We humans are physical and social beings. We like to interact with people and things physically. Overlooking this simple fact and assuming digital interactions can substitute our inherent desires of touch and feel would fundamentally challenge what makes us human. Many of the endeavours with e-commerce tend to overlook this simple fact. We look at trends such as the rapid adoption of digital lives and think more people will therefore embrace e-commerce. While there is certainly a strong correlation between these two things, perhaps we make the mistake of interpreting the correlation as causality.
Bangladesh has embraced the e-commerce phenomenon in a significant way lately. While the market can still be categorized to be in the early stages of growth, some commendable efforts are already visible, most notably in an e-commerce ‘facilitation’ capacity through a plethora of Facebook pages that advertise a wide variety of products. Individually, many of these are small boutique type businesses. But collectively, they represent a formidable wave of adventures into the e-commerce space.
pi STRATEGY conducted an online survey recently to gain deeper insights into the e-commerce phenomenon. The survey was conducted in two trenches in late 2014 and early 2015. Nearly 300 people took part in the survey. A large percentage (74%) of the respondents were from Dhaka.
Participation from other parts of the country was low. This is not that surprising since internet penetration is also higher in Dhaka than in other parts of the country. Chittagong followed Dhaka in terms of participation (12%) in the survey. This ranking also prevails when it comes to buyers’ demography. Among the online shoppers 74% come from Dhaka whereas 14% are from Chittagong.
Young educated people are more prone to shopping online. The largest age group among the online shoppers is 18 to 35 years. Cumulatively, 80% of the buyers are between 18 to 30 years old. However, a distinction is observed between female and male buyers in terms of age distribution. Males aged over 35 years frequently shop online, whereas there were very few female online shoppers aged over 35 years. Moreover, only 21% of the sample were female, whereas the male-female gender split of the entire population is 49%-51%. Perhaps this points to limited access to internet among females in Bangladesh. As for educational qualification, the majority of the buyers hold at least bachelor degree while many of them hold a masters degree too. 47% of the buyers have a bachelor degree whereas 34% hold a masters degree.
This may indicate that education has a strong correlation with online shopping. They are more tech-savy. They also have greater access to internet. As a consequence of their academic background, they mostly fall in the middle-income group which has a direct effect on their disposable income and shopping pattern. It was observed that online shoppers fall into higher income segment in comparison with the national income group segment.
Students and young professionals like to shop online more than others. 39% of the buyers are students, 28% are young professionals, and 20% are in mid-level management positions. There is a distinct linkage between visiting web shops and buying online, especially among students and young professionals. Of the survey sample, 60% respondents visit web shops and 74% of those that do, buy online. However, housewives and unemployed people do visit online shops, but they are less likely to buy something online. A pattern has also been observed regarding income and browsing web shops. People in the higher and lower income groups are more likely to purchase from a web shop, whereas those in the middle income group tend to browse more often before making the decision to buy.
An overwhelming majority of customers (87%) prefer cash on delivery over other options. There are a number of contributing factors for this. Not many people have debit or credit cards. Not many have mobile wallets. And even among those that do, most don’t use them for online purchases. 46% of the respondents reported having trust in online payment. And yet, only 13% have used them for online purchases.
The overcrowded city roads and traffic jams make shopping from home (or office) a compelling value proposition in Dhaka. Among those that shop online, 62% cited avoiding crowd as a key reason, while another 17% cited time saving as a reason. Most of the respondents (82%) prefers home-delivery.
Although some people prefer shopping from the comfort of their homes, others still endure the crowds and traffic to touch and feel a product before buying it. A desire for touch and feel ranked first (66%) among the reasons behind not shopping online. Moreover, some people think that products are expensive when they are online. They think that they can buy products at a cheaper price from the physical stores (20%).
So, that is where we are in Bangladesh with respect to e-commerce. It’s growing. But not by fully incorporating the extent of opportunities that exist. How has the global experience been in this regard?
The e-commerce market, at the global level, is coming of age. The fundamental question is no longer how we build digital experiences online to replace physical experiences. The real transformation that is taking place today is not the replacement of one by the other – it is the marriage of the two into combinations that create wholly new sources of value. pi STRATEGY calls this phenomenon “pe-commerce” – short for physical and electronic commerce – we think it is likely to reshape not only the way people live, but the way companies operate. PE-commerce, we believe, needs to be a cornerstone of the e-commerce playbook.
Some of the global leading players have already made this realization and are re-orienting their business strategy accordingly. Let’s take the undisputed poster child of e-commerce success, Amazon, as a case in point. The Wall Street Journal in October 2014 reported that Amazon is opening its first physical retail store in New York. Such shifts into pe-commerce are beginning in South Asia as well. Flipkart, India’s largest e-commerce venture, will be launching a number of physical retail stores. India’s leading travel sites Makemytrip and Yatra already have nearly 100 physical stores collectively.
pi STRATEGY analysis has revealed three primary reasons for the big shift to pe-commerce. The first reason is market size and market opportunity of the physical world. US retail market size is around $2.5 trillion of which $300 billion (12%) takes place through e-commerce. In India, out of a $600 billion retail market, merely $4 billion (0.67%) flow through e-commerce. In Bangladesh, out of a $27 billion retail market, only $50 million (0.18%) flow through e-commerce. This is predominantly why the large traditional e-commerce players are foraying into the pe-commerce domains. They want a slice of the (much) bigger pie.
The second reason is distribution network. A critical success factor for ecommerce is fast and reliable delivery of products purchased online. Physical presence opens up the opportunity to leverage retail outlets as distribution centers.
The third reason is touch and feel. More hands-on experiences lead to more sales. Most of the products sold online are non-digital. They are physical products: a saree, a pair of shoes, a book, a mobile phone, etc. Seeing, touching, fitting, feeling things are important parts of the decision to buy. Of the products listed above, the mobile phone is an electronic product. And yet, even for electronic products such as a mobile phone, the physical dimension is a very important factor in the purchase decision. Apple, for example, has the highest sales per square foot of any other US-based retail store by combining an online retail presence with physical retail stores.
There are a number of advantages of an online store that a physical presence alone cannot beat. Lower inventory costs, lower operating costs, wider variety of products and wider customer reach are but only a few examples. A newly opened corner store may be in a better position to meet the trust issue, but there are many other value creation opportunities it could monetize if it also had an online e-commerce presence.
It is not physical or electronic. It is physical and electronic. It is time ecommerce grows up to become pe-commerce. It is time we realize we are humans after all. Every successful e-commerce venture will have to have this fundamental truth solidly engrained in its playbook.
This article was written in 2015.