5 Challenges Online Retailers Must Overcome to Succeed in Developing Markets
If you’re launching an e-commerce site in a developing market, it’s critical to get a foothold as quickly as possible to maintain cash flow. But doing so requires a deep understanding of the intricacies of the local infrastructure and consumer habits.
By performing thorough market research, you'll have a better understanding of the specific challenges of entering each developing market and be better able to find solutions for each one in order to increase your chances of success.
Africa, for example, is a developing marketing with great potential for e-commerce businesses, as the majority of the population is comprised of young, tech-savvy consumers eager to shop and pay for goods outside of the conventional brick-and-mortar environment. However, their shopping and payment preferences differ greatly from those of consumers in Western countries. Not only that, but the local infrastructure and logistic barriers require a different approach, as well.
For penetrating a developing market like Africa, online retailers must recognize these five main challenges and implement solutions in order to establish a dominating presence in the region:
Challenge No. 1: Unreliable and Expensive Broadband Internet
Getting reliable, inexpensive internet access can be a challenge for African consumers. Therefore, an e-commerce entrepreneur will have to leverage other more widely used technologies (e.g., wireless and mobile networks) to be able to serve the market. And with 1.42 billion mobile phones sold worldwide in 2015, the fact is they've become an important part of daily life for most consumers.
But in Africa, mobile phones are even more important. It's expected that there will be 101.34 million mobile payment users in 2016 there alone. Thus businesses have to adjust to the market and make their products easy to purchase via mobile devices and focus less on attracting desktop users.
Challenge No. 2: Limited Payment Methods
Consumers in Africa typically use cash on delivery or mobile payments to buy goods, as opposed to debit or credit cards. This is because many Africans don't have bank accounts or don't trust credit or debit cards, and they rely on their mobile phones to conduct financial transactions.
If an e-commerce business were to offer more payment options that consumers could easily and securely use, it could only help to increase the cash flow for the business. Furthermore, offering consumers the ability to pay via their preferred method only increases the likelihood that they will buy from you and become a repeat customer in the future.
As mobile money is perhaps the most popular form of paying for goods and transferring funds in Africa, you must integrate with the main mobile payment methods and digital currency providers, including:
- EZY Pesa; and
This doesn’t mean you restrict all payments from credit and debit cards. The credit card companies are starting to make a big push in Africa. But without a doubt, you need to allow local consumers to pay with the more widely used mobile money services.
Integrating with multiple payment options can be a chore, however. You can leverage the secure services of a PCI-certified payment service provider (PSP) to accommodate the varied payment needs of this developing market. PSPs are already connected with payment methods and payment processors, which makes them a convenient “centralized” option to use.
Challenge No. 3: Cross-Border Payments
Even though Africa is referred to as one market, it's comprised of many different countries — each with its own currency. In order to become successful in the entire continent, your customers must be able to conduct secure cross-border payments in multiple currencies, and do so freely.
Here, too, working with a PSP that offers processing and settlement in various currencies can provide a simple solution to cross-border payment acceptance. In addition, working with a PSP can help make currency conversion costs lower.
Challenge No. 4: Weak Logistics Infrastructure and Supply Chain for Deliveries
If you can’t deliver your products to your customers in Africa, you’ll soon be out of business. There are many obstacles to doing this: poor roads, lack of delivery logistics and poor inventory management, to name a few.
You can begin overcoming these barriers by building a local network of employees to handle logistics on the ground. For example, a company called Konga used motor bikes and different payment options to overcome logistical hurdles for deliveries in Lagos.
To overcome the challenges of a nonexistent delivery infrastructure, Konga invested in motorbikes, with reliable drivers who deliver products within Lagos. Konga customers also have the choice of paying for their products in cash on delivery, or via card using a wireless terminal on a mobile network.
Retailers should also look into drone deliveries, as the road infrastructure is in poor shape in various parts of Africa. Amazon.com is already experimenting with this.
These types of networks, plus strict inventory management and education of employees, can give you a good start to avoiding delivery troubles and high inventory costs. There are also local consultants who might be available to walk you through the steps of handling logistical headaches when they arise.
Challenge No. 5: Local Competition and Developing Consumer Trust
The local competition already in place can present a challenge for a newcomer to the market. Brand loyalty is strong in Africa, so you must focus aggressively on cultivating trust and providing a safe and secure experience for the customer.
Trust takes time to build, but done right, your business will have a greater opportunity to build a strong customer base in the region. This can be done by educating local consumers through advertisements, social media and word-of-mouth.
Also, many consumers are concerned about fraud in this developing marketplace. Therefore, it's important to respond to the concerns people have about digital payments — both online and on mobile — especially when it's from a site that they haven't purchased from before. That’s where you can leverage the secure services of a PCI-certified PSP. When consumers see proof that a site is secure, they feel more comfortable with making purchases.
Not only does working with a PSP help consumers feel more secure, it can also reduce chargebacks from fraud and easily manage the overall payment processing risk in developing markets.
The bottom line is if your e-commerce business doesn't provide a secure, trustworthy and easy-to-use method for cross-border payment, you could soon be out of business due to lack of cash flow.
Related story: Local Payment Options Key to Global E-Commerce Success