second, to fill in a separate line each item of the address, eg. house number, alley, road, district, county, instead of using a text field for the user to enter everything at one go. This probably makes it easier for the brand to process data in the backend, but doesn’t make for a great user experience.

last mile delivery

last mile delivery

Checkout form of the Estée Lauder online store in Thailand is quite lengthy.

To checkout from Kiehl’s Indonesia webstore customer first has the pleasant task to choose free samples. But after that she or he is directed to sign in or register an account, then has to look again for the shopping cart and gets to fill the checkout form only after a few more clicks.

In both cases, customer at some point may feel impatient or confused and such experience may reduce conversion rates.

To best capture your shopper’s purchase, offer a guest checkout option and create a simple, one-page checkout form asking the buyer to fill only the necessary information – name, address, phone number and payment details. Do you really need to know your customer’s birthday adding one more line to fill during the checkout?

Be sure to offer various payment options based on the preferences of your target audience and show that you are serious about the security of the payment displaying secure payment gateway branding such as SSL (Secure Sockets Layer) certificates.

With a total of 5 clicks from landing to checkout to submitting your order, Maybelline Thailand is a good example of how to simplify the checkout process. While it requires a registration, it is very simple and quick, and the checkout form is just one-page.

last mile delivery

Maybelline Thailand store has created simple one-page checkout.

To avoid abandoned carts, brands should be transparent about the costs that the buyer might incur in addition to the product price. Around every fourth customer drops the purchase because of unexpected shipping costs and 45% of customers tend to add products to their cart without intent to buy in order to check the final price.

Show all the additional costs that the customer might have to pay or highlight free shipping with minimum purchase value – around 24% are more likely to spend more to be eligible for free delivery.

Prioritize cash on delivery as payment method

In Southeast Asia, cash is the preferred payment method for the majority of customers – in Thailand 83% of them would prefer to pay with cash on delivery, in Malaysia – 82%, in Singapore – 72%. Less than 10% of the population in Thailand, Indonesia and Vietnam and less than 20% in Philippines and Malaysia use banking cards to pay for their purchases.

Offering cash as a payment method will increase the number of customers who want to purchase goods online as the conversion rate on cash on delivery is higher than bank transfer and bank service combined. This is due to low credit card penetration rates and high mistrust issues with entering payment information online across the Southeast Asian markets.

In Thailand, other payment methods which customers without bank accounts can use include payments over the counter in convenience stores 7-Eleven and other shops or cash deposit in a bank or ATM. However, by offering these payment methods, a merchant pushes the customer to decide twice on buying the product – first time on the webstore and second time when the person has to go to either the counter or the bank to actually make the payment. Thus, giving customers another opportunity to reconsider and cancel the purchase.

Make the delivery of the product stress-free

Delivery times, customer service, the aesthetic appeal of the packaging and even the etiquette of the messenger is a business’s final chance to leave its consumers satisfied. Yet, some brands fail to align their global image with the “last mile” delivery.

When a customer makes a purchase, she or he, of course, is interested in the particular product and will presumably make a purchase if your site is optimized but that doesn’t mean the box in which the product is sent should be neglected. The goal is to make the shopper feel like their online purchase was worth it.

In a recent study, Dotcom Distribution found that 40% of consumers are likely to make repeat purchases from an online merchant that delivers products in gift-like or premium packaging. If the delivery came in a unique package, consumers are also more likely to share it via social media. Instant free marketing!

Here are a few things to consider for special packaging:

  • Use a branded box, not just the standard brown box from the logistics provider
  • Use branded or coloured tissue paper, not hard paper to wrap product
  • Consider branded or coloured tape instead of clear tape
  • Include small gift samples to increase cross-selling
  • Protect the branded box by putting it in a standard brown box

It is extremely vital to premium brands like Bobbi Brown, Kiehl’s, Estée Lauder and MAC to provide proper packaging to protect their brand image and justify higher product costs. In Thailand, they are trailblazers as to how their products are represented when delivered.

last mile delivery

last mile delivery

Premium brands Bobbi Brown, Kiehl’s and MAC have invested in a gift-like packaging. Source: ecommerceIQ

Yet, the arrival of French brand’s L’Occitane package provided somewhat disappointment.

last mile delivery

Franch brand L’Occitane delivers products bought on its online store in standard packaging.

There comes a high cost to providing this special packaging in the right size. As it can be seen in the table below, just having a brand’s logo on the box and using a branded tissue paper can increase the packaging costs 3 to 5 times, while having the full premium branded packaging means even bigger expense.

last mile delivery

“If you have an average basket size of over 1000 THB, it makes sense to have a branded box. Even if not the case, brands should see the packaging as an extension of its marketing and pick a style that aligns with the brand’s global image, as it is the customer’s final touchpoint,” says  Phensiri Sathianvongnusar, aCommerce Thailand COO.

