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Criteo Exec Connect 2017 in Bangkok

“The question that needs to be asked is not for more channels but have we maximized our efforts in the current ones?”

This comment comes from Scott Minteer, VP of Online Marketing at LOOKSI (previously Zalora Thailand), during an executive roundtable held by Criteo Exec Connect last week.

The once popular question, “should I go online?” has long passed.

In a room filled with the region’s top ecommerce players, enablers and forward thinking global brands – LINE, Lazada, Agoda, Beiersdorf, Meiji, aCommerce, Orami, Konvy, etc. – the question has now become, “how do I maximize the returns on my existing ecommerce assets?”

How can I drive a higher number of quality users to my app, my webstore, my marketplace shop-in-shop to increase conversions?”

When the majority of retail’s biggest names are trying to reach customers through a desktop/mobile website, marketplace official shop, and/or dedicated app, it’s easy to get lost in the digital space.

This is where quality commerce marketing technology comes into play.

Companies with vast ad networks mixed with new age machine learning such as Criteo, one of the world’s largest commerce marketing ecosystems, exist to help growing businesses like fashion retailer ZALORA and booking giant Expedia capture the attention of Southeast Asia’s most relevant 200+ million digital consumers.

Commerce Marketing

Alban Villani (Criteo), Julien Chalté (LINE), Thanawat Malabuppa (Priceza)

ecommerceIQ chats with Alban Villani, General Manager of Criteo Southeast Asia, Hong Kong and Taiwan, to understand where the region stands in terms of marketing maturity, how brands can optimize online performance and how businesses can adapt to gain more from marketing tech.

But First, Education.  

There are multiple ways that a business can drive traffic to its ecommerce store – banner ads, search keywords, SEO-optimized content, etc. – but marketers need to first understand if they are utilizing the right channels for their market.

Is the business driving traffic to the best channels?

Alban believes there are a few changes that need to happen before retail can really take off in the region.

  1.     Ditching a conservative approach

“Smaller brands need scale and personalization to compete on equal footing with larger retailers. Sometimes all marketing effort is still placed only on desktop,” says Alban.

The desktop started as the main device favored by consumers to shop on but in order to reach the new generation of shoppers using various devices to browse through multiple platforms, companies need to capture much more information than the conventional statistics reveal such as age, gender, geographic location, etc.

MatahariMall.com, one of Indonesia’s largest retailers, used a Criteo specialized retargeting tool to discover an online visitor’s readiness to purchase by assessing factors such as consumers’ online navigation patterns and what they add to ‘shopping carts’. This increased the e-retailer’s advertising ROI by 900%.

Once a customer has been segmented, simple dynamic retargeting tools can then display the most relevant ads in real-time to them later in the purchasing funnel and local brands can leverage targeted marketing to capture relevant shoppers outside the walls of their own assets on third-party apps like Facebook.

Take for example, Joan is browsing on the Lazada app for a Maybelline lipstick on the brand’s official SIS (shop-in-shop) during her morning commute to work. In the evening, she accesses her desktop computer at home to look at vacation photos on Facebook when she notices an ad that shows her the same lipstick she didn’t purchase earlier in the day. She decides to buy.

https://www.youtube.com/watch?v=1vgAQvWZMzk

Businesses of all sizes are slowly beginning to realize that channels are all connected and marketing efforts should reflect the same by tracking cross-device and cross-platform performance.

  1.     Investing into a mobile application

“They [brands] are already making money on web, so they don’t spend too many resources on app,” says Alban.

Southeast Asia’s affinity for smartphones has caused companies such as Shopee and LOOKSI to adopt a mobile-first strategy to reach a wider audience. By building an app with strong UX and ads targeted at encouraging installs, they can directly send alerts and deals with loyal customers.

Central Group’s Scott commented that majority of the LOOKSI’s revenue came from its app.

