The e-commerce landscape has seen a great deal of movement in the past year. November 2016 saw the announcement of Noon.com – which is yet to be launched, following several delays and an investment by Alshaya – followed by Amazon’s acquisition of Souq and Emaar’s acquisition of Namshi this year. At the time of the Amazon–Souq deal, Goldman Sachs labeled the acquisition “the biggest M&A deal in the Arab World”.
Moreover, management consulting firm AT Kearney expects e-commerce in the UAE to grow at a compound annual growth rate of 25 percent per year up to 2020, while business consulting firm Frost and Sullivan estimates that the market could be worth up to $10 billion by 2018.
In light of this prolific growth, Communicate spoke to the agencies working with e-commerce players to decode their role in this new world order.
Then and Now
“E-commerce in MENA owes its growth to four flagship regional markets – the UAE, Saudi Arabia, Kuwait, and Egypt – for varying reasons across markets, ranging from sheer population size and potential to broadband infrastructure, to record digital penetration levels,” says Anna Woloszczenko, media director at Starcom. The region is still very much behind compared to global benchmarks; a Global WebIndex (GWI) study shows that, globally, 75 percent of respondents purchased a product online in the previous month, while this number was only 56 percent in KSA and 66 percent in the UAE.
Julio Cesar Rodriguez Davalos, head of performance and SEO at MEC, also admits that the role of e-commerce in the region is very small. It’s clear, though, that e-commerce is set to grow – not just due to the huge amounts of money being invested in it, but also due to consumer behavior. Even though UAE shoppers shop online much less frequently than their global counterparts, they have the highest average ticket size globally ($332/purchase), says a 2017 KPMG report.
As Woloszczenko says: “Record and fast-growing mobile penetration – particularly that of smartphones in the UAE and the KSA – in MENA have, in some instances, outpaced those of global markets. That’s a lot of potential for the next level of m-commerce, with mobile devices currently being the primary transactional channels for e-commerce consumers in MENA.”
Trends within the regional e-commerce space vary widely, depending on the category and device. For instance, Marie Abiad, strategic planning director, MEC, says that, while working on a travel brief, “we noticed that, surprisingly, in the region, people don’t spend as much time to book flights and hotels as they do in other parts of the world.” Globally, consumers take 30 to 40 days from search to booking, whereas in the region, it’s seven to 20 days.
However, Stanislas Brunais, senior director – performance, OMD, says the lead time and conversion are longer for longer – sometimes even more than 30 days. But bookings for travel within the GCC tend to be done rather quickly – a maximum of three to four days.
When considering the path to purchase (awareness, consideration, conversion, and loyalty), conversion is way higher for services – anywhere between 15 and 30 percent – while loyalty is almost 100 percent, says Brunais. Product-based online shopping sites, on the other hand, see a conversion of approximately 1.5 to two percent. Even the lead time for services is shorter – less than a day – while for products, it’s longer and more fragmented.
In terms of demographics, “MENA online buyers’ population is skewed toward males (70 percent). This bias, however, hardly concedes to the role of women as decision influencers or, even more so, final decision-makers – in markets such as Saudi Arabia, for instance, a vastly female e-commerce customer base would be using male accounts to transact online,” says Woloszczenko.
It’s worth noting that, despite the high smartphone usage in the region, conversion on mobile tends to remain quite low. Unlike the US, this region discovered e-commerce through mobile – not desktop, points out Brunais. Traffic to 80 percent of sites is on mobile though conversions are a bit less and, for products, the share of conversations via mobile is roughly 50 to 60 percent. “Consideration happens a lot on mobile and conversion is more skewed toward desktop, either because the mobile experience is bad or because people are more inclined to share their personal details on desktop,” he adds.
Abiad echoes this sentiment: “With travel and hotels, if you’re used to the app and trust the brand, then it’s easy for you to shop. But it also matters how the mobile experience compares to the desktop experience: because it’s a smaller screen, it is not easy for you to explore the product – right fit, material, etc.”
Then, of course, comes the issue of trust, with 62 percent of Middle East consumers worrying about having their personal information hacked via their mobile device, according to a 2017 PwC report.
While Souq and Namshi are the biggest players that come to mind when thinking of regional e-commerce, it’s not fair to ignore the travel industry and service-based players. Although fashion and technology products dominate the e-commerce space, “people have a tendency to forget that e-commerce is selling services online. It has always been used in the region for things like travel, which has been the leading industry for e-commerce,” says Brunais.
“A major engine behind this diversified scope in MENA has been the fast-growing on-demand economy, premised on connected tech platforms and apps that push for the automatic integration of consumer credit cards; from in-app transactions for services (such as Careem) to mobile click-and-mortar transactions (such as Deliveroo and Luncheon) to in-store mobile payments (such as Samsung and Apple Pay) for physical product purchases,” adds Woloszczenko.
If one were to put together a timeline to the e-commerce revolution in the region, it would start with travel, followed by fashion, then transport, and then local and international brands such as Sephora or Chalhoub, explains Brunais.
