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Founded in 2015, popular ecommerce startup Glazziq has established itself as one of Thailand’s top eyeglasses brands for the younger generation. The company is sells high quality, affordable glasses online and experiencing a healthy average monthly revenue growth of approximately 20% – with no additional help from external investors.

What makes Glazziq unique? Well, the company offers a ‘Home Try-On’ program to allow customers to order up to three pairs of glasses to try on first and for a small deposit that is returned as store credit once items are shipped back.

Sound familiar? The startup is often compared to Warby Parker, a highly successful US based startup that managed to disrupt traditional eyeglasses retailers by providing customers with a similar at-home trial.

Although initially met with a lot of skepticism, the US company is now estimated to be worth over $1 billion and since its inception in 2010, has added over 20 offline stores to assist its online growth. 90% of in-store shoppers have already visited the Warby Parker website and/or plan to make a second or third purchase online. 

The brand’s low prices and O2O strategy have attributed to its accelerated growth and awareness.

It was really about bypassing retailers, bypassing the middlemen that would mark up lenses 3-5x what they cost so we could just transfer all of that cost directly to consumers and save them money,” says Warby Parker co-founder Neil Blumenthal.

The successful integration between offline and online channels has created a unique browsing experience and propelled Warby Parker to be one of the most popular choices in North America for eyeglasses and Glazziq aims for the same success.

Although similar, Glazziq identified the demand for this kind of business model in Southeast Asia but adapted it for the region – all without the help of any external funding. How? With a smart business model, some traditional retail experience, dedicated founders and a market with high demand for spectacles.

Euromonitor forecasts that glasses in Thailand is expected to maintain a compounded annual growth rate of 5% to push sales to reach $13 billion by 2021. With so much potential, it’s surprising no company in Thailand has found a way to sell better to the digitally adept generation.

Equipped with an MBA from Kellogg Business School, on-the-ground experience from her family’s own 50 year old glasses retailer Better Vision and SET listed global lens manufacturer Thai Optical Group, co-founder & CEO Prinda Pracharktam decided to build Glazziq.

Prinda shared that people often admitted they felt pressured under the watch of a salesperson and unwilling to pay high prices for brand name frames and lenses. Others were overwhelmed by the sheer selection of eyeglasses. Glazziq wanted its frames to be affordable and designed to suit the tastes of its target market of 20-35 year olds.

The online glasses store was born to be the solution to these particular pain points so now how could they keep its fickle millennial demographic engaged?

The Glazziq Experience: Laid back, Trendy & Fresh  

When Glazziq was founded two years ago, Prinda and three other co-founders did everything in-house from snapping street style images of casual models to running online marketing campaigns and optimizing the design of the website.

By focusing on quality web content to mirror the appeal of flipping through a glossy magazine, Glazziq elevated the browsing experience for its customer. The company borrowed the same concept Instagram and Facebook fan pages used to keep their audiences engaged –  relatable content that inspired.

And this concept is evident in each collection from Glazziq. There is a clear focus on “everyday” imagery and the company keeps its product line trendy through a new model release every quarter and offers over 170 styles.

By creating a fresh and visually appealing shopping experience for browsers, Glazziq removes the pressure to buy and instead provides the customer with everything they need to make an informed and satisfying purchase: multi-angle views, information on glasses material, styling examples, etc.

“Glazziq focus on personalization to improve brand loyalty,” says Prinda. “We cater to our customer’s unique tastes by providing them with styles that are either popular in magazines or edgy frames that can’t be found elsewhere.”

glazziq thailand

The Glazziq Model: DTC

Glazziq operates on a direct-to-consumer model. The startup manufactures the glasses themselves from custom designs and leverages resources from its partner, Thai Optical Group. This allows Glazziq to keep prices affordable while maintaining high quality, models start at $56.26.

The company operates like a fast fashion brand in charge of its operations and brand identity, bearing similarities to the business model of another highly successful Thai fashion brand Pomelo.

Glazziq’s extensive offline network gives it an advantage over other online platforms. Prinda shares that Glazziq’s UV400 color lens provided by Thai Optical Group is unique only to them and they collaborate to keep up with consumer trends. The company also works with Better Vision to offer a free eye prescription test and after sales care including frame repair, frame adjustment and lens replacement, all the crucial components that are often missing from purchasing eyewear online.

To ensure efficient supply chain operations, order information from a customer is sent directly to the lens manufacturer where Glazziq stores its frames. The product is then assembled and delivered directly to customers nationwide through a mix of third party logistics couriers. The return process is also simplified through Glazziq’s partnership with 7-Eleven that makes its “Home Try-On” program even more appealing.

