Robert Sawatzky
Jun 4, 2018

Amazon and Lazada click with consumers

Not all ecommerce brands are capitalising on the steady rise in online shopping. Top players Amazon, Lazada and Taobao saw strong gains but others like Ebay, Rakuten, Zalora and Flipkart still have work to do.

Amazon's Singapore staff prepare orders at their Prime Now facility at the Mapletree Logistics Hub on Toh Guan Road in July 2017.  Source: SPH
Amazon's Singapore staff prepare orders at their Prime Now facility at the Mapletree Logistics Hub on Toh Guan Road in July 2017. Source: SPH

Ecommerce isn’t exactly new, and neither are the top brands in the category. Yet there’s an unspoken expectation that such ‘new economy’ platform brands have nowhere to go but up, especially in Asia-Pacific. And it’s not hard to imagine why. The ever-increasing ease of mobile internet payments and highly-developed logistics systems have made online shopping second nature to consumers in most Asia-Pacific markets. APAC leads the world in online shopping, according to Forrester, with sales expected to hit US$1 trillion by 2021.

Among year’s Asia’s Top 1000 Brands survey, we saw clear momentum this year behind the top leaders Amazon, Lazada and Taobao. Amazon was the clear online retail winner in this year’s survey, jumping 20 spots to become Asia’s 23rd top brand overall. Lazada, powered by Alibaba, surged even more (35 places), cementing its position well within the Top 100 at 62nd overall. Alibaba’s Taobao, top in China but slower to grow outside of it, moved 31 spots higher but remains a distant third across the region, ranking 210th.

But there’s no rising tide to lift all ships. Other key players have been losing ground and continued to do so. EBay, ranked 144th two years ago, has steadily dropped to 237th this year. Japan’s Rakuten slipped slightly this year to 331st after a larger drop last year. Fashion-focused Zalora tumbled significantly this year to place 409th, while strong players in specific markets like Flipkart (2nd in India) and Qoo10 (1st in Singapore) both dropped more than 60 places overall to land at 564th and 592nd respectively.

So what sets ecommerce brands apart?

Even if business continues to boom, as it has in APAC, not all platforms have been able to grow their brand equity with consumers. There are many reasons for this of course, not the least of which is price competitiveness. Online shopping is highly competitive, prone to price comparisons and very slim margins. Platforms that compete on price attract bargain hunters with little sense of brand loyalty or recall so long as they find the best deal. That’s why there are oodles of sites out there, but far fewer that consumers remember.

If one platform offers great quality exclusive products, it can gain a clear advantage. But the bulk of ecommerce involves similar products at similar prices. In these cases, notes Naveen Mishra, industry principal of digital transformation at Frost & Sullivan in Kuala Lumpur, it all comes down to consumer experience. “[If one] has better customer care, a better response rate, if it’s easier to do checkout, if it loads really fast, if the products are being listed with clear descriptions... that drives the customer to pick one platform over another.”

“Consumers are getting impatient now,” Mishra adds. “Their expectations have risen and continue to rise.” Increasingly, shoppers want to see products arrive at their doors within a matter of hours. So it’s on the logistics side, Mishra says, where a lot the innovation is now happening and where competitive pressures are causing brand battles to be won or lost.

The mighty Amazon

Amazon’s ability to transfer its logistical prowess to more far-flung Asian markets may be its biggest challenge. The US-based giant continues to roll into more countries, entering both Singapore and Australia in the past year. These launches may have been underwhelming initially, but Amazon was quick to follow up initial services in a demanding market like Singapore with Amazon Prime, which Forrester senior analyst Xiaofeng Wang notes has been highly competitive. It not only opened up new video and entertainment services but more importantly offered free international shipping on millions of US products on moderately-sized orders and offered two-hour delivery on local items.

Prime is also set to roll out down under, but Australia’s tax scheme has put a big wrinkle in Amazon's ability to deliver cheaper overseas orders. It’s a real blow, since Mishra says Amazon’s sheer scale of competitively priced products is what can really set it apart in APAC.

Just as important, but often unmentioned, are Amazon’s back-end investments in cloud computing, which Mishra notes speed up their response rates significantly, giving consumers a better customer experience. “These capabiities of low cost offerings, large number of vendors and big cloud computing capability…I believe are a big advantage for Amazon,” he says.

Where Amazon may be challenged, Wang and Mishra agree, is its ability to localise in Asia to compete with powerful local players like Alibaba’s Taobao and Lazada.

Livin’ Lazada local

In recent years, regional ecommerce players like Shopee, Qoo10 and Lazada have worked hard to cater to local market tastes. Moreover, Mishra says Lazada, with the backing of Alibaba, has been very impressive in its ability to partner with local governments to form logistics hubs and use agreements like Malaysian free trade zones to its advantage for expanding cross-border offerings.

Wang says Alibaba’s investment in Lazada is going to accelerate improvements in data, technology and logistics throughout Southeast Asia. “It will increase consumers’ expectations as well,” she notes. “The game will be tougher for smaller players.”

A Lazada Group 'fulfillment center' warehouse

Mishra agrees, noting that Alibaba’s deep pockets mean Lazada not only outlasts smaller competitors long term if profitability erodes, but it can also flex more marketing muscle to gain market share.

He adds that Lazada (along with Shopee and others) has been focusing more on smartphones, putting mobile-first as a strategy, which is allowing them to create more personalised services to customers, which Chinese players are already very good at.

Big players in big markets: Alibaba & Flipkart

Alibaba’s strategy so far has been to expand throughout Asia mostly by acquisition and investment in Lazada in Southeast Asia and in some specific markets like Tokopedia in Indonesia, rather than trying to push hard to expand Tmall or Taobao’s C2C services.

“You may not want to sabotage your investments,” Mishra says, “so I think [Taobao & Tmall] will remain focused on China.” Instead, he says Alibaba has been making a concerted effort to make more Chinese vendors and products available through Lazada.

With Taobao and Tmall enjoying as much as 80% of China’s enormous online retail market according to some estimates, Alibaba may be less concerned about building brand recognition outside of Greater China.

As for Asia’s other huge consumer market, India, we may have seen Flipkart’s brand ranking slip overall this year, but that could change with Walmart recently buying a majority stake in the brand. As Mishra notes, to compete with Amazon, you need a global partner and Walmart is a global player. He predicts Flipkart will continue to expand.

Walmart CEO Doug McMillon (L) and Flipkart co-founder and CEO Binny Bansal shake hands in Bangalore on May 9, 2018 after announcing a deal for Walmart to buy a 77% stake in Flipkart for US$16 billion. Source: AFP

Wang feels the deal will primarily remain focused on the Indian market, but that it now can bring new competition into the O2O, online to offline space.

Survival of the fittest?

“I believe consumers will continue to be spoiled from a competition standpoint and all these ecommerce companies will be put under pressure,” Misra says. But that doesn’t mean only the largest and strongest will survive. He still sees a place for verticals like Zalora or regional players like Shopee.

Wang agrees. “A few big players will continue to grow their market share,” she says. "Smaller players will differentiate with their niche or vertical positioning, when the market continues to mature.”

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