As it stands, the e-commerce landscape can be classified into four buckets:
- The pure players, such as Souq, Namshi and Marka VIP
- Service-based on-demand players, such as Careem and Deliveroo
- Travel and hospitality such as Jumeirah and Emirates
- Retailers such as Landmark Group, H&M, Sephora, etc.
Each of these either opens up its own e-commerce portal or is already part of such a marketplace.
Even though footfall has been reducing across malls in the UAE according to local media reports, the Middle East – the UAE and KSA, in particular – remains a mall-driven culture. This is offset by the region’s extremely high Internet and smartphone penetration. On one hand, there’s the age-old habit of visiting malls and, on the other, is the new, addictive habit of spending hours browsing the Internet on a smartphone device. Does it then make sense for retailers to invest in e-commerce platforms? Especially since, as Woloszczenko says: “An e-commerce store entails just as much investment, effort and strategic input as any of its brick-and-mortar counterparts, competitors or partners – and, most times, an entirely different proposition and positioning.”
Perhaps what’s more intimidating than the investment is the threat of online sales cannibalizing retail footfall and sales, says Brunais. However, he insists: “E-commerce revenues won’t cannibalize in-store or retail, but will complement [them]. That’s what we have seen across our clients; it’s an extra income and extra bottom-line, but it’s never cannibalizing.”
Also, as Rodriguez points out, this is still an industry in which clients need a lot of education. For those that have understood the importance of an online store and are willing to take the plunge, there arises another question: should they invest in their own platform or be part of a marketplace?
For Brunais, the answer is clear. Although he says brands need to be present everywhere simply because users are, the real reason lies in owning the data. “And the only way to do it is to have your own website but, if you rely only on marketplaces to sell your product, you will never get that data,” he says.
“At this point, it’s omnichannel; you have to be present everywhere. So you reach price-sensitive people through Groupon, then you have people who love your brand, so they visit your website. Then, [for] other people [who like to discover, you have] Souq and Namshi, because they have built that trust or relationship with them,” says Rodriguez.
Meanwhile, Woloszczenko suggests: “For online players who also have a substantial physical store operation, e-commerce platforms need to either ease offline consumers into either migrating their purchases online or, in earlier stages, encourage offline store visits – essentially, treat both offline and online stores as two sides of the same coin.”
Brunais adds: “Brands have to understand that moving to e-commerce is not simple, easy or quick. So, do not underestimate the time it takes,” however, the investment is worth the data. And eventually, as with most of advertising and marketing today, data is what it comes down to.”
A Date With Data
“For e-commerce players, the power of data is multiplied by ten vis-à-vis other industries, if only due to the digital detailed ledgers they hold on their customer base,” says Woloszczenko. Brunais puts it rather bluntly: “If you’re not solid on data collection, data treatment, and analytics, it’s a waste to go into e-commerce.” Simply put, “data is at the core of everything,” he adds.
“The more data e-commerce players accrue, the more they can profile both loyal and prospect[ive] customers based on their motives, behaviors, propensity to spend, product and service preferences, and future needs,” notes Woloszczenko.
Considering that mobile plays a huge role in the customer journey – especially in the consideration phase, – it’s important for e-commerce players to be able to track their audiences across devices. But just how possible is this? It is easier “if you have logged into that platform or Chrome,” says Rodriguez – but not if users are using a VPN or browsing in incognito mode.
However, it’s ad blockers that present a bigger challenge than VPN. Not only do ad blockers not allow ads, but they also prevent tracking “as we put a pixel to tag and target. So, if you have an ad blocker, we can’t track you,” he explains.
Additionally, Google and Facebook offer solutions to integrate CRM and point-of-sale (POS) systems with their analytics system, enabling advertisers and agencies to report on online to offline conversion and vice versa. However, if someone visited a physical store after seeing an online ad, but did not make a purchase, there’s no way of accurately tracking them except through correlation. “The way we do it is ask for the traffic/footfall in-store and match it with the website traffic and conversion, so we can try to understand if there was an increase or uplift in footfall that led to, first of all, more searches (because Google search is the main channel when it comes to customer acquisition online) and then traffic and conversion on the website. Then we are able to understand the offline to online conversion,” explains Brunais.
Although the technology to measure offline to online visits and vice versa– although not necessarily sales – exists, it hasn’t made its way to the region yet. That’s partially because e-commerce in MENA is in its nascent stages, but, more importantly, it’s also because most of these stores are located in a mall, making it difficult to track and target accurately.
Woloszczenko, too, says: “Understanding the previous visits becomes as crucial as anticipating the next one to deliver personalized experiences, [but] unfortunately, today, this understanding remains limited to simple forms of remarketing.
Speaking of retargeting, it’s still quite common for brands to harass consumers and sometimes even play stupid by suggesting the same products consumers have already bought. Rodriguez suggests that this might be due to the tracking of items a consumer has only seen and not necessarily bought.
However, Brunais says progress is being made, especially with paid search and social optimizing the frequency cap themselves, although he does suggest a maximum of 15 display ads per week, while Rodriguez suggests a cap of once a day/thrice a week, depending on the category.