Customers can return sample glasses from the program to any 7-Eleven branch – something that happens 10-20% of the time. The program has proven to be successful as home try-ons welcome a healthy 60% conversion rate. Although the company’s primary focus is on Thailand, the team plans to expand to Singapore and Malaysia where Better Vision is also present.

The Glazziq Future: Integrating Offline Touchpoints

The Glazziq team knew when they launched that they wouldn’t remain a pure online brand and began to tread the offline waters in 2016. Glazziq’s decision came from a cautious outlook on Thailand’s landscape – the country’s ecommerce industry is predicted to make up 15% of total retail sales by 2024, although a sizable jump from the current 3.8%, it would still leave a staggering 85% offline presence.

“Thailand still remains a thriving offline retail landscape, people are never going to stop shopping in department stores or malls,” Prinda comments.

So came the decision to launch an offline showroom in one of Thailand’s bustling office districts in a coffee shop called Printa Cafe.

“We didn’t want a typical brick and mortar store. Using a high-traffic location such as a cafe gives our products a lot of exposure and the relaxed environment encourages people to try on different designs between cups of coffee. We wanted something entirely different from going to an eyewear store with a sales attendant breathing down your neck. We hope customers purchase because they’ve found a suitable model they like,” Prinda comments.

And it seems to be working as Glazziq recently added a second offline location to its portfolio at Casa Lapin – a coffee shop and co-working space highly frequented by young professionals.

Glazziq’s second offline showroom at Casa Lapin, a popular coffee shop and co-working space in a busy area in Bangkok.

Glazziq’s first showroom at Printa Cafe, located below the startup’s HQ.

To buy at the showroom, shoppers can simply scan the QR code on the product or buy online through the site’s search function. The customer can then make an online transaction via credit/debit card payment or bank transfer and the product is delivered within 5-10 business days.

Prinda believes Glazziq’s offline presence will double the number of sales and bring more awareness to the company’s “Home Try-On” program. It also hopes the added exposure will give the brand a new audience who will enjoy the entire Glazziq experience.

“Every channel has its own forte. For our brand, it’s better to close sales online and tend to customers offline,” Prinda says. “You have to synchronize and blend both online and offline experiences in order to succeed.”

THIS ARTICLE WAS BASED ON eIQ’s INTERVIEW WITH GLAZZIQ FOUNDER, PRINDA PRACHARKTAM

Amazon’s rapid expansion into private label brands

Earlier today, TechCrunch published an article titled “Amazon to Expand Private-Label Offerings—From Food to Diapers” detailing Amazon’s successful push into private label brands covering lucrative categories ranging from batteries, mom & baby to even perishable food items. The concept of retailers selling their own private label brands has been around for ages, mainly adopted by grocery chains with the goal to increase margins for often low-profit consumer packaged goods (CPG) categories. It’s not so much players like Amazon are doing this but how and why they’re doing this that should ring some alarm bells with brands.

The ultimate bait and switch

Global ecommerce giants like Amazon and, increasingly, local Southeast Asian players like Lazada and MatahariMall are offering perks to entice brands to open stores and sell through their platforms. This strategy resembles Ladies Night at clubs, where women are offered free drinks to indirectly lure men, who, more often than not, end up with a headache, alone and having burnt a hole in their pocket at the end of the night.

With aggressive promotions and subsidies from their hosts, brands often see quick short-term gains in online sales. The extreme example here is 11.11, a man-made online shopping festival during which retailers compete in the Discount Olympics. Obviously, brands benefit from spikes in sales but little do they know that they’re actually selling their souls in the long-term. It’s like crack, it makes you feel great for a while but sooner or later it’s hollowing out your body.

With the massive amounts of data generated on a day-to-day basis, these ecommerce platforms can easily identify consumer trends, such as best selling products and categories beyond what brands are able to see themselves. This data is then leveraged by retailers to develop and introduce their own private label brands to compete with the brands they partnered with in the first place.

Once launched, these platforms could favor their own white-label brands by giving them more visibility through favorable product placements as well as top rankings on internal search result pages.

The bigger picture

Players like Amazon and Alibaba’s Tmall aren’t really traditional ecommerce retailers. Their main objective is to use competitive pricing, often subsidized, on retail products to acquire more and more users, which they then monetize through other means such as Amazon Prime subscription fees for Amazon and onsite advertising and Alipay transaction fees for Tmall.

