Monthly Archives: May 2020

Covid-19’s Impact on Asia & Middle East Apparel Industry

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Malaysia’s ecommerce market is quickly becoming one of the largest in Southeast Asia. Its growth is outpacing that of traditional established markets in the region. This was apparent even before the impacts of the pandemic— Malaysia’s business-to-consumer e-commerce value increased 39 percent in 2019 alone. This growth in ecommerce has been coupled with the growing consumer preference for online shopping, and availability of customized payment options in recent years.

 

Malaysia’s tryst with Ecommerce started in 2004 with the launch of eBay Malaysia. This was followed by Lelong.com.my in 2007 – a C2C platform –  that attracts more than 9.56 million visitors per month. The current state of Malaysian ecommerce market started taking shape In 2012 when two major players Lazada and Zalora launched their Malaysian operations, followed by Shopee in 2015. Fast forward to 2020, Malaysia’s eCommerce market is worth US$ 4.3 billion, and is expected to double to $8.1 billion by the year 2024;  at 14% CAGR. Malaysia is now catching up to bring its e-commerce infrastructure, including product availability, payments, delivery and regulatory requirements, in line with more established online shopping markets.

 

Factors Spurring E Commerce Growth in Malaysia

 

At 82.3%, Malaysia has one of the highest internet penetration rates in south-east Asia. Ecommerce growth in Malaysia is primarily driven by a growing number of digitally-savvy, middle-class people who are looking for great deals and access to international brands. Here are the other major factors driving ecommerce growth in the region.

 

  • Social Distancing and COVID-19 Restrictions: According to the Malaysian Communications and Multimedia Commission (MCMC), during the current pandemic internet traffic has increased by 30-70%. However, what is most encouraging is the Malaysian government recognizing this rise in ecommerce as a tool of inclusiveness, and has announced support for empowering local micro, small, and medium enterprises (MSMEs). This is predicted to further drive ecommerce in Malaysia. The Malaysian government has been proactive with these concerns through digital campaigns like “Buy Malaysia” and #SayaDigital to encourage local demand and empower Malaysians to surge the country towards a digital transition.
  • Seamless Delivery Logistics: Traditionally ecommerce players in Southeast Asia faced logistical challenges due to the fragmented topology of the region dominated by multiple islands and dense jungles. However, Malaysia is segregated into only two major parts – Peninsular Malaysia and East Malaysia; which makes ecommerce logistics a whole lot more straightforward and cost-effective.
  • Surge in Online Grocery Shopping: Similar to other countries in Southeast Asia, grocery & FMCG ecommerce is rapidly growing in Malaysia. In fact, Malaysia ranked 2nd in Statista’s world’s fastest growing grocery market list in 2018, with only Singapore registering a higher YoY increase. IGD Asia predicts that online sales value of grocery in Malaysia will increase at a CAGR of more than 60 percent between 2017 and 2022 (https://asia.igd.com/Portals/4/Asia-online-forecasts-free-download.pdf).
  • Digitally-savvy consumers: Malaysia boasts of an incredible 140% mobile penetration and 85% internet penetration. More than 26 million Malaysians access the internet and 80% of users between the ages of 16 and 64 are already shopping online. Malaysia’s mobile commerce growth is outpacing overall e-commerce, projected to rise at a compound annual growth rate of 19.7 percent to 2023, to become a US$8.9 billion market.
  • The Rise in Social Media: The lines between social media and ecommerce are increasingly blurring, thanks to several native shopping initiatives by Facebook & Instagram. Besides, social media serves as a  great discovery and post-purchase platform for ecommerce businesses.  As of 2019, Malaysia had 25 million active social media users which accounts for 78% of the total population. This digitally-savvy, upwardly mobile segment presents a massive potential customer base for ecommerce businesses.
  • Preference for Digital Payments: Bank transfers dominate as the primary e-commerce payment method in Malaysia, accounting for 44 percent of all transactions. Consumers in emerging ecommerce markets typically steer clear of digital payments and tend to rely heavily on Cash on Delivery. This has been a roadblock to ecommerce growth in several regions like India, Brazil, Saudi Arabia etc, since COD imposes scalability challenges on ecommerce businesses. Malaysia is an outlier here with bank transfer and digital payments accounting for a whopping93% ecommerce transactions and there are currently 39 businesses with an e-money license in the country, including major players PayPal, Alipay, WeChat and Google Pay.
  • Government Assistance: The positive growth of the ecommerce industry in Malaysia will also be driven by the government’s National E-commerce Strategic Roadmap initiatives that strive to increase internet accessibility to rural areas and improve e-wallets technologies.

