South Africa’s electronic commerce sector is set for a massive boom, but most local companies are not geared up to deliver the sort of online experience that their customers will demand from them in a globalised marketplace.
Research from World Wide Worx found that South Africans spent more than R2-billion online in 2010 (excluding air tickets and accommodation), up 40% over the previous year. The market is expected to grow at 30% again in 2011, with plenty of headroom for growth in the years to come.
Kevin Meltzer, co-founder of Consology, comments: “The South African e-commerce market will soon pass the tipping point and we can expect it to gather massive momentum in the years to come. However, many of the country’s biggest brands have yet to catch up with the expectations and needs of their consumers in the online space.”
Meltzer says that the massive challenge that lies ahead for South African companies is to get their online service levels up to the benchmarks set by companies such as Amazon.com and Apple. Most South African e-commerce operations still lag the best practices of their international competitors in areas such as user experience, functionality, customer service and back-end efficiency.
“Consider the example of Zappos.com, now part of the Amazon group. It has a 365-day return policy for any product it sells online, with free shipping for the return. If you call its contact centre to look for a product it cannot source itself, it will search competitors’ sites and refer you to someone who can help you,” he says.
“Or consider the almost uncanny accuracy with which Amazon can recommend products to you that match your taste because of its powerful CRM systems and recommendation algorithms. Few local e-commerce operations can compete with these companies, who are simply a click away from their customers.
“Although it isn’t always cost-effective for consumers to import physical goods bought from an international online retailer into South Africa, international competition for local online retailers is set to get much fiercer as foreign companies move into the local market and as we see mainstream acceptance of digital goods such as e-books,” Meltzer says.
In recent months, Groupon had made a play for the South African market through its deal with Twangoo and international hedge fund company Tiger Global Management has moved into the market by acquiring online retailer Take 2. Wal-Mart – no slouch in the e-commerce space – may also look to revamp Massmart’s online presence.
“Companies that sell goods that can be turned into virtual products – such as movies, books, music and software – are especially threatened by international e-commerce giants,” says Meltzer. “For example, Facebook knows more about its South African users’ music and movie interests than the local cinema chains and retailers do.”
This is a powerful advantage for a company that could extend its reach into e-commerce. Facebook is already moving in this direction through a partnership with Warner Brothers to stream rented video to its users. Local entertainment companies need to think about what their value is in this sort of environment, Meltzer says.
“There is a whole emerging group of young consumers who are entering the world of e-commerce for the first time by buying songs from iTunes and apps from the Android store,” says Meltzer. “South African companies must think about how they will turn them into their customers.”
Against this backdrop, South African companies need to be upgrading their online presences to match the best that the world has to offer, adds Meltzer. Logistics, customer service and back-office processes all need to be re-looked.
Perhaps most importantly, companies need to be harvesting customer data and using it for a competitive edge. They also need to plan for emerging trends such as location-based services and mobile commerce.
Concludes Meltzer: “There is massive potential in the South African e-commerce market as more consumers move online and those that already have Internet access become more comfortable transacting online.
“However, companies that want to compete in this space will need to be truly world class and offer some unique local value to stay ahead of their international competitors.  Now is the time to starting investing in the systems and processes that will give them the edge that they need to stay relevant in a global e-commerce market.”