Amazon’s new CPG brands like Happy Belly and Mama Bear are only available to Prime members in a move to incentivize joining its $99-a-year unlimited shipping program that’s fueling Amazon’s retail growth behind the scenes.

In a post-Alibaba acquisition world, ecommerce power-players like Lazada could potentially increase awareness of their own private label brands through better placements on their marketplace, eventually forcing other brands to pay more for advertising to rank higher and get traffic.

With private labels, Amazon and the likes of Lazada also have more “room” to play in terms of pricing, allowing them to maintain sustainable low prices, keep driving more users and spinning the flywheel.

Strategies for brands

Brands like P&G, Unilever and Nestle should look at ecommerce marketplaces as a relatively easy way to test selling online but in the long-term, brands are arguably better off selling direct-to-consumer where they have full control of the brand image, customer experience and, most importantly, user data.

A case in point is Coach. The luxury brand was one of the first brands to set up shop on Tmall in China but recently closed down its official flagship store, leaving the brand with only a brand.com and WeChat presence. Many luxury brands have expressed concerns about the mass-market image of some of the bigger marketplaces.

Brands don’t have to pick between marketplace and brand.com only. Some brands like L’Oreal have adopted a multi-channel approach where their marketplace presence generates sales for their more mass and lower price point items whereas their brand.com site sustains long-tail and higher average order value sales.

At the end of the day, marketplaces are a great way for brands to jump into ecommerce. However, brands should be aware of the pros and cons and especially long-term implications of such a decision.

BY SHEJI HO

Betagro marketing

The rise of technology and the internet isn’t just disrupting traditional retailers; it’s also enabling brands to reach their customers directly without the need of a ‘middleman’. Dollar Shave Club effectively sold to their loyal subscribers without ad agencies, traditional media or offline distributors like Walmart and Walgreens.

With the Death of The Advertising Industrial Complex looming upon us, traditional, mass advertising such as outdoor, print, TV and distribution through offline brick and mortar retail are rendered inefficient. Companies like Unilever have no choice but to acquire ‘the little guys’ like Dollar Shave Club to stay relevant.

It doesn’t end here. Fresh off their $1 billion acquisition of DSC, Unilever is already in talks to buy Jessica Alba’s Honest Co. for another $1 billion.

The Advantages of Moving Towards Direct-To-Consumer

In many of his speeches, Alibaba’s founder and chairman Jack Ma talks about how the world is moving from Information Technology (IT) to Data Technology (DT). In a DT world, businesses have direct relationships with consumers, enabling the former to collect data to build and market products and services personalized to the latter.

One classic example is Xiaomi, the Chinese electronics company and 4th largest smartphone maker, who sells attractively priced smartphones on its website to drive the direct relationship with its users. The company then uses the data to push peripheral products, plush toys, software, and online and mobile advertising.

Amazon is the other example, selling other people’s products at lower margins to get the volume it needs to monetize through marketplace fees and Prime subscriptions:

Amazon, meanwhile, is transitioning to a new model completely. The vast majority of Amazon’s products are increasingly sold with little to no margin at all: profitability comes from fees paid by third-party merchants and Prime subscriptions. It is a model that is completely dependent on scale, and the lower the margin and thus prices, the higher Amazon’s volume, which means ever more leverage from Amazon’s massive fixed costs in infrastructure and logistics.” – Ben Thompson, Stratechery

This transition from IT to DT is exactly what Unilever is trying to achieve through its acquisitions of Dollar Shave Club and Honest Co. Both firms enjoy better margins through online marketing and distribution. More importantly, they own the direct customer relationship, which they leverage into higher customer lifetime values through innovative models like subscription commerce.

Direct-to-Consumer Accelerated in China and Southeast Asia

China and Southeast Asia are growth markets unburdened by a legacy offline retail infrastructure meaning brands are jumping over the middleman at a much faster pace than in mature markets like the US, Europe or Japan.

Why did internet ecommerce grow so much faster in China than in the US? Because the infrastructure of commerce in China was bad. Unlike here, where you have all the (physical) shops: Walmart, K-Mart, everything, everywhere. But in China, we have nothing, nowhere. So ecommerce in the US is just a dessert; it’s complementary to the main business. But in China, it’s the main course.”Jack Ma, Founder and Chairman, Alibaba

An example of traditional, non-conventional brands going direct to consumer is Yurun Group, China’s second-largest meat supplier in China. Based in Nanjing, Jiangsu province, Yurun operates in two sectors, chilled and frozen meat, and processed meat products, which are marketed under the brand names of Yurun, Furun, Wangrun, and Popular Meat Packing.