Take into account that shipping costs are calculated by volume metrics, not by weight. This is why it’s important to have a couple box options that are efficient for the physical average basket size of your product.

When you’ve invested your time and resources to get potential customers to visit your online store, don’t sabotage your efforts by complicating the checkout process and ignoring careless fulfillment. Provide an enjoyable purchase process experience, surprise them in a positive way with gift-like packaging, and you will win their hearts.

Southeast Asia’s ecommerce boom in the recent years has fostered the establishment of fulfillment companies who can advise your brand on the best practices. See who they are for Thailand and Indonesia.

Stay tuned for next week’s beautyIQ piece in the series!

BY AIJA KRUTAINE AND ANUTRA CHATIKAVANIJ



We’d love to hear your feedback,

find us on Facebook, LinkedIn or Twitter.

Cross border vs local ecommerce fulfillment strategies in Southeast Asia

The pros and cons of localized ecommerce versus cross-border ecommerce approaches to logistics in Southeast Asia. Source: aCommerce Data 2016

A major global sports brand recently decided to switch its ecommerce logistics strategy in Southeast Asia from a regional cross-border one to a localized one. The brand had been fulfilling its Indonesian orders via a cross-border hub in Singapore since the early 2010s.

How did that scenario work out? Well, the absence of a website in a local language, painful payment experience and sluggish delivery ended up undermining the company’s highly anticipated growth potential. They realized that in order to become succesful in Southeast Asia’s largest market, they would need to fully commit to a localized strategy. Bain & Company’s Southeast Asia Digital Consumer Survey supports the difficulty of a non-localized strategy – the figure below shows that global players consistently scored lower in customer satisfaction than regional and local players on the Net Promoter Score.

Local and regional players seem to have a customer experience advantage over global players. Source: Bain & Company 2016

It may seem the moral of this brand story is that a localized strategy trumps a cross-border one from a business perspective but you’re mistaken. It ultimately depends on a set of factors unique to each business and the eIQ team has taken a moment to depict some of the scenarios for when one ecommerce fulfillment strategy is more appropriate over the other.

“Sometimes it makes sense to adopt a regional ecommerce strategy but every company needs to decide whether and if it is time to go local.”
– Mitch Bittermann, Group Chief Logistics Officer at aCommerce

As global brands increasingly wake up to the Southeast Asian opportunity for ecommerce, what is too often overlooked is the market’s immature state and more specifically, the logistical challenges businesses must overcome such as lack of regional payment systems and a reliance on Cash on Delivery due to a highly unbanked population. 

There are two main approaches to entering Southeast Asia:

  1. Cross-border logistics: employing third parties and local partners to do the entire fulfillment process from abroad of one or two centralized hubs (often in Singapore for Southeast Asia) and/or
  2. Localized fulfillment: investing in the country’s local infrastructure, such as warehouses, staff and a delivery fleet and do the fulfillment nationally. Another option is outsourcing to a third-party service provider to do the localization for you, as Sales Stock, an ecommerce startup, did with aCommerce in Cawang

It’s important to consider all elements of both strategies because the cost of choosing the wrong strategy may negatively impact a brand’s reputation, decrease margins and ultimately put commerce operations to a halt. To leapfrog the learning curve, here is a snapshot of the main steps taken when choosing an ecommerce logistics strategy in Southeast Asia.

Step 1: Test the Local Markets Via Cross-Border Fulfillment

When a business is unsure of the demand for its product, a phased approach is an efficient way to test the waters without full commitment. It allows time for calculation of the business’s scalability. Starting with a cross-border approach means that the business wouldn’t need to invest heavily in inventory and a local team to run the operations. Because the product is shipped from overseas, the company will usually outsource the entire fulfillment process in the local country. Amazon’s current strategy in Southeast Asia is to adopt a cross-border model by connecting sellers overseas to buyers in local Southeast Asian countries, there is no need to engage in costly investment regarding fulfillment such as warehousing, handover and last mile logistics. 

Singapore is a good hub for cross-border due to its escape of typical regional challenges

Infrastructure in Singapore makes it very convenient for businesses to do cross-border ecommerce fulfillment resulting in many companies using the country as a jumping board to enter the ASEAN market. For example, Singapore’s ratio cross-border over total ecommerce is the highest in the region, reaching 55% according to a report by Payvision. It also depicts the island-city-state as particularly cross-border friendly – low customs tax close to 0%, mature infrastructure, with the busiest seaport by cargo tonnage behind Shanghai. It is important to note that Singapore is an exception and not representative of the development of the rest of the region. 

