Tuesday, February 25, 2014

Lazada's Big Bet On Southeast Asia

When Berlin-based Internet incubator Rocket Internet launched the online marketplace Lazada in five Southeast Asian countries in early 2012, it has placed a big bet in the region.

Unlike other regions of the world, which have dominant destination websites such as Amazon in the Western World, Alibaba's Tmall in China, or Flipkart in India, Southeast Asia is a territory of niche players. It also lags behind other regions in e-commerce maturity.

"The main opportunity that we took advantage of is two-fold: one is that people are becoming more Internet savvy and the mobile phone penetration is also going up; and second, Southeast Asian countries have strong developing economies. Economic growth is not only in the capital cities but also across the whole countries. What you have in these countries is a lot of offline retail presence moving to second and third tier cities. We are also taking advantage of the opportunity to bring these offerings to people who, for the first time, can spend money and using disposable income," Maximilian Bittner, CEO of Lazada Group shared.

The vision, he said, is to build a general merchandize destination website that shoppers would think of as a place to find good buys from consumer electronics to fashion to home appliances to books to about anything that they need. This was from same company that also built Zalando in Europe, Linio in Central America, and Zalora in Asia-Pacific.

The challenges, according to Bittner, are huge, but learnings come everyday. "We really tried to address the key challenges that exist on a day by day basis, including challenges in logistics or being able to bring packages to anyone across the country at an acceptable time, finding the right mix of products in specific markets and being able to offer them at good prices, and supporting third-party sellers using the platform," he said.

Early on, the company realized that to make it as the dominant regional e-commerce player, it has to be very innovative and use its strengths as well as opportunities in the market.

From offline to online shopping

Bittner said each of the Lazada markets - Indonesia, Thailand, Malaysia, the Philippines and Vietnam have strengths. Indonesia, for one, has the biggest population, with close to 300 million people. Malaysia and Thailand are more developed from the GDP perspective and people have more disposable income. 

The Philippines also has a big population, a steady market and increasingly becoming investment friendly. Vietnam's GDP is catching up and has a geographically dispersed population, which makes it a good market for online retail.

"Initially, we focused more on consumer electronics - mobile phones, tablets, cameras. In the last six to 12 months, we started focusing on lifestyle products from home appliances to fashion to sports. In the Philippines, we are selling more small home appliances, in Thailand beauty products rule, in Malaysia the electronics side is strong. Our product mix is getting diverse," he said.

Stein Jakob Oeie, CFO & CMO of Lazada Southeast Asia Pte Ltd., added that Southeast Asia is a region dominated by Facebook. Thus, Lazada’s effort is big on social media.

"We not only use Facebook but social media overall for engagement to attract new customers and retain customers. What we did initially was start on the engagement side. We started communicating with the customers and we started getting feedback - what we were doing good, what we were doing better, what we did wrong and we adjust to that. Its a very cost efficient way to get feedback. Its much easier to get people aboard," he said.

With a fan base of over six million people on the social networking site, Oeie said Facebook has become its main customer acquisition platform. Facebook works to Lazada's advantage because of its regional presence. Currently, its advertising and customer engagement efforts have yielded impressive results: 90 percent reach of the online population in Philippines, 80 percent reach of online population in Indonesia, Malaysia, and Thailand; and 60 times fan growth in one year to five million fans.

"This strategy has three big benefits for us: almost everyone here is on Facebook, they are on Facebook most of the time and we can target them and very customized personalized messages, which make it incredibly efficient for marketing," he said.

Another strategy, he said, is shifting focus from the big cities to rural areas where consumers are looking for products they wouldn't have access to in the neighborhoods.

Bittner added that while US and Europe and even second tier of BRIC (Brazil, Russia, India and China) nations were ahead of the e-commerce development curve, the Southeast Asian market has a lot of potential and room to grow. "The market is still very young and we are helping pioneer that market. The 
population is very tech savvy, willing to try new things. So we strive to provide them with tools they need to have a good online shopping experience, gain their trust by providing safe payment methods, and introduce mobile apps so they can have access on any device," he said.

Despite its success in the online space, Bittner said building a physical store is not part of the plan. Lazada will remain a pure-play e-commerce destination website. And this strategy has its advantages.

"You have the ability to provide offer to anyone who comes to your website. 
Your reach is much bigger. You can have unlimited shopping," he said.

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