Yurun operates an official Tmall flagship store through which the company sells its various brands and products and also distributes digital vouchers.

Betagro marketingBetagro marketing

Betagro marketing

Capturing the Direct-to-Consumer Opportunity Through Digital Transformation

Fashion, electronics, and consumer packaged goods (CPG) aren’t the only categories that are increasingly being sold online. Let’s take a look at Betagro, a 50-year old Thai food manufacturing conglomerate, and identify the opportunities available for the company to go direct-to-consumer and transform itself to capitalize on today’s digitally-savvy consumer.

Who is Betagro?

Betagro Group was founded in 1967 by Dr. Chaivat Taepaisitphongse, the company’s current chairman. Headquartered in Bangkok, Betagro engages in animal feed production, livestock, animal health products, and food product businesses. The company is known for its brands like S-Pure eggs, Better Food, and Dog’n Joy pet food.

Betagro Value Chain & Gap Analysis

Below is a simplified overview of Betagro’s value chain. We specifically looked at Marketing and Sales & Distribution, two areas that are typically impacted by internet, ecommerce and technology.

Betagro mainly sells through retail partners like Tops, Tesco Lotus, Big C, and Family Mart and its own distribution channels, namely Betagro Shops, with a footprint of over 100 in Thailand. Unlike its main competitor Charoen Pokphand Foods PCL, who has access to massive distribution through its 8,000+ 7-Eleven branches in Thailand – Betagro still has to rely on partners.

From a marketing perspective, like many other traditional business in Thailand, Betagro still uses offline channels such as event marketing through roadshows, mall booths, etc. and sampling in supermarkets. Its online efforts are limited to its corporate website Betagro.com, which is lackluster, and content marketing on its “Betagro Society” YouTube and Facebook pages.

Betagro marketingMaximizing Marketing Opportunities

To maximize the company’s online efforts, there exists many opportunities across the user journey for specifically Content Marketing and Influencer and Affiliate Marketing that we highlight here. 

betagro marketing

Content Marketing: Videos

Given the very nature of its business, content marketing is a great way to educate, activate and engage customers for Betagro. Similar to how Dollar Shave Club leveraged its now cult-like “Our Blades Are F**king Great” viral video to spur its initial hyper growth, Betagro can create cooking videos and online recipes to engage their audience and build brand identity.

Betagro’s official music video on YouTube garnered over 5 million views in less than one year’s time. Although impressive, it pales in comparison to short-form cooking videos on Facebook like those by Tasty, some racking up over 30 million views in less than 12 hours.

Betagro marketing

Betagro marketing

Facebook’s powerful short-form, auto-play videos are now being applied by food business in Thailand such as Unilever’s Best Foods.

Content Marketing: Recipes

Best Food’s US website is another great example of using online recipes for SEO and engagement. While Betagro’s website mainly covers corporate information, Unilever’s BestFoods.com offers many recipes that allow the brand to display their products in attractive high-res imagery – selling without direct selling.

Betagro marketing

Having recipes online not only helps with engagement but also with SEO, resulting in an increase in organic traffic from Google. A quick look at Similar Web data for BestFoods.com shows top keywords are all recipe-related ones.

Betagro marketing

Influencer & Affiliate Marketing

Facebook paid advertising is one way to distribute content for Betagro. Another – and sometimes more efficient way – is to leverage influencers or “Key Opinion Leaders” (KOLs). In Thailand, due to a “no-tail” environment, a lot of these KOLs are on Facebook instead of having their own blogs or websites. Below is a list of popular cooking and food related KOLs.

Betagro marketing

Betagro could partner with these KOLs to educate and increase brand awareness through text and video content directed at an audience with interest in their products. In the Mai Yom Auon example above, the page owner cooks using a pan provided by the advertiser Korea King.

Another way to leverage these KOLs is by adding them to an affiliate program where the aim is to drive traffic to a future Betagro ecommerce website – either in the form of a brand.com or shop-in-shop on a marketplace.

Betagro marketing

Betagro marketing

Betagro marketing

Influencers can post a ‘shop’ on their official Facebook page to showcase the brand’s products to their fans.

 

Monetization: Ecommerce

The amount of distributors for Betagro products are limited leaving the company to the mercy of its retail partners such as Tesco Lotus and Family Mart. But by offering its products online, Betagro is able to increase its leverage vis-à-vis these partners as well as collect data from the end consumer.

Similar brands have already started doing so such as Yurun Group in China on Tmall and Globo Foods in Thailand on Lazada.

