It's true that Daily Deal sites are the epitome of copy catting gone wild which has plagued the Asian start up scene, however I think the tech community will look back at 2012 as a watershed year for E-commerce in Asia. So where have global e-commerce stalwarts like Amazon, eBay and others fallen short in Asia and how has Daily Deals filled this void...?
1. Daily Deals has changed consumer's attitudes towards shopping by giving them a reason to go online.
Many consumers in countries (or territories) like Hong Kong, Singapore and even Thailand look at bricks and mortar shopping and mall walking as "shoppertainment" (very convenient to do given public transport and a great way to stay cool in the heat). Hong Kong has always been a head scratcher for e-commerce having high smart phone penetration (third highest globally per capita), a large segment with available spending income and high broadband penetration. However it greatly lags China in e-commerce growth with a projection of a paltry 7% annual rate according to a Boston Consulting Group study done in 2011.
Daily Deals sites have brought Asian consumers online simply because of the great discounts...period. Consumers go through the "inconvenience" of going online and have gotten over their distrust of buying a virtual good in the form of a deals voucher. What's more they're taking the risk of prepaying for a product or service from mostly unknown merchants without even seeing it! Daily Deals is only two years old and already the Hong Kong and Singapore Daily Deals markets are estimated to be between $60 to $70 million USD annually while Thailand, Malaysia, and the Philippines are in the $25 to $40 million USD range. (Estimates based on several sources including internal, All Deals Leaks, and press)
2. Daily Deals sites instituted "no questions asked" risk free shopping.
One of the challenges of curating deals from merchants and brands is simply quality control. It's the hazard of acting as a channel for sometimes unknown merchants to peddle their wares to your customers. As painful as it sometimes was, deal sites provided refunds to customers who complained about anything from a restaurant running out of a lunch set deal the day they patronized the establishment to the merchant them self going bankrupt and skipping town. This was the case for Groupon Hong Kong and BeeCrazy who were left holding the bag when Macao Dragon Ferry went under. (over 150k vouchers sold). Deal sites quickly recognized the power of word of mouth and the importance of preventing churn of a customer to a competitor with a seemingly identical smorgasbord of deals.
3. A pathway for E-commerce to reach "the masses".
Daily deals democratized e-commerce by making a multitude of payment options available so that the non credit card demographics could shop online. For example, in the Philippines there are only roughly 7 million credit cards and 3 or so million credit card holders. The numbers are even less for Thailand and Indonesia. In fact only 5% of online Indonesians engaged in e-commerce or online banking, with credit cards being one of the main roadblocks (Source: The Boston Consulting Group 2010). Over the Counter Payment, ATM and online bank transfers are much more the norm for SEA. Deal sites also offer Cash on Delivery for the most cautious of consumers.
4. A new direct marketing channel for SMBs....the introduction of Hyper Local Commerce.
So far I've focused on the consumer side of the equation. Daily deals has given local merchants a relatively risk free, pay for performance marketing channel. I say "relatively" because in the early days some merchants were not coached properly on how to manage capacity for deals and were swamped by a flood of redemptions for loss leader deals. Since then, they (and the deal sites) have become much more savvy at pricing and structuring deals so that there is an opportunity for up-selling for a profitable customer acquisition as well as converting a new customer to a returning one.
So where does the industry go next? Lack of congruent payment infrastructures and economical delivery and fulfillment solutions will continue to be a challenge for E-commerce in the near term. Mobile is the obvious next step but it's one that requires getting a few very important things right....
- Utilizing the context of mobile (location, phone type, time of day etc.) to drive discovery of deals and effective re-marketing.
- Utilizing the phone as the vehicle for payment. Much has been prophesized about this (think PayPal, Square, carrier billing, NFC, mobile wallets) but the key is to get the App and M-site experiences right first. This means a super convenient and secure process involving single sign on, mobile optimized payment page flows that are UX tested and re-tested. Shopping cart abandonment recognition and re-marketing tactics will be key because god knows 3G is not reliable in SEA and consumers' attention spans on mobile vary depending on where they are.
- Utilizing the phone as the tool for redemption. The first step is getting consumers and merchants to adopt a simple system to scan and validate a voucher that's brought into the store on a phone.
Yes, the press has prophesized about more and more consolidation to come for the daily deals biz. Ultimately daily deals will take a different form. Sites are already trying morph themselves into full fledged e-commerce storefronts. The next inflection point will come as large entrants like credit cards as well as web Goliaths like Google and Facebook come to market with a deals/offers experiences integrated into their primary use cases.
In any case, daily deals is not a "1 trick" pony....look for more to come!
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