Aurora Magazine

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Keeping With the Momentum

Mehwish Aslam reviews historical shifts and emerging trends within Pakistan’s e-commerce ecosystem and its impact among consumers.
Published 17 Jan, 2024 02:00pm

Over the past two and a half decades, Pakistan’s e-commerce landscape has undergone a remarkable transformation, evolving from its nascent stages to a thriving and dynamic ecosystem. This journey, marked by historical shifts and emerging trends, reflects the ever-changing nature of consumer behaviour, technological advancements and the adaptability of businesses in Pakistan. Let’s celebrate the past, present, and future of Pakistan’s e-commerce landscape with Aurora as we uncover the forces that have shaped this dynamic industry over the last 25 years.

In the late nineties and early 2000s, only a selected group of tech-savvy individuals were familiar with online brands like Home Shopping, PakWheels, Pizza Hut, Shophive and Symbios. At that time, the digital landscape was in its infancy, with a fraction of the population having access to mobile phones and credit cards. Cash transactions were the norm, and delivery timelines stretched to over 10 working days, while the concept of service, as we understand it today, was virtually non-existent.

Entering the 2010s, entities like Bykea, Careem, Daraz, OLX and Uber made their foray into the market, elevating accessibility and convenience for customers to new levels. Telecommunication companies aggressively expanded their presence in both urban and rural areas, fostering a growing trust in technology. However, as the industry scaled, so did its challenges; with the surge in opportunities came a commensurate rise in issues. The paramount measure of success during this period became the efficiency and speed with which these challenges were resolved. This era witnessed consumers embracing new technologies and products, witnessing exponential digital growth, yet concurrently grappling with mounting trust concerns related to merchants.

Pakistan has maintained a predominantly cash-driven economy. Even in the 2010s, cash on delivery accounted for a staggering 95% of the transactions (the remaining payments were conducted through bank transfers or digital wallets). Then came Covid-19 and e-commerce and online business witnessed exponential growth. Purchasing behaviours in the online realm underwent a complete transformation. Even the Baby Boomer generation, traditionally accustomed to brick-and-mortar stores, found themselves compelled to embrace digital shopping for almost all their needs. Both consumers and brands had to swiftly adapt their buying and selling practices to navigate this new landscape. Those who successfully made this transition are now reaping the rewards and those who did not adjust are finding themselves struggling, particularly due to the global economic crisis of 2022.

Consumer trust in online sellers became a necessity, and marketplaces and retailers had to respond with a similar level of trustworthiness. The emphasis shifted toward speed, quality, and exemplary customer service. Retailers began recognising the importance of customers coming back to them by consistently offering the right product quality, swift delivery and customer satisfaction.

The factors influencing today’s consumers are a result of the accessibility and convenience offered by digital industry players (e-commerce, fintech and communication) and the level of trust and risk that consumers are willing to embrace.

Consumers today prioritise flexibility over traditional subscription models. They seek control over their purchasing experiences and opt for choices that provide them more autonomy, even if it involves higher costs. Another trend gaining global traction, although already a long-standing practice in Pakistan under the name khaata (a tab or credit account), is the use of instalment payments. Many fintech companies have entered Pakistan to explore this concept. However, the expense of offering instalment plans through digital partners like Alfa or KalPay can be burdensome for merchants. They are required to pay a substantial fee (sometimes as high as 15%), to partnering banks to enable instalment options on their websites. This trend continues to thrive, particularly through non-banking credit channels, within various omni-channel retailers, with the electronics category benefiting significantly due to its higher average transaction values.

It goes without saying that online purchasing behaviour varies within different demographics. Baby Boomers and Millennials commonly engage in online brand research but prefer in-store purchases. They comfortably shop online for low-involvement or standardised items such as groceries, while luxury goods like clothing or beauty products are typically researched online but bought in physical stores.

Gen Z prefer buying items online whether it’s clothing or even electronics. They prefer convenience and comfort over in-store hassles, and will pay slightly higher if need be, in order to save time. Nonetheless, Gen Z know that social media can make or break a brand as well – one post on consumer-centric groups such as Voice of Customers, would show the power of consumers – which is what keeps the brands on their toes and consistent in their quality of service. This segment of consumers is also more ‘woke’; they want their products to be ethically sourced and brands to be socially accountable. They are not only consumers, they are also advocates for positive change, pushing for greater sustainability in the products and services they support. This shift has prompted several retail brands to adopt eco-friendly initiatives, such as the use of reusable cloth bags (Carrefour, Gul Ahmed, Khaadi) and taking steps to reduce their carbon footprint. Brands that align with these values and make genuine efforts toward sustainability resonate with this generation.

Another trend gaining popularity is influencer marketing, which has reached new heights, with consumers who value recommendations from friends and family turning to a select group of influencers for guidance. Brands are favouring collaborations with micro-influencers in specific niches to reach highly targeted audiences through video platforms like TikTok and YouTube. Brands and influencers need to collaborate transparently, focus on long-term relationships, prioritise authenticity, and adhere to ethical and legal guidelines to mitigate the downsides associated with influencer marketing in Pakistan.

This shift in influencer dynamics has given rise to the growth of user-generated content. Brands are encouraging customers to share their reviews and content related to their products, fostering authenticity. E-commerce retailers reward returning customers with discounts, gifts, or vouchers in exchange for genuine reviews.

One key aspect online sellers need to adapt to in 2024 is the role of Generative AI, which is making a significant impact on e-commerce and has the potential to automate many tasks and improve efficiency. Simple, repetitive tasks such as customer service chatbots, inventory management (including reordering when inventory levels are low), basic financial data pattern analysis, data entry and repetitive content creation need to be handed over to AI so that key decision-makers can focus on more complex and creative tasks.

The evolution of consumer behaviour and e-commerce trends in Pakistan has been a journey marked by significant milestones and transformation. From the early days of online shopping, characterised by a select group of tech-savvy individuals and the predominance of cash transactions, to the present era of widespread digital accessibility and dynamic consumer preferences, the e-commerce landscape in Pakistan has come a long way.

The Covid-19 pandemic acted as a catalyst, accelerating the adoption of online shopping and altering the buying behaviours of consumers across generations. Trust became paramount, and brands responded by prioritising speed, quality, and exemplary customer service. Flexibility in payment options emerged as a key trend, with digital payments and instalment payments gaining popularity. Influencer marketing reshaped consumer trust and product recommendations, while user-generated content fostered authenticity.

As we reflect on this historical perspective of Pakistan’s e-commerce journey, it becomes evident that the landscape will continue to evolve. The resilience and adaptability of both consumers and businesses are driving forces in shaping the future of e-commerce. According to data provided by the State Bank of Pakistan in the third quarter of 2023, there are a total of 6,562 e-commerce merchants registered with banks. This figure reflects a steady growth of 10% compared to the second quarter of 2023. Remarkably, the number of merchants and freelancers registered with EMIs has surged, witnessing an extraordinary 701% increase from the second quarter of 2023, totalling 45,014 registrations. The next trend we all should look forward to is retailtainment, where giants like Netflix and locals like Daraz enable in-app purchases during brand placement in live or recorded content. The realisation of this trend hinges on evolving consumer behaviour and the willingness of brands to embrace adaptability.

Mehwish Aslam is Head of bSecure, Z2C.