Betagro marketingBetagro marketingBetagro marketing

Monetization: Online-to-Offline

Betagro can also leverage digital channels to drive offline sales. For example, Honestbee and HappyFresh are food delivery apps that are being used by major food retail distributors across Southeast Asia.

By partnering with these companies, Betagro can help drive foot traffic to offline Betagro Shops as well as promote and advertise Betagro brands and products.

betagro-happyfresh

By implementing the marketing strategies mentioned above, Betagro will be able to expand their audience, increase sales and jump ahead of competitors. The best part?  without largely denting their budget.

Written by Sheji Ho, aCommerce Group CMO

Betagro Case Study: Direct-to-Consumer Opportunity Through Digital Transformation Full Download

Amazon just had its greatest quarter ever. Revenues hit $29.1 billion versus the projected $27.99 billion, citing a 28% year-on-year growth. More importantly, it marked Amazon’s fourth consecutive profitable quarter, reporting $513 million in net income, the highest ever in the company’s history.

As a result, Amazon’s stock price peaked at a record $767.74. Over the last two years, Amazon’s stock has more than doubled while those of its traditional retail peers like Macy’s have remained flat or even declined. And this is just the beginning of Amazon’s growing success and decay of the traditional retail model.

A colleague asked me a few weeks ago which stocks I would invest in. “One, Tesla, and two, Amazon,” is what I answered. Little did I know he had regrettably sold his Amazon shares a few years back expecting it to decrease in value.

Why would someone want to invest in Amazon stock at such a peak price? Very simple. Amazon’s dominance and stock value will only keep increasing with the ongoing global structural shift from offline retail towards ecommerce. Ecommerce penetration in the US today is “only” 7.7%.

Can you imagine Amazon’s stock price when this number hits 50%? Never mind economic recessions impacting people’s purchasing power, America’s consumers – Amazon’s home field audience – will keep on buying even if that means borrowing more money from the Chinese.

ecommerceIQ, 10-year returns for major retailers in US

10-year returns for major retailers in US. Amazon stock beat the Nasdaq index by almost 20x over the last 10 years whereas traditional retailers’ stock prices have remained flat or declined. $1,000 invested in Amazon stock in 2006 would have been valued $26,993 today (unadjusted for inflation). Source: Google Finance, August 2016

Short-term, traditional metrics impede long-term strategic vision for traditional retailers

When speaking to traditional retailers across Southeast Asia about doing ecommerce, the question that always comes up in one way or another is, “What’s the Cost of Sales (CoS) for investing into and growing my ecommerce business?”. In ecommerce and the tech space, many of us are familiar with using metrics like customer acquisition cost (CAC), customer lifetime value (CLV), and return on investment (ROI).

However, the metric that resonates most with offline retailers is cost of sales, which is essentially marketing investment divided by revenues. It’s the percentage of revenues that traditional retailers allocate for marketing spend in their annual budgeting.

CoS for traditional retailers often hovers around the 5% mark, driven by legacy organic offline traffic and brand awareness. For ecommerce, especially during the first few years and depending on how aggressively the business acquires customers to grab market share, this number can be somewhere between 50-150%. Obviously, this is much higher than the number traditional retailers are accustomed to and, as a result, is often a major deal breaker for offline businesses thinking of moving into ecommerce.

Fortunately, CoS goes down when the number of SKUs online increase, leading to more organic traffic, higher basket size, and more frequent repeat purchases. In the long run, as ecommerce businesses are able to build up their customer database and find multiple ways to monetize it (more on this later), CoS will decrease and potentially be comparable to comfortable offline retail channel values. aCommerce internal data shows an example of a multi-category online retailer in Thailand starting at approximately 25% CoS and trending down to 5-10% at the end of year one and 5-8% by end of year two.

Unfortunately, most of the traditional retailers in Southeast Asia fail to adopt a long-term vision and never make the initial jump into ecommerce. The lack of talent in the region exacerbates the issue as many retailers have no choice but to put offline retail people into ecommerce positions whose mindsets aren’t wired to think beyond the next holiday season.

In year one, CoS is a whopping 30% but trends down towards 15% by the end of year two, indicating an alignment with offline retail costs in the long term. Source: aCommerce Internal Data, May 2015

In year one, CoS is a whopping 30% but trends down towards 15% by the end of year two, indicating an alignment with offline retail costs in the long term. Source: aCommerce Internal Data, May 2015

Controlling the last-mile: It isn’t about selling more physical products, it’s about who owns the customer

Traditional retailers often see ecommerce as just another store but online. This legacy mindset prevents them from seeing the grand scheme of things.

