Author: Chris Jones, Independent Multichannel Retail Consultant
In a previous article (see Tackling Niche Countries) I suggested that countries such as Croatia, where eCommerce is as yet relatively undeveloped, might represent an opportunity for UK retailers to find easy / cheap incremental growth in markets with little competition. The pre-conditions for eCommerce are almost all in place: broadband penetration, appropriate use of payment methods, reasonable logistics, legal framework, EU membership ensuring no issues with tariffs, Google, Facebook etc. But even if you think a country of only 4.5 million people is worth the effort, you could reasonably argue that it is simply too early to target it. There is a real risk that first-mover in reality means no sales. If customers aren’t really ready to shop online, then you’ll be wasting valuable marketing spend on persuading them of the merits of online shopping itself, rather than on driving them to your site and converting them.
On the other hand, you could argue that many “obvious” countries are already overcrowded. The US is very competitive, and marketing there is very expensive for example. In another previous article (see The Structure of eCommerce Overseas), I considered whether the pure-play dominated environment of Germany made it an easier country for external retailers to target. It probably does, but Germany is still a tough target with aggressive local competition. Ecommerce penetration in Germany is not yet as high as in the UK, but it’s rapidly getting there (at least in non-food). With Croatia you could argue that it is too early; with Germany or the USA you could equally argue that it is too late!
So, if it’s too early for Croatia, or too late for Germany, when is that Goldilocks moment when it’s just right?
One possible answer to this question is provided by some intriguing analysis presented by BCG1:
The first thing to say about this research is that the target audience is not retailers, and that it has a definite “agenda”: its objective is to persuade CPG companies that their particular category is now sufficiently online that they should take eCommerce seriously, and preferably buy BCG’s consulting services to assist them in doing so. (If any CPGs are reading this: I’m a much cheaper alternative option!).
Setting this agenda aside, its basic thesis is worth consideration. Essentially BCG are suggesting that when a category reaches somewhere between 3% and 5% online penetration (in a country or market), then e-commerce suddenly accelerates.
Personal experience suggests this is both reasonable and surprisingly consistently true. Online grocery in the UK provides a nice current example: it recently reached 5% online penetration and suddenly, alongside convenience stores and discounters, eCommerce has become one of the key factors discussed when considering possible strategies for the supermarkets. Previous engagements in the fashion and DIY sectors also implied the existence of such a tipping point somewhere around the 5% mark. Of course in the UK we’re well past that 3%-5% stage in almost all plausible online categories, but elsewhere this is not yet so.
So, if you want to target countries which will be relatively cheap to market to – because there isn’t so much local competition – but which are sufficiently developed to already have a reasonable customer base – because eCommerce is already “happening” – then a plausible, and simple, strategy implied by this tipping-point idea is to consider countries where eCommerce penetration in your particular categories is around the 3-4% Goldilocks mark.
In practical terms, this is fairly easy to find out: category level online-penetration data is typically available for most remotely plausible countries. It may also throw up interesting opportunities: penetration of eCommerce into clothing/fashion in Canada, for example, is just around that 4% mark right now.
Just right for a baby cross-border website?