August 5, 2013
As brands eye a growing number of eCommerce markets around the globe, it’s important to understand the trends that mark early-stage markets and how these trends often evolve with time. The following factors suggest that an eCommerce market is still in an early phase:
Purchase decisions are made largely based on price. It is common to hear about consumers in early-stage eCommerce markets using the Internet to seek the lowest prices available on products. In markets like China and Russia, conventional wisdom shows that consumers go online to bargain hunt. However, over time, this dynamic gives way to consumers electing to buy from trusted retailers and those that provide a superior customer experience.
Online purchases are dominated by consumers in tier one cities. As eCommerce starts to take off in new markets, it tends to be the consumers in the largest, wealthiest cities that comprise the bulk of eCommerce markets. Whether it’s São Paulo and Rio in Brazil, Beijing and Shanghai in China, or Moscow and St. Petersburg in Russia, the top few cities tend to represent the lion’s share of early eCommerce revenues. Within the first few years, however, revenue growth starts to shift to smaller cities where offline product selection is more limited and the online channel helps fill the void.
Cash on delivery rules. Most large emerging eCommerce markets include cash on delivery (COD) as a core online payment method. COD solves two problems: 1) it allows online retailers to reach the unbanked, and 2) it helps alleviate consumers’ concerns about paying for a product that fails to arrive or arrives damaged. Customer rejection rates on COD orders tend to be high and logistically COD is complex to manage. As credit card penetration increases and as retailers roll out payment options that address customer pain points, consumers often shift toward other payment types.
Mobile phones are the first point of connectivity for many consumers. In many early-stage eCommerce markets today — especially in rural areas where eCommerce is less prominent — mobile devices are often the first choice for consumers to access the internet. In China a recent report aimed to quantify the degree to which mobile dominates with first-time surfers. In areas where consumers initially come online through mobile devices and remain reliant on mobile devices for connectivity, eCommerce sales tend to be relatively small today.
The first three trends above have tended to wane as eCommerce markets mature. The mobile trend, however, is poised to become more common around the globe — meaning that longer term, it will not necessarily indicate an early-stage market.