However, both Brunais and Rodriguez agree that the best way to retarget is through dynamic creative optimization. “Dynamic remarketing, [which is the future, includes] either complementary products,” or goes one step further to suggest the same product as the end of its lifecycle, says Brunais.
As Woloszczenko puts it: “E-commerce players sit on a gold mine of consumer insights and data that would allow them to personalize creative communication, cross-selling and upselling products and services based on previous purchases, browsing behavior and activity.” They just need to up their game and do it.
The Replenishment Economy
Amazon’s Dash button made waves when it first launched and, although it had its critics at the time, it served as a magic ball for what is today labeled “the replenishment economy”. Back in April, Dani Afiouni, head of consumer engagement and media MENA at PepsiCo, spoke to Communicate about the brand’s partnership with Souq.com. It started off with Souq’s White Friday concept roughly three years ago.
“We’ve tried to capture the experience,” said Afiouni, by offering curated bundles. “E-commerce has given us both the tech and the platform to give consumers those options while they’re sitting in a convenient place, ordering right from their home using mobile or desktop,” he added.
At the time, many wondered why one would turn to an online shopping site to order something they could call their local supermarket for, only to realize that e-commerce isn’t a channel for impulsive buys – in PepsiCo’s case, at least. Based on user behavior, the brand realized that people shop online for groceries and/or monthly household supplies, which is where PepsiCo’s bundle offers fit in.
As it turns out, e-commerce is a great avenue for FMCG brands too. MEC’s Abiad speaks about a similar partnership the agency did with Souq.com for KitKat. “It’s more [about] convenience. [For instance,] for people who don’t have cars, it’s much more convenient. You can even schedule your monthly necessities so from that aspect it makes a lot of sense,” she says.
Rodriguez has a slightly different perspective: “Although for FMCG [brands], it doesn’t make sense per unit, it’s always good for them to be there because it increases their brand presence.” It’s just a form of advertising, rather than a point of sale. Brunais suggests that the potential for FMCG brands on e-commerce portals is even greater than that of, say, fashion. “With fashion and beauty, you still need to go to the store to search and try, whereas, with FMCG [brands], you’re used to one [brand], so it’s auto-replenishment,” he says.
An online marketplace is as much an opportunity for advertising as it is for sales. This is why it’s important for brands to understand how to position themselves on such platforms – whether it’s through meta tags and descriptions, or content-based tab takeovers and offers. However, pure advertising on e-commerce sites is still restricted to direct buys and traditional formats. Rodriguez suggests that this is due to e-commerce sites not wanting to lose control over who advertises on their platform and being able to change a premium sum.
“It will change; we’re seeing more and more publishers opening their space a lot on programmatic. Soon, that will be the same case for e-commerce players, if they wish to sell their inventory,” says Brunais, adding that this holds true for the pure players, as they’re the only ones who will be able to make additional revenue from opening up their inventory.
What’s surprising is that according to Ipsos’ Statex spend monitoring, collectively, the GCC’s e-commerce key players invested $32 million in offline media spending in 2016, the bulk of which had gone behind TV and OOH. “These numbers stand in stark contrast to an industry-wide assumption that e-commerce players would typically place their ad spends behind online media,” says Woloszczenko.
What Lies Ahead
It’s common to hear and read about the growth – even ‘explosion’ – of e-commerce in the region, but it’s not without good reason. While many experts have been attributing this forecast to Amazon’s foray into the market, Woloszczenko says: “Homegrown efforts will be leading the way.”
There’s clearly a massive opportunity for local and regional players to improve their online services. According to a 2017 KPMG report, an astounding 58 percent of online purchases in the UAE were imported. This clearly indicates that consumers are ready and willing to shop online; they just prefer to do it from global e-retailers.
MEC’s Abiad suggests that this might be due to not only the massive variety available but also thanks to better filtering options. She also adds that malls currently offer a wider variety of stores than e-retailers. But, “if you can really translate that experience and have that depth, then there won’t be any competition,” she notes.
Perhaps the best way to look at e-commerce is not as a ‘digital’ or ‘retail’ transformation but, rather, as a “business transformation,” suggests Brunais. Customers today expect a seamless experience – whether it’s online or offline. “And that’s how you can take some market share from your competition because your user experience will be way better if you move into e-commerce – even though it [e-commerce] might be small in terms of revenue, it has so much of an impact on offline sales as well that it’s crucial,” he adds.
Moreover, e-commerce is receiving a major push at a governmental level as well, with the creation of the Arab Federation of e-Commerce, whose five-year strategy will be instrumental in helping the industry grow from $20 billion in 2017 to $200 billion beyond 2020, as reported by local media.
According to a 2015 AT Kearney analysis, e-commerce accounted for only 0.4 percent of the GCC’s GDP, compared to as much as 3.5 percent in the UK – something the Arab Federation of e-Commerce plans to change by aiming “to promote and support e-commerce markets in the Arab world in a manner that contributes to the Arab economy keeping pace with the contemporary economy and global changes, especially with regard to the digital economy, as well as keeping abreast of international developments, aiming to develop the volume of e-commerce among Arab countries