Ingredients for e-commerce growth

Improvements in delivery reliability, finance and customer protection are needed to shore up the business-to-consumer space in Thailand. By Varughese Kizhakkacharuvil John

When it comes to readiness for business-to-consumer (B2C) e-commerce, Thailand is in the middle of the pack worldwide, according to a 2015 study by the UN Conference on Trade and Development (Unctad). It ranked the country 70th among 130 countries surveyed, compared with 45th for Malaysia and 8th for South Korea.

The Unctad survey focused on the infrastructure potential for B2C e-commerce based on internet usage, number of credit card holders and other factors. It did not consider actual transactions.

This article is based on a study by the Graduate School of eLearning Management Programme at Assumption University, which investigated e-commerce penetration in Thailand based on consumers’ buying habits and the impact that adoption of online sales had on small retailers.

The study estimates the B2C e-commerce penetration rate at 25% in urban areas, where 52% of the country’s 69 million people live. Large local enterprises and multinationals together account for a share of 61% in an intensely competitive market, according to a 2017 study by Krungsri Research.

Large retail operators are in an excellent position to move further into e-commerce in terms of the technology they already have, especially for distribution and interaction with consumers. But small retailers can also adopt online sales to reap the benefits of a growing economy.

Adoption of online sales by retailers can create economic and social impact: the former related to profitability and operating efficiency and the latter to society in general in terms of employment created.

The study indicated that the profitability of clicks-and-mortar retailers is significantly higher (5% to 9%) than that of bricks-and-mortar retailers. The operating efficiency of the former group is significantly higher as well.

The social impact in terms of new employment opportunities created by online sales is negligible. However, clicksand-mortar businesses do have more employees per shop than their counterparts.

But whether a retailer is online or offline or both, it must uphold certain core values to win consumers’ trust. As Jack Ma of Alibaba has put it: customer first, followed by employees, then shareholders. In this regard, the study found that consumers have less trust in online vendors than in their offline counterparts.

Consumers’ biggest concern is whether the product they see on their screen will be the same as the one that arrives at their home. Online stores must not inflate descriptions and also must be honest about both positive and negative features. This will make customers feel more confident.

Non-delivery of a product or delivery of the wrong product is another risk. In the case of the latter, multinational e-commerce companies and large enterprises allow customers to keep or return the product, with reimbursement in full for any return. Small firms must emulate this riskreduction approach to attract consumers.

Another major concern is the lack of sufficient protection for financial losses caused by online purchases. Consumer protection laws should be supplemented by a Cyber Transactions Protection Act, as in some other countries, and there must be a consumer grievance and redressal authority to enforce such laws on behalf of the consumer.

The introduction of such laws should be accompanied by an extensive publicawareness campaign in various media in order to educate and reassure consumers about online shopping.

The study highlights a regional imbalance in the development and growth of e-commerce, with significantly higher penetration in the central and northeastern regions (28%), but low in the northern (17%) and southern (22%) regions.

The growth of online shopping is not a threat, for the time being, to bricks-andmortar shops in Thailand, which still control three-quarters of the total market. Many regular customers of offline outlets have a negative attitude towards online shopping. They prefer being able to physically examine products in person, while financial risk arising from transactions is minimal. The perception of a lack of legal protection in online transactions is also strong among this group.

Regular online consumers in Thailand, meanwhile, like the convenience and novelty of browsing the virtual platform. Nevertheless, they do worry about risks related to the performance of products bought online, and the financial risks of online transactions.

About 80% of the online consumers surveyed were aged 18 to 27 years, and their curiosity to explore new things is higher than that of their older peers. But in an emerging economy such as Thailand, where e-commerce is still developing, the novelty value is fleeting, and not an inherent feature that leads to long-term customer relationships.

In the longer term, boredom or dissatisfaction with online shopping could set in if the other independent variables are not strengthened.

Over the long term, the country needs a sounder logistics system to reduce delivery risks, and strong financial system oversight to eliminate risks in online financial transactions.

An earlier study carried out in 2014 in Thailand noted a considerable difference in attitudes and purchase intentions between experienced and inexperienced online shoppers. The former place a higher value on pricing and quality of information than on assurance or empathy, while the latter respond more to perceptions of the online seller’s responsibility and reliability.

With some 41% of consumers using the internet for six hours or more per day, according to recent surveys, the outlook is positive for online shopping in Thailand.

The top websites for shopping in Thailand are Facebook, Lazada and Shopee. However, Thai online consumers tend to trust more in domestic e-commerce websites created by online sellers rather than foreign websites developed by e-commerce website developers.

Thai consumers are also enthusiastic participants in “social commerce”, which takes place via social media and other outlets offering more interaction. This also reflects the fact that mobile is becoming the channel of choice for getting online as smartphone usage grows and 4G networks improve.

Future success will rely heavily on the credibility of vendors and the dependability of the legal system and enforcement of related financial and consumer protection laws.

Large retail operators are in an excellent position to move further into e-commerce in terms of the technology they already have, especially for distribution and interaction with consumers.