 

Key Ecommerce and Consumer Trends in Malaysia

 

The Malaysian ecommerce space shares a lot of similarities with other emerging markets in SEA like Singapore, Indonesia & Thailand. However, there are some interesting cultural and region-specific nuances to watch out for.

 

  • Transactions Across Borders: Cross-border spending is high in Malaysia and accounts for 4 out of 10 of all e-commerce transactions in the country. The major motivators for Malaysians to choose international sellers brands are:  better prices (72%), and access to items not available in the country (49%). The top three countries for cross-border sales are China (first), Singapore (second) and Japan (third). However, it should be noted that the Malaysian government has plans to announce a digital tax for cross-border e-commerce from 2020, which could impact international sellers of digital products.
  • Mobile-First Audience: Consumers in Malaysia have been quick to adapt to mobile commerce and 80% of smartphone users now use their devices to shop online. Mobile ecommerce transactions in the region are expected to reach $5.6 billion by 2021.  Within the mobile category, apps are the most preferred ecommerce channel and used for 64 percent of transactions.
  • Affinity towards discounts: A report by Paypal found that Malaysians prefer online shopping primarily to save time and 90% of Malaysians expect their purchase to be delivered within a week. The second biggest factor that attracts consumers to shop online are cheaper prices. This could likely be driven by a rising middle class who faces comparatively high taxes and stagnating wages. This also explains why ecommerce events in Malaysia like 11.11 and 12.12 that offer higher discounts (as high as 90%) drive the highest sales in the Home & Living, Fashion, Health & Beauty, Accessories, and Mother & Baby categories.
  • Ease of Digital Payments: Across Malaysia, bank transfer and digital wallets are the most preferred payment method. Interestingly, credit cards are the most preferred payment method in  Penang (28%), Perlis (40%), Selangor (25%) and WP Kuala Lumpur (34%). Digital wallets, known as dompet digital in Malaysia, are the fourth most-used payment option. However, their usage is expected to grow at a CAGR of 53% by 2021, at which point it will take a 16% share of the Malaysian payments market. On the other hand, it is still advisable to offer cash on delivery (COD) as a payment method since the 45-54-year-old age group still prefers COD when shopping online.
  • Social Commerce: The rise in usage of smartphones has also led to a spike in social media commerce, especially through WhatsApp and Facebook. The country is said to be the world’s fourth-largest market for social commerce adopters and a recent survey found that 87 percent of survey respondents had bought something through apps like Facebook, Facebook Messenger or Whatsapp.
  • Competition Between Regional & International Retailers: The Malaysian branches of two online shopping platforms based in Singapore – Lazada and Shoppee are the leading websites in shopping traffic and both have close to 20 million visitors per month. Even as these two leaders expand their product offerings and services, other regional players, such as Indonesia’s Bukalapak and Chinese players such as Taobao and Ali Express are increasing their presence on the peninsula.
  • Annual Shopping Events: Malaysians shop online in preparation for major holidays, especially Chinese New Year and Ramadan. They visit multiple ecommerce platforms weeks ahead of these celebrations to compare products and prices. Shoppers look for gifts to give to their family and friends on Chinese New Year, as well as beauty and fashion products for self-care. Besides this, Malaysia has three major annual national shopping events—Malaysia Super Sale (March 1–31), Malaysia Mega Sale Carnival (June 15–August 31) and Malaysia Year-End Sale (November 1–December 31). International discount shopping events Singles’ Day and Black Friday in November are also rising in popularity.

