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Vietnam’s economic development has been the cause of a widening income gap between those working in developed, urban centers and others in rural locations. The country’s income distribution is predicted to be among the most unequal in Asia Pacific by 2030.

The highly polarized nature of Vietnam’s current market means a few things:

  1. Companies can either target one particular social class and specialize or
  2. Mid-range brands have the opportunity to consolidate both a premium and more affordable product line under one umbrella

An example of a company that does this successfully is Viet Tien Garment, an apparel and footwear maker that has different brands to serve different age and income levels. For example, it launched Vee Sendy for younger shoppers and TT-up for its mature customers.

The company is valued at $50.2 million and claimed 2.3% market share in 2016, which is considered positive in Vietnam’s fragmented market.

Serving individual social classes

Source: Euromonitor

Social class E, the lowest income class is expected to remain the most prevalent in the country until 2030, which is good news for FMCG companies as they represent a large market for basic necessities.

According to Nielsen, FMCG items are experiencing a growth surge in Vietnam, especially beyond Ho Chi Minh City and Hanoi.

In 2016, nearly 6% of Vietnamese urban households shopped for FMCG items online at least once and found themselves spending 3-4X more than they would on an average shopping trip offline.

Social class A, the highest income class is expected to be the second fastest growing segment until 2030.

Luxury automaker Mercedes Benz already counts Vietnam as one of its fastest growing markets in Asia and Chanel recently opened its first flagship store in Ho Chi Minh earlier this year – demonstrating a positive step in the direction of Vietnam’s growth.

As Vietnam and US trade grows 20% annually, analysts believe that increase in income will stimulate consumption of luxury labels, especially if they are portrayed as a status symbol.

“Why would I spend $300 on something that doesn’t relate to me, and has no voice?” says Ha Nguyen Thu An, Head of Social at Ogilvy. “Everyone gets Louis Vuitton because of their brand story.”

Apart from multi-brand marketplaces such as Lotte.vn and Robins.vn (previously Zalora), consumers do not have direct access to luxury items and instead, are only exposed to fast fashion pieces or mid-tier brands such as Nike and MANGO.

The future of Vietnam’s consumer landscape

Whether these companies choose an offline, online approach, or both, the country’s classes are both showing signs of economic growth and an appetite for goods they can show off.

Here’s what you need to know this morning.

1. Rakuten leads $1.25M funding round for ShopChat

US-based chat-commerce solutions ShopChat debuted today with a $1.25 million funding led by Japanese ecommerce giant Rakuten.

ShopChat is a “mobile shopping keyboard” that allows users to shop in ecommerce platforms while engaging in conversations inside a messenger app. ShopChat allows users to share the products that they are about to purchase with the people they are having conversation with, and shop directly without having to open a mobile app.

Read the rest of the story here.

 

2. Malaysia’s ecommerce adoption rate among SMEs to grow to 50% by 2020

Ecommerce adoption among small and medium enterprises (SMEs) is expected to grow to 50% by 2020 from 32% in 2016, driven by the sector’s increasing interest in online business.

The industry is poised to grow 11% per annum by 2020, accounting for 6.4% of gross domestic product

Read the rest of the story here

 

3. Recommended Reading: Mobile advertising in APAC still dependent on banners

Across APAC, the mobile advertising inventory is shared almost equally between mobile apps (51%) and the mobile web (49%).

In Indonesia, 91% of all ads were over mobile apps

Advertisers desperately need returns from their advertising investments in order for the ecosystem to sustain. That can only happen if advertisers shift to alternate channels of advertising.

Asia Pacific is expected to see an 8% annual growth in mobile internet users over the next several years.

Read the rest of the story here.

 

4. Recommended Reading: How beauty brands are leveraging from WeChat in China?

The evolving role of WeChat from a content-heavy platform to one that is more dynamic is not restricted to beauty brands, but also evident among luxury brands.

For example, digital research firm L2 cites how Chanel saw a successful launch of its new version of its signature N°5 scent last year by turning WeChat into a social commerce site.

In 2017, if beauty and luxury brands hope to continue to benefit from WeChat, it is time for them to recognize that the app is not a mass communication platform, but instead ideal for one-on-one communication, but ideal for commerce.

Read the rest of the story here.

Here’s what you should know today.

1. Indonesian micro-lender Amartha scores funding from major bank

Indonesian peer-to-peer lending firm Amartha said today it’s raised a series A investment led by Mandiri Capital Indonesia (MCI), the VC fund of Indonesia’s largest bank by assets, Bank Mandiri.

In 2016, Amartha changed its business model to P2P lending, allowing individuals, not only banks, to become investors on the site.

Read the rest of the story here.