Commerce Marketing

LOOKSI app advertising

“We build brand awareness through desktop so it’s still needed but the conversion rate is higher on the app,” says Scott.

The popularity of mobile apps in the region and performance marketing tactics like in-app retargeting by Criteo increased Zalora’s app traffic and sales transactions by 9X from September 2015 to 2016.

More than 4 in 5 Thai respondents find it more enjoyable and convenient to use a retail and shopping app over a brand’s mobile website – Criteo APAC Research

“The key to mobile success is keeping the retention rate high because even a 5% increase could grow the value of purchase from anywhere between 20 to 90%,” shared Ronen Mense, VP Asia of Appsflyer, during the roundtable.

“You can talk about the future and what’s going to happen based on future technologies like progressive web apps, AR, VR,” he continues. “But the most important thing to focus on is where your consumer is engaging with your brand and service today. If you wait until a new technology reaches critical mass, it will be too late.”

“The focus isn’t only on installs anymore, the key challenge for brands is encouraging repeat usage and improving conversions,” says Alban. “Very simply, it costs more to acquire a new user than it is to retain an existing one.”

A Real Marriage Between Online and Offline Data

“Thailand started to slow down in [retail] progress a year and a half ago. What we have seen is mostly consolidation, meaning there are fewer ecommerce sites and fluctuating churn.”

Less opportunity has led to an emerging hybrid model where brands and ecommerce sites must work together.”

What Alban is referring to is a symbiotic relationship where ecommerce platforms like Lazada, Konvy, etc., build tools to enable sellers to gain more visibility on its platform and sellers in turn, share consumer behavior data – what do they like to buy? Which products do they purchase together, what time do they like to purchase?, etc.

“Lazada wants brands to be more involved, we empower them through our platform and technology, while brands bring in their deep consumer knowledge,” commented Aurélien Pallain, EVP of Marketing at Lazada Group, at Criteo Exec Connect.

Although marketplaces are slowly developing in-house solutions to help its sellers drive traffic to their shop-in-shops, majority are still heavily dependent on off site re-targeting agencies to acquire high volumes of traffic by tapping into a large publisher network.

“Data sharing is necessary to help companies maximize their online performance, it benefits all parties and ultimately the consumers by allowing brands to reach them with relevant offers,” added Julien Chalté, Head of Ecommerce at LINE Thailand.

To optimize existing ecommerce assets is to optimize available marketing tools through data.

But in order to capture valuable data, structured systems need to be in place internally in a business and this is where Thailand’s traditional retailers and brands lack maturity.

Criteo has the capacity to utilize a brand’s offline database to reach a custom audience online, but very few players in Thailand’s retail industry have tech-powered brick and mortar stores or “clean, usable data” from offline purchases.

“Criteo uses first-party data, never the third party, to build quality product recommendation so clients use us as a discovery tool as well as a conversion tool.”

“We can take data from the brand that they have collected from their CRM, loyalty cards, and offline transactions and match it with our recommendation engines for O2O [offline-to-online] marketing but not many businesses have this type of information readily available,” says Alban.

How can this be fixed?

By holding more brainstorming sessions like Criteo Exec Connect and building more partnerships within the ecommerce ecosystem between enablers, platforms and brands, Alban feels positive about the region’s development and piquing interest from brands looking to improve existing marketing efforts.

Commerce Marketing

Criteo Exec Connect 2017 in Bangkok

“Smaller brands must tap into an open commerce marketing ecosystem and use machine learning to connect shoppers to the products they need and love. Criteo’s technology allows them to engage shoppers with relevant experiences on both retail apps and third-party platforms directly driving sales and profits.”

“There’s actually a quicker speed of adoption in Thailand than Singapore between brands and agencies. The big difference is in the average revenue per user (spend) but most brands are more interested in looking at market potential.”

And where else has a brighter potential than Southeast Asia’s online future?