Cross-Border or Localized Ecommerce Fulfillment in Southeast Asia

Singapore has the lowest customs tax in ASEAN. Source: AT Kearney

In addition to Singapore, cross-border ecommerce is also big in Malaysia, which makes up 40% of the total ecommerce market in the country. This fact is why, according to Bain’s comparative analysis, global players scored best in these two countries.

quick guide to ecommerce logistics in Southeast Asia

Easy cross-border regulations in Singapore and Malaysia saw global players performing well in these countries compared to their neighbours.

Considerations & Limitations of Cross-Border

Doing cross-border requires at least four different parties:

  1. Linehaul carrier
  2. Airline
  3. Customs clearance agent
  4. Local delivery partner.

This means whenever a delivery is late, it will be difficult to attribute responsibility and fix the problem.

The same reasoning is applied to reverse logistics. Returning international orders is such a hassle that most people just forego it and absorb the cost of inconvenience. It is important to keep in mind that 92% of customers are very likely to shop again with an online or catalog retailer if the returns process is convenient. Conversely, 82% will not shop from a store that has a complex returns policy.

Before deciding on the best strategy for your business, here are some key facts to consider derived from the global sports brand case study:

  • Cash On Delivery (COD): is still the preferred payment method in Indonesia where credit card penetration is less than 15%. In some countries, COD can be anywhere from 50-70% total orders shipped. By not offering it, brands would lose out 50-70% of the total sales opportunity.
  • Complications for cross-border COD: Cross-border COD adds extra steps to cash flow from reconciliation to the bank and to the company HQ, which prolongs the entire process.
  • Transportation Lead Time: Being able to deliver within a short time frame improves customer satisfaction. Indonesia is made up of over 18,000 islands with poor road links in certain areas. For a large global brand, partnering up with a local logistics provider will help cut down transport and delivery times.
  • Duties and Taxes: Businesses should consider that an online shopper would pay an additional one-third of an item price in duties and taxes if ordering online to another ASEAN country  (see fig.18 above).

“Understanding and overcoming local country regulations are the keys to enabling ecommerce which can be difficult to manage from abroad.” – Mitch Bittermann

“ASEAN is one community, nonetheless, each country has its own flavors in terms of customer expectations, payment methods, transportation network, taxes, and regulations,” said Mitch Bittermann. “Understanding and overcoming local country regulations is the key to enabling ecommerce because it’s difficult to manage from abroad.”

Step 2: Tackle Logistics Challenges Locally to Get More Order Volume

Having a localized ecommerce fulfillment strategy in Southeast Asia means more control over the logistics process. Local investment in the fulfillment process includes better supervision of inventory management, handover, last mile delivery and reverse logistics.

For example, going local reduces the number of parties involved meaning easier identification of problem areas to enforce fast acting solutions. The less distance traveled to reach end customer will also lower costs.

Consider going local when you have major order volume or trying to get more order volume. Fulfilling major volume orders abroad might become more expensive in the long run.

Doing things locally could also increase your ability to attract more demand from the previous consumers who are not willing to pay for that extra mile delivery or wait more than a week to get their orders. In the case of the aforementioned global sports brand, they’re foreseeing the increase of orders to 1000 per month after a year of going local, 10 times from what they are currently doing right now regionally.

It saves time for the customer and improves payment experience

Saving time for customers means higher conversion rates and more sales. In the case of Indonesia, a brand can reduce shipping time from 5-8 business days to 1-2 days by going local. This has a significant impact knowing that 6% of cart abandonment rate is due to slow shipping. 

Cash on delivery remains the preferred payment option for online customers in Southeast Asia. Cash handling process is easier when the operation is located in a single country. For the sellers, it means faster cash reconciliation and greater transparency.

Considerations of a localized strategy

As the brand’s positioning becomes stronger in one country and the order volume rises, managing customer expectations from afar gets harder and could hinder businesses growth, as was the case with the anonymous global sport brand mentioned above. In the long run, the cost of operating with third parties might be more costly than to invest in local infrastructure.

But markets in Southeast Asia are very fragmented and can be complicated for outsiders to steer the way in. Each country has its own set of regulations of doing business for foreign brands and challenges that might be completely different from another country in the region. And this complication is what usually deters the businesses to take the initial jump and operate locally.

Choosing the right local partner is key in doing business in new unknown markets, especially Southeast Asia. Businesses can leverage their local expertise to find the best strategy to ease their way into the Southeast Asian market.

No “One Size Fits All” Approach

“Ultimately, the right approach would depend on the business model and scalability potential, there is no ‘one size fits all‘ approach to choosing the right logistics strategy.” –  Mitch Bittermann

BY ALEXANDRE HENRY & ANUTRA CHATIKAVANIJ 

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