 

2. Supply chain firm Tigers launches ecommerce 

Supply chain company Tigers has launched an online shopping portal that allows companies to sell their products in China and Southeast Asia. As well as listing products, Tigers’ eShop takes payments, offers supply chain management, order fulfillment and returns.

“We can provide fiscal representation to SMEs wanting to enter the Chinese market, especially those without a presence there,” said Andrew Jillings, Tigers CEO.

Read the rest of the story here.

 

3. Recommended Reading: How an army of postmen is turning China’s rural stores into the world’s largest retail network

Let’s say you’re a beer firm wanting to optimize distribution when demand rises on an unusually hot April day. Ecommerce platform Ule knows where to send your trucks. Or imagine you’re Chanel and you want to know which 44- to 48-year-old women, in villages a few hours from the nearest city, have today bought a Dior product.

Ule’s data can potentially identify them, perhaps allowing you to send a Chanel discount voucher to their phone.

Read the rest of the story here.

direct to consumer strategy

Ecommerce has completely disrupted not only how people shop, anywhere anyhow, but also the supply chain and distribution of goods. Brands and businesses are empowered in a way never before possible, most noticeably by cutting the middle men and selling directly to consumers. By adopting a direct to consumer strategy, businesses gain a stronger presence in both online and offline markets.

The Apple example

Dive into Apple’s branding strategies in the past and you’ll recognize the importance of a direct to consumer approach for success. Long before its growth streak, Apple’s sales were driven by big box electronic retailers. After launching an online store in 1997, the company turned around and aggressively expanding its own retail stores internationally. Since then, Apple has grown to become the number one tech company in the world.

But Apple isn’t the only success story. Nike, Puma, L’Oréal, Kiehl’s, and Dell have expanded their distribution channels and sold directly sell to customers by increasing their ecommerce distribution channels, specifically brand.com websites and mobile apps, and by establishing brick-and-mortar stores worldwide.

So why should other brands shift from a traditional distribution process through retailers to a direct to consumer model? How has this shift triggered such a phenomenal growth for these brands? Let’s dive in.

1. Direct to consumer is the best way for brands to build a strong relationship with customers

Directly selling to consumers gives brands a chance to gain complete control over their brand presentation. Whether through a brand.com website and/or a brick-and-mortar store, they’re able to portray a story that conveys the purpose and meaning behind their products and add a distinct personality to their brand so their products can shine.

Southeast Asian consumers are predicted to drive the ecommerce boom in the future as they are among the world’s fastest and strongest adopters of mobile and social media in online and in-store purchasing activities. According to Bain80% of digital consumers use social media or messaging apps to research products and connect with sellers. With online stores, the style of the images, the way the site looks, and even how the items are packaged when shipped, all add to a brand’s customer’s experience.

Take for example Kiehl’s, the global luxury skincare brand is currently expanding a full scale ecommerce strategy in Thailand by adopting an unconventional O2O campaign in order to create an omnichannel experience and in turn drive customer conversions as well as brand awareness. Figure 1 and 2 show the comparison between how products are presented to customers with its own branded website and brand presence on an e-marketplace. 

brands direct to consumer strategy in Southeast Asia

Figure 1: Kiehl’s beauty products displayed on its own website

brands direct to consumer strategy in Southeast Asia

Figure 2: Kiehl’s beauty products displayed on the website of its retailer partner

“The advantage of having a brand.com is control. You can create your in store experience and highlight the products you choose. It’s not the same as selling through other retailers because you can’t create your own story.” – Tiffany Schmitt-Chretien, Senior Brand Commerce Manager at aCommerce.

Southeast Asian consumers tend to use physical stores as a platform to gain more knowledge of a wide range of products, touch and feel are very important. As opposed to selling through retail intermediaries, brands with a physical presence have the advantage of enhancing the whole shopping experience by providing in-person interactions. This can be something as simple as in-store music and lighting to set the mood, to themed decor pieces that reinforce brand identity. Sales assistants can also dress the part to create an immersive experience. Stores like Dior and Chanel often spray their signature scents in the air to play into all the senses – a unique element that intermediaries would overlook. Warby Parker, also moved from ‘click to brick’ back in 2013 to provide a special experience that could contribute towards building relationships with its customers. 

brands direct to consumer strategy in Southeast Asia

Example: A Kiehl’s Store with their trademark industrial lab style visual merchandising

Physical brick-and-mortar stores also allow brands to offer special events and in-store promotions exclusive for members only, which provides the opportunity to strengthen a customer’s return. This becomes a significant advantage for brands wanting to target the Southeast Asian market as consumers in this region hold unique views on special events. According to PWC’s report, consumers in Singapore, Malaysia, and particularly in Thailand place a significantly higher level of value on member-only events than global consumers – they value exclusivity. 