 

Malaysia’s Ecommerce Space

 

Malaysia’s top-three e-commerce sites by traffic are marketplaces Shopee, Lazada and PG Mall. The ecommerce space in Malaysia is dominated by self-owned, branded e-commerce websites and big online marketplaces. Here are the top ones :

 

How to Strategize Your Brand For Malaysian Ecommerce 

 

Given its population size and increasingly affluent middle class, Malaysia is easily one of the most attractive markets for ecommerce in Southeast Asia. Here are some strategies that retailers and brands can use to leverage this opportunity.

 

  • Offer a diverse product range –  Concerns around product diversity have been a constant challenge for Malaysian consumers, and online sellers have the opportunity to satisfy this unmet need. The key to getting the right mix of products is to use AI-powered ecommerce platforms to understand the top products and accessories for each customer segment and dynamically personalize product pages for specific segments.
  • Provide a wide range of payment options – While bank transfers are the most preferred payment option, retailers should also include e-wallets, credit cards, and COD to serve the wider audience. Merchants should reassure customers that they have all the resources to avoid problems like outdated payment methods, unreliable delivery and incidences of fraud.
  • Offer superior fulfilment experience –   90% of Malaysians expect their online purchases to be delivered within a week. Allow customers to track deliveries in real-time, so they don’t have to guess the delivery dates. The key to offering a great shipping experience is to have a centralized inventory across your stores, warehouses and other fulfilment centres.
  • Understand local nuances – There are certain cultural nuances that are specific to Malaysia. It’s important to know what Malaysians like to buy, and when. Understand the customs, traditions, and holidays that influence their shopping behaviour, and increase conversions by personalizing marketing engagement and conversions with customers using the power of customer segmentation.

 

While the ecommerce market in Malaysia is nascent compared to mature markets like China and Japan, it still represents one of the largest ecommerce markets in SEA. Malaysia stands out due to its relative size in the cross-border share of the ecommerce market. Malaysia’s youth population highlights the economy’s future potential as an e-commerce market. Malaysian consumers are often looking for great deals and access to international brands, but these trends may shift away if more local brands prioritize delivering superior customer experiences, products and prices than rival international brands.

 

Optimizing Promotions & Deepening Customer Engagement post COVID-19

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The fear and apprehension from the novel coronavirus is forcing more consumers into a primarily digital way of life. In a bid to stay safe, social distancing is the new norm, and many of us have forgone visits to our favorite stores and restaurants. Across the world, lockdowns and restrictions have caused a drastic decrease in retail sales, and many traditional retailers are currently grappling with zero cash inflow; a question mark looming over their future. 

 

Here at Capillary, the Data Science and Analytics team studies customer interactions with over 400 brands across the globe. Based on analyzing transaction data from the brands we serve, as well as from numerous other studies, we know that a fully-engaged and loyal customer contributes more revenue than an uncommitted or disengaged customer— an average of 50% more, according to one research article by Gallup. Although customer engagement, marketing and support become more difficult during economic downturns and turbulent times, they become all the more important to drive revenue and get the brand back to its feet. 

 

A sensitive situation like the COVID-19 crisis requires Customer Experiences based on empathetic and emotional engagement. Wise marketers soon realized that blasting consumers with a barrage of generic, irrelevant communication is hurting the brand twofold: it drains marketing budget, and also spreads the sentiment that the brand is apathetic to consumer needs. Along with empathetic engagement, it is crucial for brands to time their engagement perfectly. This means reaching out at the right time during the recovery period with the most relevant communication for customers.

 

So how does data help the brand deliver these strategies and create a win-win situation for itself and customers? Especially in times when resources are scarce and communication must take place with caution?

 

In this article, Capillary’s Data Science team compiled key strategies that focus on enhancing brand engagement and growing revenue during and after the Coronavirus pandemic. 

 

The Road To Recovery

 

A recent study by Bain & Company details how consumer demand typically fluctuates during an epidemic, with variations based on the type of industry and products. For example, the apparel sector is likely to show behavior similar to the Dip & Rebound graph as per the study of historical data surrounding pandemics and recovery. Based on what their recovery may look like, it is imperative for brands to prepare in advance, yet not stock too much (where they’ll exceed demand and be left with excess unseasonal stock) or too little.

