Don’t rely only on online marketplaces

They could change guidelines or fee structures and place retailers at a disadvantage

According to the Bain & Company, eCommerce in the MENA region is expected to rise to$28.5 billion by 2022. Their estimate is that it has the potential to grow 3.5 times by 2022, particularly in the GCC.

This is despite the fact the GCC retail industry didn’t follow the mass internet adoption brought on by faster streaming and the proliferation of mobilephones in the 2000s. It was only in 2010 that businesses joined customers in the digital realm.

The GCC states have since caught up, with the average eCommerce penetration being around 3 per cent, with the UAE’s at 4.2 per cent and Saudi Arabia at 3.8 per cent.

The reasons behind this are not difficult to identify. Customer journies will now start online. Their access to the global marketplace leads to increased demand for international merchandise, which increases the pressure on local competition. Retailers need to be ready to meet this, with some are already incorporating this into their strategy.

Mohammad Al Abbar, who launched noon.com, raised $1 billion in funding with 50 per cent of this was backed by the Public Investment Fund of Saudi Arabia. Back in 2018, Noon.com announced they have a partnership with eBay, which enables them to bring US products directly to GCC customers.

In March 2017, Amazon acquired Souq. com for $580 million. And this year, Amazon launched Amazon.ae out of the rebranded Souq.com.

In addition to their extensive reach and exceptionally loyal customer base, digital marketplaces offer a further, decisive advantage. Their technical and logistical infrastructure can be used by all suppliers without the need for financial outlay on their part.

Platform maintenance, transaction processing, and marketing offers like “Cyber Monday” are all taken care of by the operator, with additional options available that extend the range of services provided to cover all logistics, including warehousing and returns handling. Such as with Amazon’s FBA fulfilment programme.

Don’t ignore

In addition to all of the incentives and advantages the big platforms indubitably offer, however, it’s important to take into consideration the risks posed by developing a marketplace strategy that is too reliant on them.

Manufacturers and retailers with interchangeable products who lack a strong brand identity of their own and do not offer a significant price advantage shouldn’t underestimate the level of competition that marketplaces can have for them. Whereas having their own online shop allows retailers and manufacturers to make an exclusive presentation of their full range, on Amazon and similar platforms, they’ll find themselves competing with numerous suppliers for customer attention and product visibility.

Although a number of effective marketing tools enable them to purchase more desirable placement in the first pages of search results, achieving organic top-placement in the longer term will require significant investments in advertising together with the maintenance and optimisation of their product catalogue. But these can quickly eat up projected profit margins.

An additional disadvantage — especially from a customer lifetime value point of view — is that they have little or no opportunity to make direct contact with their customers to let them know about special offers or new products and establish a sustainable CRM strategy.

There is also the danger of regional retailers becoming too dependent on the marketplace and losing control over their own brand. Unforeseeable rises in fees, alterations to the general guidelines, and the rise of Amazon’s own brands — such as Basics, Essentials, and Find — can render working with marketplaces unprofitable overnight.

In the worst-case scenario, bad business practices or “black hat” tactics on the part of the competition can lead to the immediate blocking of their own accounts.

For these reasons, retailers and manufacturers would be well advised to make an intensive exploration of additional sales channels in the interest of diversification. In addition to analysing niche marketplaces, they should also consider creating their own online shop.

Because of this rise in competition, regional retail operators such as Majid AlFuttaim, Alosra Supermarkets, Spinneys and Al Maya decided to have their own online platforms to improve their numbers. Because GCC online shoppers are still wary of online payment options and prefer cash on delivery (COD), regional retailers should work hard on building their customer’s trust towards other types of payment.

This is especially likely to pay dividends if the shop offers customers something significantly different from the marketplaces, and in a way that they are readily able to appreciate. This can be achieved by offering a particularly attractive pricing structure, for example, a distinctive product range, or an outstanding user experience.

Chat them up

Making use of augmented reality or chatbots in the case of products or services that require a larger amount of explanation can achieve genuine added value, even making it possible to attract target groups away from the large marketplaces to new shopping channels.

Although there is no one-size-fits-all advice for developing and establishing a suitable eCommerce and marketplace strategy, which needs to be done on an individual basis, the following general conclusions can be drawn:

Their extensive reach and potential mean that the big marketplaces are almost impossible for manufacturers and retailers to ignore. As their market power means that these platforms tend to dictate relationships on a one-sided basis.

However, too much dependency and concentration on a single marketplace should be avoided, and alternative market footholds established.

■ Rami Hmadeh is Managing Partner of Serviceplan Group M. E.