Unilever didn’t buy Dollar Shave Club (DSC) for $1 billion for better razors, it bought the direct relationship DSC has with more than 3 million male dominant members and the potential to sell them adjacent products and services. Rather than going through retailers like Walmart, Unilever can now go direct to its consumers with all the benefits including higher margins and deeper customer insight.

Alibaba didn’t buy Lazada as a distribution channel for more Chinese products, it bought the direct customer relationships and distribution power to bring in higher margin products and services such as payments and insurance.

It’s only a matter of time before Jack Ma brings his trojan horse Ant Finance and all its associated products such as Alipay (third-party payment platform) and Yu’e Bao (online mutual fund) into Southeast Asia. Alibaba’s foray into insurance through Zhongan and its recently announced partnership with AXA shows us a future where Alibaba can increase its average revenues per user through selling non-physical products online.

Xiaomi pretty much gives away its smartphones for free by selling it at close to bill-of-material prices. Their goal is to amass a huge user base and monetize through selling them peripheral products, plush toys, software, and online and mobile advertising. With over 170 million users as of 2016, Xiaomi has more users than Snapchat (70+ million) and is catching up to LINE (220 million).

The Procession of the Trojan Horse in Troy by Domenico Tiepolo (1773)

The Procession of the Trojan Horse in Troy by Domenico Tiepolo (1773)

Pure-play, Internet first retailers are bringing their game to traditional offline retailers

Traditional retailers still believe they have one unique advantage over pure-play retailers: their physical stores. All the hype and buzz about omnichannel retailing has been a ray of hope for the Macy’s and Walmarts of our world. Even as Macy’s shuts physical stores, it has been ramping up its omnichannel game by transforming the surviving ones into show rooms and mini-fulfillment centres for in-store pickup of online orders.

Today, the company no longer breaks out online sales in its investor reporting, arguing the lines have blurred between website and stores. Walmart, having missed the ecommerce boat, has doubled down on omnichannel as well, expanding its ‘buy online and pick-up in store’ initiatives to around 30 markets in the US.

Unfortunately, even that advantage is slowly being eroded as pure-players are quickly moving offline, not so much for distribution but more as an extension of their online brand.

“By opening stores, brands have increased consumer awareness and subsequent site traffic. These disruptors saw the Internet as a way to establish a proof-of-concept and access cheap capital before making the leap to retail.” — L2 Inc

Warby Parker has 12 retail locations across the US, with plans to open seven more. The same applies to Birchbox, the online subscription beauty retailer, which has a flagship store in SoHo in New York and is planning to open at least two more by end of 2016. Even Amazon launched its first physical store in Seattle in late 2015 with a second one planned for Southern California.

Online player Warby Parker has 12 offline stores in the US.

Online player Warby Parker has 12 offline stores in the US.

Contrary to traditional retail merchandising strategies, these stores typically go beyond the “big head” of products and focus on displaying as many product variations as possible, including “long tail” SKUs. The objective isn’t to sell in the store; the goal is to get customers to experience the brand and the products so they’re more likely to buy online.

“These stores carry little physical inventory onsite and are instead designed to help customers zero in on their ideal sizes and fits. This approach echoes that of the company’s website, giving every single item its own opportunity to shine.” — Erin Ersenkal, Chief Revenue Officer of Bonobos.com

It’s not hard to imagine Alibaba and Lazada opening offline stores across Southeast Asia to serve as marketing and branding channels. With the shortage of online and offline customer acquisition channels and increasing cost-per-clicks in emerging Southeast Asian markets like Thailand, Indonesia, and Vietnam, having your own proprietary offline channels provides a strong competitive edge over traditional retailers as well as online peers.

Debunking the omnichannel advantage myth for traditional retailers, pure-play, Internet first retailers going offline are seeing better store efficacy. Source: L2

Pure-play ecommerce going offline has better efficacy than many traditional retailers. Debunking the omnichannel advantage myth for traditional retailers, pure-play, Internet first retailers going offline are seeing better store efficacy. Source: L2

 

Pure-play, Internet first retailers opening offline stores see a significant lift in organic traffic to their websites. Offline stores are more than just another fulfillment centre; they’re becoming a proprietary branding and customer acquisition channel. Source: L2

Offline stores serve as a branding and marketing channel. Pure-play, Internet first retailers opening offline stores see a significant lift in organic traffic to their websites. Offline stores are more than just another fulfillment centre; they’re becoming a proprietary branding and customer acquisition channel. Source: L2

The role of ecommerce for traditional retailers

Traditional, offline retailers are left with two choices when it comes to ecommerce adoption:

1. Ecommerce as another store branch

Treat the online store as another physical store and benchmark it based on the same cost of sales metrics (Eg. 5%), or in Jack Ma’s terms, “Ecommerce as a dessert, not the main course.” Don’t expect hypergrowth with this approach due to short-term metrics ruling out any big, upfront investment. The long-term threat here is that brands being sold by the retailer will cut the retailer out and go direct to consumer themselves as they get the upside of higher margins, customer data, and transparency. Unilever’s move to buy Dollar Shave Club is to do just that, and razors are just the beginning.

