AFG Venture Group Dispatches

Corporate advisory and consultancy in Australia, South East Asia and India.

Singapore E-Commerce Industry Trends and Patterns – Anthony Coundouris, Founder, Futurebooks Pte Ltd

Singapore Institute of Management interviewed us to get our perspectives on e-commerce in Singapore.

Blogshops transcend spatial boundaries and constraints. Conventional brick and mortar retail stores like bookshops and provision stores are being muscled out by the emergence of online retail shops.

The elimination of queues and round-the-clock online stores allow companies to engage their consumers directly 24/7 without the need for distributors or middlemen.

Q: From a macro perspective, how else do you think these and other demographic shifts could drastically affect consumerist culture and forever change the way we do business? What sort of precedence is being set with the e-commerce culture?

One impact e-commerce is having on consumer culture is the way we can share a purchase. Consumers have more power to share a purchase decision, and ask others to share payment. It is called social commerce.

Social commerce is moving the purchase away from clicks and mortar stores, and dropping it right into the consumers’ social sphere.

Q: Do you think the clicking culture correlates with greater impulse purchases?

Yes. Retailers are adept at creating impulse purchase zones near checkouts and ends of aisles. The same techniques apply online at check out pages.

However, ecommerce platforms can push impulse purchases further. Smart e-commerce marketers use algorithms to display relevant purchases according to purchase history, wish lists and page views.

In addition, impulse purchase behaviour can be stemmed using email and SMS, to bring customers back to the online store.

Q: What sort of long term effects will e-commerce have on the pricing of goods and services?

We will see a rise in the practice of price discrimination. Research shows Mac users are prepared to pay more for online travel purchases, than Windows users.

E-commerce platforms can modify price based on user, location and time of day, optimising the price to move more inventory.

Q: What sort of online techniques do online retail stores use?

Group buying sites like Groupon have an enormous dependency on traditional marketing channels like display advertising and email. When you analyse marketing spend, these are the two buckets that get the lion’s share of cash. These techniques of marketing are far from innovative.

Location-based deal apps like Yoose (based in Singapore) create greater value to merchants by displaying deals which can be redeemed by customers in close proximity. Customers are driven to the store for reasons other than a one-time promotion. Location-based deals build better customer loyalty to retailers by positioning the retailer as relevant and convenient.

Q: Coupons are one technique (i.e.: Groupon). What is your take on the view that most online discount websites seem to employ short-term exposure and marketing techniques to connect with new and potential clients?

For decades credit card companies have acted as loyalty brokers on behalf of retailers, collecting less than 3% per transaction in exchange for qualifying customers who redeem promotions. This is the magic of credit card companies: their capacity to qualify visiting patrons. The retailer sustains a short term loss, knowing they are attracting the right type of customer.

Think of credit card companies as a way to ‘outsource loyalty’. They run all the checks on consumers spending and salary per month, and then peg customers into tiers using different cards to distinguish different value points. The card functions as a gatekeeper to preventing the wrong type of customer redeeming a promotion.

A retailer may have no issue accepting a $4 loss on a bowl of soup, if they knew the customer eating the bowl of soup made $50k in salary per year, and could afford to pay the full price of $10.

Q: Will marketing penetration pricing strategy hurt the overall pricing strategy?

If you have ever run a food and beverage outlet, you will know one night of understaffing and bad service can kill the reputation of the business. That’s what can happen when you have flash mobs – a surge of customers who appear en-masse driven by a promotion.

Restaurants have a fixed capacity of tables, and are easily swamped, causing patrons to experience service delays and loyal customers to stand and queue for a table. What’s worse, ‘deal-hungry’ customers can be detected by ‘full-paying’ customers.

Loyal customers can sense what is happening in the restaurant. This experience is likely to tarnish the brand’s reputation and deter loyal customers from returning.

Q: With online discount sites, sceptics are concerned that consumers will only wait for a discount before deciding on a purchase. What do you think?

Coupons are a form of promotions. For consumer businesses, promotion has been a key channel for customer acquisition for over three decades.

The challenge for marketers is to use the promotion to attract a customer, and then quickly switch them to the full price version.

Group buying sites are not discrete. Instead of consumers switching to the merchant’s full price product, they switch to the next available promotion. Hence the promotion becomes the norm, defeating its purpose. Long term group buying sites will not create a loyal customer base for merchants.

Q: Since coupons are a form of marketing, will they place pressure on margins?

Group buying sites encourage merchants to discounts off between 50 and 60 percent to consumers. This is much higher than the industry norm (10-15 percent).

Groupon’s model also takes a hefty share of the profits. Groupon pass a 50% discount to the consumer, and then take 50% of the remaining amount. So if a bowl of soup retails for $10, the retailer is left with $2.50 – well below the cost of break-even.

About the Author

Anthony Coundouris is the founder of the accounting and analytics firm Futurebooks Pte Ltd. Anthony is skilled in the art of startup, and help directors of companies better manage their books. He was founder of Firestarter, a digital marketing agency, in 2005. Firestarter was acquired by Novus Media in 2010.

Futurebooks is Singapore’s and Hong Kong’s most progressive bookkeeping company. Futurebooks offer affordable incorporation, bookkeeping, business planning and brokering, to entrepreneurs with big ambitions. Whether your goal is to be acquired or to be more profitable this quarter, Futurebooks provide planning to keep your business on track and bookkeeping services that streamline the journey.

Using cloud computing solutions like Intuit’s QuickBooks Online, Xero, SaaSu, DropBox, Workflowmax, Vend, salesforce.com and Google Enterprise, Futurebooks are able to offer clients productivity improvements and reductions in the cost of accounting.

Visit our website and chat to us live or follow us on Twitter.

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