Published in Nov-Dec 2021
E-commerce has grown exponentially in 2021 on a global scale. Pakistan is no exception and brands and businesses are experiencing the same shift, courtesy of the rapid growth in internet penetration, double-digit increases in adoption of smartphones and use of social media.
Pakistan’s retail landscape has been evolving at an unprecedented rate since July 2020 and the Ministry of Commerce has reported record-breaking growth worth Rs 96 billion, which works out to 35%, in the first quarter of FY 2020-21, compared to Rs 71 billion for the corresponding period last year.
This said, I have always been interested in looking beyond flashy numbers to try and understand how this growth trickles down to small and medium-sized businesses and in understanding their contribution in accelerating e-commerce growth. So many categories have enjoyed significant growth and include (in no particular order) electronics, fashion, beauty and personal care, mobile phones, gadgets and specialty stores. Yet, despite this growth, businesses are still struggling on issues such as cart abandonment, easing the checkout process or simply innovating as fast as their consumers need them to. Although there are many opportunities for growth in Pakistan’s e-commerce ecosystem, there are plenty of obstacles, ranging from the ability to offer omnichannel payment solutions, to communicating effectively with customers on digital platforms. Below, I discuss some key insights gathered from a research conducted by bSecure.pk between January and October 2021, on 200 local small to medium-sized merchants.
COD vs Prepayment
Cash on Delivery (COD) is the dominant payment option in Pakistan e-commerce. Pakistan is a cash-driven economy, evidenced by the significant increase in ATM transactions (16% in volume). As per the study, 63% of online business sales were COD and online payments accounted for 47% of the total. This is a major achievement for e-commerce companies, because earlier, approximately 90% of the orders were on a COD basis. According to a report by the State Bank of Pakistan for Q1 2021, the overall increase in digital payments, compared to last year, was 30% and 21.9 million online transactions worth Rs 60.6 billion were carried out on various e-commerce websites, showing a YoY growth of 114.8% by volume.
Website Conversion Rates
The gross to net conversion rate of checkouts remained at 22.17% on average. E-commerce companies can be broken down into two categories. Those that have figured out how to convert a percentage of their traffic into paying customers. These companies have been surprisingly successful as their gross to net checkout conversion rate was at least 22%. The others are companies that do not know how to convert a percentage of their traffic into paying customers – and their gross to net checkout conversion rate was under five percent. Website platforms have a major role to play, as the overall customer journey is dependent on well-displayed products with relevant information and reviews, as well as on optimising the checkout funnel that includes discounts and offers as well as shipping and payment options. Platforms like WordPress (40.3%) and Magento 2 (31.8%) have demonstrated a much higher overall checkout conversion rate compared to Shopify (22%) and WooCommerce (18%).
The most popular categories sold online are fashion and related accessories. Fashion and apparel account for the highest number of orders (21%) followed by Gadgets (9%) and Beauty & Personal care (7%). One of the categories to showcase the fastest growth rates in the last six months is e- liquids and vaping accessories; the average basket size is over Rs 6000, and most of the orders are placed via credit/debit cards. The conversion rate is over 25%.
Average Order Value Across Categories
The average order value of prepayment orders of the merchants under study was much higher than the average order value of their COD orders. The fashion industry has the highest average order value (approximately Rs 10,000), most likely due to Eid and summer sale seasons. Electronics and gadgets sites focusing on power banks, cheap mobile phones, phone cases, headphones, mobile phones and gaming equipment registered an average order value of about Rs 9,016. This spike was to be expected as the world worked from home during the pandemic.
The average number of orders placed was 39 a day, including prepayments and COD. Here it is pertinent to mentions that newly launched online stores grow their orders over a period of six months by consistently advertising and ensuring that the checkout funnel is optimised to enhance the customer experience. Daily orders were higher for fashion and clothing and specialty stores.
New vs Repeat Purchase
Repeat purchases are much higher in specialty stores (35%), most likely because when a merchant can provide satisfactory items on the first purchase, customers tend to go back. Fashion has a similar pattern (up to 30% repeat customers), although repeat purchases are skewed towards occasions and events like Eid and the sale seasons.
Cart Abandonment Rate
Cart abandonment remains at an all-time high at 77% for small-sized merchants. Approximately 55% of the cart abandonment happens before the customer selects a payment method; the remaining 45% happens somewhere in between the payment selection and the final order confirmation. Cart abandonment among small-scale sellers is highest on the WooCommerce platform (80%) followed by Shopify (78%). Although this rate may look high, generally 90% of orders are abandoned on a website. Any website with a conversion rate of three percent and above is considered very good, which means that out of every 100 customers, only three complete a purchase. Given this, 77% cart abandonment on these small and mid-sized merchants is acceptable.
To conclude, clearly, e-commerce is not all rainbows and unicorns despite the growth numbers. Everyone with a smartphone visits at least one online store once a month, if only because e-commerce is quicker, richer in bargain hunting opportunities and increasingly simpler to set up and manage. However, it is important to remember:
1 COD Is Not Enough
Although COD is still the most popular payment method, more and more consumers are becoming comfortable buying more expensive items online. This shift has paved the way for B2B and B2C e-commerce businesses to use on online payments.
2 Don’t Cut Corners on the Ops
It is important to invest in reducing friction in the customer journey by cutting down on steps and redirections. Poor checkout journeys mean a high cart abandonment rate.
3 If You Cannot Measure It, You Cannot Manage It
Make sure that the site interface is built on an order management system that has back-end customer and inventory data sources. This shores up inventory accuracy and order routing, as you start your journey towards a solid omnichannel fulfilment experience.
4 Get It Right the First Time
Based on the experience of specialty stores, delivering a frictionless retail experience encourages customers to come back. Well-planned checkout journeys and on time deliveries go a long way in building relationships.
5 Go Online if You Haven’t Already
Last year was difficult for businesses globally. As the world moves towards a safe, quarantine-free lifestyle, retailers wanting to grow will have to build an online presence. Your customers need to see you in the virtual world!
6 It Isn’t Done Yet
Just because customers have decided to buy a product, does not mean they will wait for clunky interfaces and glitchy forms to load. Forty-five percent of cart abandonment takes place after the customer has already decided to buy your product. So make it easy for customers to purchase again and build an efficient checkout funnel which delivers a convenient experience.
Research Limitations: The data is based on a random selection sample of 200 online retailers from several categories. These retailers can be classified as small to medium-sized merchants based on the number of orders per day (maximum 40) during the period Jan-Jun 2021. bSecure’s customer profile is skewed towards fashion and clothing brands. Industry data and stats are taken from the State Bank of Pakistan’s Report Payment System Review FY 2021.
Mehwish Aslam is Head of Business, bSecure.pk. firstname.lastname@example.org