 

Covid Demand

 

Identifying the right time to communicate offers and promotions to customers is a strong way to avoid being tagged as a brand indifferent to customer well-being. Initiating product campaigns at the wrong time will also make the customer simply ignore the communication. Based on our analyses of post covid trends in China, we recommend initiating campaigns after the recovery period starts, and allowing for at least 1-2 weeks of cooling period to send campaign communications. You can consider the recovery period to start when weekly sales improve by over 20% for two consecutive weeks, indicating that some customers have started coming back. 

 

Another reason to avoid communicating before this period is because customers are certainly going to be inundated with messages and emails from multiple brands once regional lockdowns lift, even though customers will still be apprehensive about their safety.

 

Covid Recovery

Engaging your best customers in the Covid-19 recovery period

 

To understand the type of relevant campaigns a brand should send customers during the business recovery phase, we recommend a two-pronged strategy. The objective here is to ensure that after the coronavirus pandemic dies down, the most valuable and loyal customers are engaged first, prioritizing that these customers come back to the store. For this reason, reserve your more aggressive campaigns for your best customer (even though during normal times, these campaigns are for the least engaged customers).

 

Strategy 1: Identifying who your most valuable customers based on their transactional behavior and sorting them in descending order of value

 

  1. Segment customers into those who are Active (customers who have made a purchase in the last 1 year), and further segment them into Active Repeaters (Made more than one purchase in the last 1 year) and Active One-timers (Made a single purchase in the last one year)
  2. Identify customers who have Lapsed (customers who have only made a purchase over a year back) and further segment them into Lapsed Repeaters (made more than one purchase) and Lapsed one timers (made a single visit more than a year ago)
  3. Segment the customer base further into smaller Recency buckets (3 months, 6 Months, 12 Months)
  4. Based on sales contribution within each segment, identify your Top 20%, Mid 30% and Bottom 50% customers in each segment. 
  5. Identify the high-priority segments for re-engagement:
    • Active Repeaters is the highest-priority segment of customers to target post lockdowns. These are your most loyal and profitable set of customers, with a higher probability to return.
    • Active One-timers and Lapsed Repeaters are the next priority groups after Active Repeaters, with further priority-levels based on their sales contribution bracket.

 

Outcome: This segmentation will ensure the brands can focus on “TOP X% customers” (X will vary from brand to brand and marketing budget) to bring them back to the stores on priority. These top customers will need to be engaged in the most effective manner.

 

Strategy 2: Analyzing your most profitable products, and identifying Top Customers interested in these products

 

Typically, product sales follow almost a 20-80 strategy— which means 20 percent of your products contribute to 80 percent of your sales. Focusing on these products will allow brands to maximize their return from promotions, and channel their efforts towards the most profitable products

 

  1. Identify Top Product Categories that contributed to overall sales in the last one year. Segment products based on their contribution to top 20%, mid 30% and bottom 50% sales.
  2. Identify the Top Customers who made purchases from Top Product Categories, and prioritize them accordingly

Customer Segmentation

 

For some brands, accomplishing the above analysis and segmentations may be easier said than done. For a younger brand with lower volumes of customer data, basic segmentation like demographics and location can be done manually. However, these generic segmentations cannot be used for building advanced purchase propensities models. Furthermore, it would be a tedious manual effort to accurately create complex personas and purchase-pattern segments based on changing customer behavior.

 

Although relevant communication is the key to gaining consumer mindshare, it is an increasingly herculean task to implement personalization at scale, given the pace of change in consumer behaviour and exponential rise in data volumes. We recommend that brands create centralized data pools using omnichannel analytics platforms, and deliver more personalized customer experiences using AI-powered marketing solutions.

 

AI-Powered Adaptive Segmentation runs on an intelligent algorithm that constantly ‘learns’ more about the customer every time she engages with the brand – whether on social media, email, website or in store. Adaptive segmentation also identifies customers based on higher conversion probability, rather than simple demographics. This is where emerging technologies like AI and ML can help brands deepen consumer engagement through data analysis, and accelerate revenue growth.