Download the Report2017 Criteo APAC Research: App Commerce Goes Big in Thailand

THIS POST IS SPONSORED BY CRITEO

ecommerceIQ, together with Sasin SEC, created the Leadership Ecommerce Accelerator Program (LEAP) to provide the fundamental knowledge and skills needed to successfully run an ecommerce business in the world’s fastest-growing market.

The third week of LEAP dove into a session disproving what most marketers still commonly think of as the “magic dust of strong sales” and introduced digital marketing concepts such as SEO, SEM and retargeting tools to students looking to grow their customer base.

Here are some of last week’s LEAP highlights:

1. “Growth hacking is bullshit, there is no shortcut to growing your business”

SHEJI HO, GROUP CMO, ACOMMERCE
ecommerce growth marketing

Sheji Ho, aCommerce Group CMO at LEAP 2017

The biggest takeaway from Sheji’s two hour lecture on digital marketing is that companies should ask themselves “if the market needs their product” before spending money on Google and Facebook ads. Popular businesses like ofo, Seekster and Blue Apron, may run into trouble because they lack what Brian Balfour refers to as “market-product fit”.

Examples below:

ofo – Thailand’s roads are the second deadliest in the world, does it make sense to have bike sharing in Bangkok?

Seekster – home service on demand started in the US but churn rate began increasing because once a user finds a suitable cleaner through the platform, most home owners would take the transaction offline.

Blue Apron – once people learned what ingredients to buy and how to cook the meals, would they continue ordering expensive meal kits?

ecommerce growth marketing“Before you spend money at your product, does your business make sense in this time and this market? Because if not, people won’t use your product regardless of how much money you throw at it.”

2. Ok Google, teach me about SEO

KORAVUT PAVITPOK, HEAD OF GROWTH MARKETING, ACOMMERCE
ecommerce growth marketing

Koravut (Bom) Pavitpok, aCommerce Head of Growth Marketing

What is Google’s market share in Thailand?

A whooping 99%.

It’s almost essential then to understand how Google search can drive quality online traffic to your website through proper SEO (search engine optimization), SEM (search engine marketing) and dynamic retargeting.

Based on factors such as search volume and intent, companies can bid on keywords to capture the attention of Thailand’s most likely buyers.

ecommerce growth marketing

The more accurately you can target users on the lower end of the funnel, the more likely to see conversions on your ecommerce channels.

Think of Google search like street names,” says Bom Pavitpok. “You want to be on the most popular street for your particular category.”

The next LEAP class is on Thursday September 28th, 2017 taking a look at social media marketing, Google analytics and a Central Marketing Group case study. Stay tuned for next week’s takeaways.

[LEAP Week 1] eIQ Insights: The New Ecommerce Opportunity in Thailand

[LEAP Week 2] eIQ Insights: Refinement of an Ecommerce Channel Strategy


Sign up for the eIQ Weekly Brief to receive weekly ecommerce insights.

With 600 million people, a growing middle class and rising internet penetration, Southeast Asia is often considered as the next gold rush for ecommerce. Alibaba’s $1 billion landmark acquisition of Lazada — Jack Ma’s largest overseas acquisition to date — happened here earlier this year. But headlines and hyperboles aside, how big is the opportunity for ecommerce in Southeast Asia exactly?

The $88 Billion Opportunity?

Little data exists on the current and projected size of the ecommerce market in Southeast Asia. Part of this is because it’s still a nascent industry and, as a result, legacy institutions like government and research firms are still playing catch up. Part of it is also due to the fact that C2C ecommerce, estimated to be anywhere from one-third to half of total ecommerce GMV, is mainly unregulated and untaxed. It doesn’t help that the majority of C2C in Southeast Asia actually happens on social platforms like Facebook and Instagram, facilitated by conversations on messaging apps like LINE and Facebook Messenger.

