Twenty-five percent. That’s what the Trade department expects e-commerce to contribute to the economy by 2020. Domestic e-commerce revenues have grown more than 50 percent since 2015, buoyed by widespread cellular penetration and rapid adoption by small and medium enterprises.
SMEs, which account for over 99% of all businesses in the Philippines, are gravitating towards e-commerce business models because of the obvious cost savings and ease of scaling. Entrepreneurs save on overhead costs such as having a brick-and-mortar shop and sales staff. Yet there are also new challenges to face as the marketing and operations of an e-commerce business are different from a traditional store’s.
Traditional businesses operate through a storefront where sales staff can help consumers. Consumers can physically inspect products and buy these on the spot. Operations may be costly but are confined to a local space. Having an online store, on the other hand, effectively multiplies the coverage area. Just as having a larger store can be more difficult to manage and even more if it’s virtually a nationwide one.
Thankfully, there are plenty of platforms and services that have been built to support the needs of e-commerce entrepreneurs. All are designed to do one thing: reduce friction and improve the customer experience.
Everything starts with the online storefront and design is extremely important. A messy web design makes it difficult, even annoying, for consumers. People can simply hop over to another site. That is why most entrepreneurs list their stores on marketplaces like Lazada, Shopee or Zalora.
There is the added benefit of having data, which is often overlooked because sifting through it can be quite tedious. It is important, first, because it provides critical information about the business. What items are selling more than others? How much inventory is being returned? E-commerce platforms compile this information.
Another benefit is easier access to finance and one of the greatest barriers to getting this for SMEs is data.
Financing institutions are required to have sufficient information about loan applicants. How else are they going to know what the money is for and the businesses’ ability to repay? Having detailed and reliable data can be the difference between getting much needed financing and stalled growth.
Moreover, marketing products over a massive area means potentially more demand. This can cause friction with clients if the logistics of the business aren’t executed properly. Consumers must trust in the quality of the product. Trust is based on a combination of customer reviews and the marketplace. For example, a consumer is more likely to prefer a verified online marketplace over an in-house website that may not be secure. Customer reviews, meanwhile, can be more complex. The most common issues are related to deliveries. Assuming what arrives is the same as advertised, recurring problems revolve around delivery time and safety. A reliable logistics service is key to keeping customers happy.
Developing a logistics service in-house is costly and time-consuming, not to mention difficult. Enter specialized logistics companies like Xend, which has crafted services to cater to e-commerce businesses. Full service logistics companies allow entrepreneurs to manage their deliveries and often perform COD collections. Keeping fulfillment time to a minimum enables businesses to keep growing and drive the customer experience. Having good customer reviews will make or break an e-commerce business and having a reputation for not fulfilling deliveries properly and on time will drive clients straight into the arms of the competition.
How to keep up with demand? If done properly, entrepreneurs will see fast growth as more and more people turn to online shopping. Growth in demand often puts pressure on businesses to keep inventory levels high. Unlike traditional shops, e-commerce merchants don’t usually get cash up front. It is common for e-commerce platforms to collect all payments and remit the money to merchants within 30 to 60 days. Having 6- or 7-digit sales revenues may be a sign of good times to come but that also means the business must find other sources of capital to continuously keep funding inventory. Now isn’t it a good thing that e-commerce businesses have data from their platforms and have the logistics partners to guarantee fulfillment? Financial institutions use this information to grant short-term loans to SME when they need it.
AlexCapulong is the Strategic Partnerships Manager of First Circle. He earned his BS Economics degree from the University of the Philippines Diliman and Master of Finance degree from the Hult International Business School in London. Feel free to contact him at email@example.com.