According to local sources, e-commerce in Pakistan hit the one billion dollar mark in 2018. Although this number seems small by global standards, it represents a significant increase compared to 2016, when 3G and 4G had just hit the second- and third-tier cities of Pakistan. This growth was also fuelled by the proverbial tipping point – when most brands decided to jump on the e-commerce bandwagon.
The one billion dollar number seems to have breached a psychological barrier and the signs are that the climb will be faster from here on; the question is how will it actually grow compared to how fast it can grow. Like any business, there are multiple cogs to this machinery we call e-commerce, the efficiencies of which determine scalability, performance and overall health. These cogs are both qualitative and quantitative in nature and putting in place a roadmap aimed at achieving both will contribute to overall business growth.
Industry cohesion and structure
Pakistan’s e-commerce sector lacks cohesion. It was only this year that a formal e-commerce association was formed. However, it was rather surprising that the smaller players (who face the most challenges) perceived this development with scepticism; in fact, some believed it was aimed at destroying them. The larger players must provide reassurance and support to the smaller players and take them into their confidence. It is important to understand that large and small players face entirely different challenges. The larger players may be focused on granular tweaks which may result in significant gains due to their scale; the smaller players, however, are focused on finding the right balance of automation versus manual processes in order to control costs. Furthermore, the larger players are either investor-backed ventures or owned by large companies; the smaller ones were set up with savings to help run the kitchen at home.
The get-rich-quick theory
The number of e-commerce players who believe they can set up an e-commerce store and get rich quickly is surprising. The e-commerce platform is not seen as a business vertical but rather as a Ponzi scheme, with a high focus on low-priced, low-quality items, backed by even poorer customer support. In the absence of an actionable legal framework or regulator, this issue could be addressed by a third-party rating of e-commerce service providers through customer satisfaction scores. However, the fact is that customer support and satisfaction management does not seem to be a priority. Most businesses, especially multi-brands and smaller marketplaces, seem to be disconnected with the idea of customer support. The lack of support tracking and resolution level data means that they are unable to quantify the number and types of queries vis-à-vis the resolution mechanisms. Furthermore, there is no clear policy regarding customer communication standards and basic benchmarks. Given the limited understanding of the need for customer service and relevant tools and measurement metrics, clearly, customer care for e-commerce has a long way to go.
Local e-commerce players are hesitant to work with international payment platforms for two reasons. One, Pakistan origin cards are treated as high-risk by most service providers and two, transferring money to Pakistan can be challenging as most transaction platforms do not offer a cost-effective solution to transfer funds to Pakistan, which ends up costing the business more than just a transaction acquiring fee.
Lack of understanding of technology platforms among most smaller players has contributed to the non-standardisation of the sector as well as to poor third-party platforms in general. Even today, you find people writing the code for a basic e-commerce operation from scratch despite the fact that there are several CMS systems available with the ability to integrate with multiple third-party platforms. As a result, most players have a limited view of their store’s performance metrics and of the customer and this in turn, restricts their ability to take the stores to their true potential.
While COD accounts for over 80% of the revenue, even the remaining 20% constitutes a sizeable component of the market. Customer on-boarding tends to be easy but when it comes to platform stability and transaction rejection rates, local payment platform providers complain about issues with respect to local players. Local e-commerce players are hesitant to work with international payment platforms for two reasons. One, Pakistan origin cards are treated as high-risk by most service providers and two, transferring money to Pakistan can be challenging as most transaction platforms do not offer a cost-effective solution to transfer funds to Pakistan, which ends up costing the business more than just a transaction acquiring fee. Local buyers are also hit by the international transaction fees levied by most local banks, which can lead to customers being taken by surprise in terms of costs.
Another challenge with respect to merchants dependent on COD is the lengthy and unpredictable payment cycle of logistics partners. Such settlements take anywhere between 14 and 21 days and further delays are the norm. While e-commerce outlets run by manufacturers are not affected by these delays, marketplaces and e-commerce merchants are hit by cash flow issues. This is especially true in the case of high-traffic events and online shopping festivals. In the days leading up to the event, sales take a dip and then surge on these occasions and this means that large amounts of cash are stuck with logistics partners for unpredictable amounts of time. The solution would be larger working capital but this can increase the cost of doing business.
Although customer confidence may be growing, the option to ‘try before you buy’ and physically see a product before paying for it adds to both confidence and comfort. While asking for a refund or a size change may seem a simple option, it falls short of creating an amazing customer experience. This shows the need for product depth in logistics instead of simple dispatch and return collection.
Unfortunately, because e-commerce is often treated as a secondary priority, not enough attention is paid to these platforms and therefore, to the user experience. Furthermore, not enough attention goes into segmenting and communicating to users. Often, users just need a gentle nudge to come back if they have a positive customer experience. Merchants should look to resell to customers based on their preferences instead of the generic ‘spray and pray’ approach. Dynamic retargeting is a viable option but it must be complemented by targeting and personalisation on the basis of customer behaviour and history.
These challenges are by no means unique to Pakistan and can be fixed by cross-industry collaboration and by learning best practices from one another. Thankfully, with a growing young population, falling data rates and growing data access, the market is big enough for plenty more players to operate in a range of verticals. Here’s to hoping we break some more records in 2019!
Imtiaz Noor heads OrangeFox, a marketing technology company focused on making digital businesses more efficient. email@example.com.