Having said that, several reputable organizations have taken a stab at assessing the size of ecommerce in this region. One of the earliest attempts at market sizing comes from AT Kearney in collaboration with CIMB. Published in early 2015 and titled ‘Lifting the Barriers to E-Commerce in ASEAN’, the report estimates the current market size at $7 billion (as of 2013), and projecting a future potential of $89 billion.

More recently, Google partnering with Temasek, released a report titled ‘e-conomy SEA: Unlocking the $200 billion digital opportunity in Southeast Asia’ that sizes the current ecommerce market at $5.5 billion (as of 2015) and foresees it to grow into an $88 billion market as early as 2025. However, it’s important to note that Google and Temasek paint only a partial picture as they are leaving out C2C and P2P marketplaces such as OLX, Carousell and Instagram because of difficulties in obtaining data.

Western vs. Chinese Ecommerce Growth Models: Why Existing Estimates on Southeast Asia’s Ecommerce Potential Are Wrong

$88 billion seems like a big deal but as soon as you put it in context, one may start to wonder if this is the right number. The US ecommerce market today is a $394 billion market. But then again, and quite obviously, the US is a much more mature ecommerce market and both Amazon and eBay are older than some of the junior staff on my team. What about China? China surpassed the US in 2013 to become the world’s largest ecommerce market in terms of GMV.

And today, Chinese ecommerce is a $700 billion market, making up about 13% of total retail in the country. With a population half the size of China, shouldn’t the future potential of ecommerce in SEA be a little bit brighter than a mere $88 billion?

southeast asia ecommerce

Things become even more interesting when we look at the projected 2025 numbers and normalize them based on population size. This metric gives us an idea how much an average person spends on ecommerce in a given year. We’ve done this calculation below for key SEA markets as well as benchmark countries like the US and China:

ecommerceIQ

A couple of things stand out here. Obviously, China is still the world’s largest ecommerce market reaching $3 trillion GMV and 25% penetration. By 2025, the average Chinese shopper is expected to spend north of $2,000 per year online, almost triple the amount Singaporeans will spend online and catching up quickly to Americans who, 10 years from now, will be spending almost $3,000 on ecommerce annually.

The other interesting bit is emerging SEA countries represented here by Thailand and Indonesia. Google and Temasek’s report projects ecommerce in these two markets to reach $11.1 and $46 billion, respectively. This number in and by itself is impressive but when normalized with respect to population size, the ecommerce GMV per capita numbers are disappointingly low $155 and $157 for Thailand and Indonesia, respectively. Perhaps there’s an explanation for this.

US and Singapore’s GDP per capita are obviously much higher than that of emerging markets like Thailand and Indonesia, people have more money to spend in general, and China’s not exactly a developing country anymore with its GDP per capita projected to reach $14,000 by 2025.

Yet if we compare China and Thailand in the table below, we can see that Thailand’s GDP per capita is estimated to reach $11,000 by 2025, which is higher than China’s GDP per capita today and not far from China’s projected 2025 number. However, based on current ecommerce projections, Thailand’s per capita online spend will only be $155 or 1% of household purchasing power.

This doesn’t make sense given that Thai consumers do have spending power and retail makes up a large part of Thailand’s economy as evidenced by below retail penetration and GDP per capita numbers. Even if accounting for the missing C2C and P2P part—let’s say the other 50%, bringing the $155 to roughly $300—this number is still low compared to China today.

southeast-asia-ecommerce-potential

From 2006 to 2016, China’s ecommerce GMV per capita grew 127x. It’s hard then to believe that Thailand’s GMV per capita will only grow 9x over the next decade, especially given that Thai people are already spending more online on a per person basis today than Chinese did at the beginning of the Chinese ecommerce boom around 2006. This only makes sense if we assume SEA’s growth markets like Thailand and Indonesia will grow at a modest, Western-style pace of 18% (US 2000-2015) and won’t be growing at China ecommerce’s last 10-year CAGR of 68%.