From marketing to customer experience, brands are also able to better connect with their customers through direct channels, and in turn gain their trust. In 2013, L’Oréal, boosted its ecommerce efforts with new business models to support their digital marketing strategy, one of which involved launching the “L’Oréal Paris Make-Up” application. This platform allowed users to test products virtually and create a “brick-and-mortar” type of experience. L’Oréal was able to drive traffic through their application, which effectively strengthened its brand loyalty and contributed towards its significant growth of 29% of online sales in 2013.

2. A key opportunity to collect relevant customer data to drive sales

There’s a clear difference in quality of the data collected directly from a brand’s own channels and the data accessed by third parties. The customer analytics generated from direct channels are more specific to a company’s customers, whereas buying customer data from retailers may be too generic or irrelevant for customer segmentation purposes.

In owning a brand.com site, data is easily collected through techniques such as spotting trends with user’s clicks, identifying the most lucrative search terms and analyzing customer behavior on social media sites. In doing so, brands are able to assess a consumer’s decision-making process and analyze their purchasing behaviors to personalize future campaigns for its existing customers. This is done in the following ways:

  • Customise promotions and special offers to different audiences
  • Improve and/or create new products from product feedback
  • Find the most useful visuals and messaging approaches to boost the effectiveness of marketing campaigns
  • Provide better customer service by tailoring interaction with customers

And we can draw back on brands in the past which have been able to succeed through analyzing the data from consumer purchases. In 2013, Puma’s efforts to gather and analyze data on consumer interests had significantly improved their brand marketing and engagement strategies. Apple’s use of big data over the years has allowed them to analyze their user’s behavior, build new products and determine what new features should be added to their existing products.

Ecommerce fills a gap when it comes to understanding consumer’s interests. – Tom Davis, Global Head of Ecommerce for Puma

In owning a branded retail store, brands can also obtain indirect information from its customers – a phenomenon known as ‘in-store analytics’. The ability for brands to analyze in-store performance is vital to understanding consumer behavior and manage in-store marketing campaigns, as both factors facilitate shoppers deeper into stores for maximum exposure. In recent years, Topshop was able to install a WiFi-based analytics system and fitting call bells to analyze conversion rates, which provided better insight on how to refine store layouts and position in-store advertising messages more effectively.

Customer analytics therefore enable brands to discover the hidden preferences of their consumers and better understand their needs and demands. According to a 2014 Infosys survey, 78% of consumers claim to more likely purchase from a retailer again if they accurately provided offers targeted to their interest, wants or needs. It is crucial brands maintain strong control over customer data to better understand their customers, and in turn drive sales up.

3. A direct to consumer strategy allows brands to control their pricing structures

Pricing is a factor that significantly influences the overall competitiveness of a brand’s products and affects the generated sales revenue. By selling direct, brands are able to formulate their own pricing strategies to improve sales margins, rather than being influenced by the varying pricing structures set by retail partners. Nike for example, has taken advantage of pricing adjustments by commanding higher prices for its products: a factor which has significantly contributed to its phenomenal gross margins.

Brands also no longer face intermediary costs that once consumed a percentage of its sales so there is no need for brands to negotiate pricing with retailers and brands nor outspend the competition for better in-store position and promotions. SaleStock Indonesia, a fast-fashion startup based in Jakarta, recently took a proprietary merchandise strategy with efforts to eliminate all intermediaries. By vertically integrating their design, manufacturing and supply chain processes, they are able to provide on-trend clothing at a fraction of the general retail cost in midst of the increasing competition of other e-retailers such as Lazada and Tmall.

Costs & risks to consider

In light of all the benefits of the direct to consumer model, there are associated costs. In shifting to a direct to consumer strategy, brands need to take on all the responsibilities that were once in the hands of traditional retail intermediaries. From channel to cross-border management, and from tech-development to fulfillment and delivery, maintaining operations and logistics become a significant upfront cost. On top of that, more emphasis needs to be placed on marketing your brand and its distribution channels.

Read also: How Chatbots Are About to Disrupt Social Commerce in Southeast Asia

For well-established brands such an investment is not an issue but it may be a problem for brands with a smaller consumer base. In midst of the intense competition among brands in the ecommerce and the retail market, it becomes a challenge for start up brands to establish their share in the market place. One of the major difficulties faced by the clients of aCommerce is driving traffic to their newly launched online website, particularly those who lack a strong presence on social media platforms.

Another area of concern brands need to consider is the risk of channel conflict with its retailer partners. Retailers may view brands going direct as a threat, as brands draw more sales data for themselves. Back in 2007, Dell’s shift towards selling directly to end users and abandoning its reseller partner channels caused a negative reaction in their traditional sales channels. Also, Apple’s change in focus of its whole channel towards a direct selling model forced 55% of its partners to go toe-to-toe in competition, with 14%, 33% and 46% of these partners rating the channel conflict as high, medium and low, respectively.