2. Ecommerce as the channel to own customers

Use ecommerce as a scalable and cost-efficient channel in the long term to acquire and own direct customer relationships. Later, use these relationships to sell more products, both physical and non-physical, especially higher-margin products like financial services (insurance, loans) and advertising. By owning more customers, retailers increase their bargaining power vis-à-vis brands that increasingly take the option to cut out retailers and go direct.

Not all retailers in Southeast Asia are settling for ecommerce as just another store branch. Lippo Group’s MatahariMall is one example. With top-down support and a long-term outlook from John Riady, heir to the Lippo empire, MatahariMall.com is quickly becoming the number one competitor to Lazada in Indonesia. Moving beyond only retail, MatahariMall is also going into payments and financial services through a partnership with Grab. In Thailand, Central Group is stepping up its ecommerce game with the recent acquisition of Zalora Thailand and Vietnam, and Cdiscount Vietnam.

It’s evident that in order to survive, traditional offline retailers like Matahari, Central Group, or The Mall Group need to successfully reinvent themselves to take on the foreseeable onslaught of pure-play, Internet-only retailers like Lazada moving into their territory.

Traditional retailers also need to worry about online brands cutting them out entirely and adopting a direct to consumer model, something already bubbling in the works for brands like Nike. However, the best bet is on the smart retailers who can carve their own ecosystem, own customer relationships – most of which are increasingly digital, and monetize through a multitude of ways (eg. insurance, advertising, services) and not by peddling products at increasingly low margins. Then, and only then, will the traditional retailer as a distributor survive the disintermediation brought upon them thanks to technology. 

Don’t suffer the same fate as Circuit City.

By Sheji Ho

Share your feedback to @ecomIQ and @sheji_acommerce

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

While there is plenty of buzz around brands building their own webstores instead of a strategy focused on distribution through e-tailers such as Amazon, Tmall, or Lazada, Southeast Asian brands are still undecided on whether to move online at all. This is despite ecommerce growth projected at 25%, tantamount only to China’s growth (AT Kearney 2015) but there are trailblazers – brands ahead of the curve who have decided to invest in their brand.com stores in Southeast Asia such as HP, Maybelline, Kiehl’s and Nescafe in Thailand.

In the US, brand.com accounts for only a small portion of online sales. For example, Estée Lauder’s brand sites generate 5.56% of all online sales – around $10.79B. In Southeast Asia, the number is even smaller primarily because of how early stage ecommerce is compared to Western counterparts. Yet as seen with SME Mabeza in the February Newsletter, businesses of all sizes are starting to mark their own online territory. Figure 1 shows that for enterprise level brands, there is indeed optimism in the channel. *These brands were chosen specifically because they use end-to-end services with aCommerce, decreasing the variables.

Aggregating internal data from 2015 revealed that webstores experienced 15% month-on-month GMV growth from Jan 2015 to Dec 2015 and averaged over 300% growth in the same year. The brand that grew the fastest was Maybelline then HP, Kiehl’s and lastly NESCAFÉ Dolce Gusto

Cost breakdown of a webstore strategy & ecommerce

The investment into a full brand.com strategy for a globally recognized business, which includes site development, store management, merchandising, logistics, fulfillment for one year is not black and white. There are many variables such as industry, product category, order size, volume of orders, packaging and more. To illustrate, here is a very rough breakdown of the process, but again, it does vary depending on the client and their needs.

Site development & backend.

To develop a fully integrated ecommerce store with Magento can cost anywhere between $20,000-80,000 USD. This price doesn’t include hiring a webmaster, someone technical who maintains and fixes the site issues and bugs, who can charge almost $3,000 USD monthly maintenance fee. Webhosting and bandwidth usage can also range anywhere between $2,000-10,000 USD per month, depending on the size of the business. How developed and fast the site is will directly and indirectly impact conversion rates, Google SEO rankings, average order values (AOVs), and repeat purchase rates.