As we’ll soon find out, the reason for this discrepancy is the faulty application of a Western-centric ecommerce growth model whereas the right model to size up ecommerce in emerging SEA is actually the Chinese model of hyper-growth.

Brothers From Different Mothers? Emerging Southeast Asia Ecommerce Has More Similarities With China Than Anything Else

The fallacy of existing projections is that they’re often based on a Western-centric model, in which the West is seen as the tried-and-true path towards ecommerce. However, for various reasons explained below, SEA ecommerce resembles China more than markets that developed earlier such as the US, Europe and Japan. As a result, we should be expecting high double-digit hyper-growth similar to the one China experienced over the last decade instead of the more gradual year-on-year progress of more legacy ecommerce markets.

1. Lack of offline retail infrastructure

“Why did internet ecommerce grow so much faster in China than in the USA? Because the infrastructure of commerce in China was bad. Unlike here, where you have all the (physical) shops: Wal-Mart, 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, Alibaba Founder and Chairman

Bangkok and Jakarta are home to some of the most high-end malls and department stores across the region such as Central World, Paragon and Grand Indonesia. However, once outside of the capital cities, there’s much left to be desired. China is very similar, with most offline retail concentrated in tier 1 cities such as Beijing, Shanghai, and Guangzhou.

Retail GFA (Gross Floor Area) per capita is 2,200 sqm in the US versus 500, 500 and 100 sqm in China, Thailand and Indonesia, respectively, according to data from CLSA. As a result, the majority of consumers in Thailand and Indonesia have no choice but to shop online, especially those outside the bigger cities. Based on aCommerce aggregate numbers, 70% of orders are from outside Bangkok.

Like in China, all this is expected to accelerate ecommerce growth at a much higher pace than in legacy markets.

2. Cash-on-delivery as the dominant payment method

The lack of credit cards didn’t deter ecommerce in China from growing at 68% annually over the last decade. With a less than ideal financial system, logistics and delivery companies ended up filling the gap by offering cash-on-delivery (COD) solutions. In its heydays in 2008, COD was 70% of total B2C transactions in China. However, by 2014, Alibaba’s Alipay had surpassed COD as the dominant payment method, with over 85% of 11/11 shoppers expressing a preference towards using Alipay vs. only 21% for COD.

Today’s SEA is eerily similar to China 10 years ago. With credit card penetration in the low single digits, COD has become the dominant payment method, with 74% of transactions in emerging SEA paid through cash based on data from aCommerce. Like China, SEA ecommerce won’t rely on COD forever. With Lazada’s acquisition, Alibaba now is executing its master plan to bring Alipay and Ant Financial services into the region.

3. Lack of cross-border ecommerce due to high import duties and taxes

Cross-border ecommerce in China was never a big thing until recently, with the establishment of government-approved bonded warehouse zones which allow for faster international shipping times and lower fees. Global brands and retailers can now tap into the lucrative Chinese market by setting up stores on platforms like Tmall Global and JD Worldwide without having a costly physical presence in the Middle Kingdom.

Prior to this, ordering abroad was limited for many Chinese consumers due to high import duties (30%). (These import duties still apply to merchants who are not licensed to sell in China’s cross-border ecommerce network, e.g. ordering directly from Amazon.com).

Similar to China, SEA’s growth markets like Thailand and Indonesia today have prohibitive import duties and taxes. This lack of a level global playing field puts the pressure on developing a strong local ecommerce ecosystem which is what we’re seeing right now with the ecommerce bloodbath in Indonesia.

southeast-asia-ecommerce-potential-3

4. “No-Tail” ecosystem

Internet adoption in China and emerging SEA countries didn’t reach critical mass until the mid-2000’s. These markets skipped most of the Web 1.0 and “Web 1.5” booms and jumped straight into Web 2.0, leading to the formation of what we call a “No-Tail” ecosystem. As a result, digital advertising in these countries has lagged behind that of more mature markets like the US and Japan where companies like Facebook and Pinterest often see selling ads as the most obvious—and sometimes only—way to make money.