The power of bargaining is definitely something to look out for.

In Southeast Asia, the chances of conflict are even greater. According to Praponsak Kumpolpun, Senior Brand Ecommerce Manager of aCommerce, ‘there aren’t many strict laws and regulations where you have to follow pricing guidelines – so the power of bargaining is definitely something to look out for’. For example, let’s take a look at the big intermediary players of Thailand such as Tesco and Lazada. In holding dominant market share, such retailers force brands to maintain pricing integrity. Brands which go against these retailers and adopt an aggressive pricing strategy will jeopardize their long term relationships with them.

However, there are also opportunities to generate sales and product awareness through cross-promotion. Multiple channels can be used to stimulate interest and encourage purchases. There are several ways in which brands may do this, some of which are listed below:

  • Offer a store finder on their website so consumers can discover its retailers
  • Give retail partners advertising space to market their unique bundle promotions
  • Promote in-person store events
  • Reward high-performance retailers with prominent listings on your site

 

brands direct to consumer strategy in Southeast Asia

Figure 3: Chanel’s store finder which includes both its own retail stores and its retailer partners

Many brands nowadays incorporate “Online Channel teams” in their operations to structure a trade plan within their company. By doing so, they have the ability to adjust the slot of promotions across channels without a conflict of interest between channels. Such promotions may include bundle sets unique to each specific retailer. This strategy prevents price comparison across each channel. Alternatively, many brands sell and promote brand exclusive products. Figures 4, 5 & 6 below show the varying promotions of SK-II products unique to the SK-II brand and its retail partners.

 

brands direct to consumer strategy in Southeast Asia

Figure 4: SK-II exclusive offers on the official website

 

brands direct to consumer strategy in Southeast Asia

Figure 5: Unique SK-II product bundles from Sephora

 

brands direct to consumer strategy in Southeast Asia

Figure 6: Unique SK-II product bundle from Lazada

Previous studies do not find strong evidence of cannibalization from direct brand to consumer channels. In fact, according to a study commissioned by Digital river Inc and completed by Forrester Research Inc., more than half of the manufacturers are reported to have seen a positive effect on relationships with other sales channels from its direct to consumer strategy.

What’s next for brands in Southeast Asia

 

Ultimately, the best approach for brands is to reach their consumers through both traditional and direct channels by adopting an omnichannel retail strategy. By doing so, they are able to benefit from selling directly to consumers and can use channel conflict to their advantage. The benefits of direct to consumer outweigh the costs and risks. 

BY ALEXANDRE HENRY & YOOREE WOO

Tweet your feedback to @ecomIQ

LINE And WeChat Boost Mobile Marketing

Source: wsj.com

Marketing on mobile messaging apps has yet to take root in the US and Europe in a big way, but it is already in full swing in Asia. The operators of Line and WeChat, Asia’s most popular chat apps, are enabling marketers to tap into platforms that provide hundreds of millions of users with a variety of customized services beyond messaging, including hailing taxis, streaming music, ordering food and making payments.

Unlike its Asian counterparts, Facebook Inc. doesn’t make money from its two mobile messaging services, Facebook Messenger and WhatsApp. But both apps are testing models that could potentially generate revenue, such as showing users messages sponsored by advertisers.

Serkan Toto, a Tokyo-based mobile industry consultant, comments,

In terms of monetization, the messenger apps in Asia like WeChat and Line are light years ahead of Western messaging apps. 

Advertisements accounted for a third of LINE’s $1.1 billion in revenue last year. The company also earned revenue from mobile games and virtual stickers that people can buy and send to one another in conversations. The platform allows businesses to create official accounts for free, for instance, brands can set up a LINE account to stay in touch with its consumers, allowing them to be updated on promotions, launches and general news about the brand. Some accounts use LINE to directly communicate with consumers.

The company has also recently begun providing optimized advertisements based on user demographics and interests.

WeChat has more than 762 million monthly active users world-wide, mainly in China. Many businesses communicate with consumers and share discount coupons to draw people to their products, for example, luxury fashion brand Chanel used WeChat to interact with fashion show guests in May, sharing videos and snapshots of its new collection on the messaging platform.

Although the two messaging platform giants are pushing the boundaries of mobile marketing and creating new opportunities for brands to elevate consumer experience, both LINE and Wechat are struggling to expand beyond its core user base, serving as a bottleneck to their growth as game-changers. However, as they continue to influence how brands interact with consumers, they remain key mobile players in Asia.

A version of this appeared in The Wall Street Journal on June 22. Read the full article here.