Storefront.

Your team will also require a Store and Merchandising Manager. This process covers merchandising, inventory, promotions on site, updating images and more across the brand.com site as well as other channels such as Lazada, starting at $4,000 USD per month. This is not a low-level operational role; Store and Merchandising Managers for ecommerce sites make scientific, data-driven decisions to optimize product and promotional placements across the site. Good and average store managers often mean the difference between 1x and 3x your monthly average order values.

Fulfillment.

Fulfillment and delivery can range between $1-5 USD per order depending on location and weight of order, customer service requirements, etc. Based on your company’s volume, the cost of logistics will vary greatly. Due to low credit card penetration and inexperience with online shopping, last mile in Southeast Asia requires options such as cash-on-delivery and reverse logistics to appeal to customers trying ecommerce for the first time. 

Marketing.

Kevin Costner’s famous line in Field of Dreams, “if you build it, they will come,” does not apply to ecommerce shops. A brand webstore needs online marketing campaigns that include Google Adwords, Facebook marketing, dynamic re-targeting , email newsletters, and more. There is too much competition that exists online meaning sites will not sell unless they pay for the attention of the consumer. Even the most popular of brands have large marketing budgets.

Brands are expected to spend between 20-30% of sales revenue on marketing and advertising. For offline brands and retailers, the cost of sales (CoS) metric is typically a single digit percentage. However, for ecommerce, this number is higher, especially during the first two years of operations, when the main focus should be on building the brand, acquiring customers, and increasing the subscriber database. Once the number of repeat customers increases, revenues go up and CoS will go down. Multi-channel brands and retailers often struggle to build a case for ecommerce because the entrenched mindset still expects single digit CoS but to succeed online, brands need to look at the long-term benefits and set expectations for CoS accordingly.

Overall, businesses are looking to at least $100,000 USD investment over a one year period and this does not factor in the variable factors: logistics or marketing.

Why businesses are investing in brand.com stores in Southeast Asia

Brand.com stores in Southeast Asia are an important channel. As Fig. 2 in Graph 1 indicates, this channel was the largest driver of gross margins in 2015 with over 45% MoM. Beyond sales, there are three critical reasons why brands are building out their webstores: 

  1. Owning customer data – This is important because applying this data can increase customer lifetime value in the long run via targeted, personalized marketing, particularly O2O opportunities & loyalty reward programs.
  2. Total control of branding – For high-end businesses, brand identity is as important as the product itself. Owning your own webstore allows you to fully showcase and build a solid brand that your customers can identify with. You have complete freedom on how you wish to market your shop. 
  3. Higher margins – By selling on your own domain, there will be no expensive commission or payment processing fees. 

So is it worth it?

Yes, but the answer is not that simple even for enterprise level brands. These are some factors to consider beforehand:

  • How many SKUs does your brand have? If you are an FMCG brand who only sells toothpaste, consumers will not buy it online as it is a product that can be easily purchased offline amongst a larger selection (eg. grocery store). To drive traffic to your site, you can offer an immensely beneficial reason for shopping on your webstore. Take the Dollar Shave Club for example, an ecommerce business that generated a mass volume of orders from a small range of products ($1 razors). The secret? A subscription model. On the other hand, in the case when a major brand, like P&G for example, has a wide range such of toothpaste, shampoo, dog food and everything for the home, it may be worth creating a branded store.
  • What is the average order volume and average order value? Low-priced items do not make the investment into brand.com worth it unless coupled with other strategies such as order bundling, subscription models or charging delivery fees. 
  • How loyal are your customers to the brand? When fake items are rampant in Southeast Asia, customers are loyal to an outlet they can trust and a brand.com store guarantees that. People who buy high-end goods are also not necessarily bargain hunters and are looking for a site they can trust coupled with convenience.

As more entrants tackle Southeast Asia, like imminent Alibaba and Amazon, this may change over time, but our data shows that Lazada remains the most powerful marketplace for non-fashion and luxury brands at 36% of GMV. Other channels such as mobile, online pop-shops and other marketplaces play an important role as well.

The key take away from brand.com stores in Southeast Asia and channel data in figure 1 and 2 is that businesses should be taking a multi-channel approach.

“What our 2015 data shows is that it is important to realize that brand.com strategy is a complement and not a replacement of a wider distribution strategy,” said Raphaël Gaillot, Director of Merchandising at aCommerce.

And as ecommerce in Southeast Asia matures and more brands take the plunge, it is equally important for brands to be creative in ecommerce strategies because there is not a one-size fits all model.