E-commerce: misconception and truth
By Ahn Joong-in
The Internet shopping mall with the size of approximately 30 trillion won is the second-largest market in the Korean retail industry following the hypermarket, and is expected to maintain the fastest growth rate in 2012 (annual growth rate of 17.8 percent). Compared to the time and effort involved, however, some e-commerce related activities are yielding poor returns. These companies with poor returns are establishing a wrong strategy and moving in a wrong direction because their business models are based on some misconceptions about the success of e-commerce. NRI’s perspective on the most common misconceptions can be summarized into the following three points.
1. The key to success is innovating a business model rather than renovating the shopping mall.
Most companies are benchmarking e-commerce of Amazon.com, and are only interested in the technical or functional elements such as product recommendation features and the user interface configuration. However, the competitiveness of Amazon.com is expanding the value chain to a variety of platform businesses through Web technologies. The success of Netflix’s video rental service is also based not on the implementation of online technical services, but on the “no late fee” revenue model which was enabled by the e-commerce platform.
2. Accessibility rather than mobility when targeting the smartphone or tablet users.
According to statistics, customers are mainly using their smartphone or tablet at home to connect to the Internet, due to its easier and faster accessibility compared to that of computer. It has higher efficiency in taking advantage of using a channel with accessibility such as providing information on real-time bargains rather than building location based marketing services.
3. The key point of sales expansion through SNS is, reducing the unnecessary SNS marketing budget while improving substantial services.
The nature of SNS platform is communication between customers. Only a limited number of companies with strong brand power can achieve an SNS communication effect with their customers. For regular firms, it is recommended to invest their budget into substantial services rather than to waste their resources while establishing an extra advertising SNS channel. Customers are increasingly less dependent on advertisements but more dependent on each other by mutual influence through various online networks. The best way to increase the number of customers who are willing to spread positive marketing information is to invest more on products and services and less on marketing trickery.
Ahn Joong-in, Manager of NRI Seoul Branch