Lacking a mature advertising environment, Chinese internet companies have had no choice but to look at commerce to monetize which has lifted the Chinese ecommerce industry to its present day juggernaut status.

“While US firms focus on ad revenue, Chinese companies have become pacesetters in ecommerce,” reports The Washington Post.

“You go on Facebook and you can’t even buy anything, but on WeChat and Weibo you can buy anything you see,” said William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, in the very same Washington Post article.

Uber didn’t lose in China because of lack of deep pockets; the ride-sharing giant lost because it was battling a competitor that was focused on long-term ecommerce monetization, not on short-term transportation revenues.

Similar to China a decade ago, emerging SEA has an equally nascent advertising market. “There are not enough local publishers therefore not enough spend from advertisers,” said Lichi Wu, an SEA ad tech expert previously with Google and AdMob.

With “walled gardens” like Facebook and Instagram dominating all content creation, there’s not a strong enough force to break the vicious chicken-and-egg cycle. Faced with the grim reality of low RPMs (revenue per 1,000 impressions or pageviews) many online businesses have embraced ecommerce as a business model.

It’s not surprising then that one of the most popular sources of “passive” income in Thailand and Indonesia is buying merchandise from Taobao and AliExpress and reselling it for a margin on Facebook and Instagram, whereas in the US stay-at-home entrepreneurs often resort to blogging, SEO and affiliate marketing to generate advertising income.

Sizing Up Southeast Asia Ecommerce Based On The China Ecommerce Growth Model

Looking at all the previous metrics, we can observe similarities between emerging SEA ecommerce today and China in 2006. For example, Thailand’s 2016 ecommerce GMV per capita and ecommerce penetration numbers are comparable to China in 2006. (Granted, and to be precise, based on these numbers Thailand ecommerce in 2016 is already ahead of China in 2006.)

To benchmark where emerging SEA ecommerce could be roughly 10 years from now, let’s look at ecommerce GMV per capita as percentage of national GDP per capita. This metric should give us an idea of an individual’s ecommerce spending power relative to living standards. We can’t really use China’s 2016 ecommerce GMV per capita because Thailand’s GDP per capita by 2025 will be higher than China in 2016, resulting in us underestimating the potential.

China’s ecommerce GMV per capita as percentage of national GDP per capita is 6% in 2016. Multiplying this with Thailand and Indonesia’s projected GDP per capita for 2016 we’ll get $711 and $533 ecommerce GMV per capita. Then applying this to the projected population count, we’ll get a $51 and $157 billion ecommerce market size for Thailand and Indonesia, respectively. Contrast this to Google and Temasek’s projections of $11 and $46 billion and we can see how much money is left on the table.

Taking Google and Temasek’s 2015 Thailand and Indonesia numbers and including an estimate for C2C, let’s say 30%, gives us the starting point for our annual projection. Then averaging out annual growth to reach the $51 and $157 billion numbers, we’ll get the below annual projections. In this scenario, new CAGRs are 43% and 50% for Thailand and Indonesia, versus the previous ones of 29% and 39%.

southeast asia ecommerce

Without adjusting for Singapore, Malaysia, Philippines and Vietnam (former two don’t follow the China model), we’ll get a total projected size of at least $238 billion. Indonesia’s re-adjusted ecommerce projection of $157 billion alone is bigger than the original $88 billion estimated for all six SEA markets combined.

This revised projection does justice to the true potential of ecommerce in Southeast Asia and explains why everyone here is doubling down, with Alibaba acquiring Lazada for $1 billion, Tokopedia having raised $248 million to date, and MatahariMall just fresh off a $100 million round. Like in China ten years ago, those that invest in ecommerce early and take a long-term, strategic outlook will end up owning the biggest chunks of this $238 billion — not $88 billion — ecommerce goldmine in SEA.

BY SHEJI HO, CMO AT aCommerce