Daily Times

Is chaos a breakdown of order or an absence of it? Sadly the pandemic disallows a sit down with some friends to offend the universe’s sense of pseudo intellectualism but when it comes to opportunities in ecommerce the latter is definitely true. For the bold ambitious startup founder and investor, ecommerce in Pakistan is an area of the economy where order can be imposed, and the payback is real.

Pakistan is the last great ecommerce market left in the world. Over 200 million people, a fluctuating but sizable middle class, and a young population which is increasingly comfortable with digital are great drivers. Regulations that cause great friction in digital payments, hurdles in ease of doing business, anemic smartphone and broadband penetration have all combined to slow Pakistan bursting on to the ecommerce scene. However the Markhor is about to wake up and take giant leaps.

The State Bank has initiated its National Payments Systems Strategy which is being ably executed by its Payments Systems Department which is putting in a Micro Payment Gateway among other initiatives. These steps and the strategy deserve their own column but for the purposes of this piece suffice to say the ease of using payments online for ecommerce will cross a major user experience hurdle and become more inclusive, cheaper and much easier to do.

The country’s ecommerce despite its frontier hurdles has been on fire. When I last calculated the market with the then head of Yayvo, the supremely knowledgeable Adam Dawood, we came to the number of a billion dollars for calendar year 2018, having grown a 100% year over year. While the new USD PKR parity and a more distressed economy might have slowed that number, it has not gone lower. In fact, I am convinced that when you look at the higher online transaction data post pandemic, the market is larger now. These include massive Tier 1 players like Daraz, and the apparel brigade of Khaadi and Gulahmed. The dark horse chasing them is none other than a fully organic and local player Telemart which grew an astonishing 500% last year under its young leader Ahmed Rauf Essa. The top two categories are electronics and apparel, with makeup and beauty coming in a distant but still significant third.

As we approach the second half of 2020 the prospects are still excellent. The pandemic has forced a digital first lifestyle and Ecommerce when done well means far less hassle and a safer way to transact. World ecommerce average is 10% of retail. Pakistan is still less than 1%. The sky is the limit on Pakistan’s ecommerce potential. We are however transitioning into a second age of ecommerce.

The first age consisted of first movers who basically implemented models that were successful elsewhere like Daraz, and traditional retailers who used digital as an additional channel for their retail shops like Khaadi. Here the job was just to execute. Daraz is massive but you won’t find many who sing about a good customer experience. It was and remains a functional site with a large inventory and hit and miss customer service. The second age of ecommerce will focus a lot more on customer delight and user experience as a competitive advantage. Here is my list of eight business models that cannot miss if executed well by a customer obsessed team.

1. Logistics and Value Added Services (VAS): This model has fulfillment at its core. Enterprise technology systems integration capability will be key here to integrate with vendors and give them full visibility of their merchandise which you will store and deliver. In this business model you will own your own warehousing and last mile logistics. You become the plumbing for the entire ecommerce ecosystem. It does not matter who rises and falls. They all come to you.

2. Direct to customer affiliate fashion: This model is customer led and anchored by a personal app showcasing fashion apparel from vendors in a feed which is aggregated by you. Just like Tinder the dating app you swipe left or right to like or dislike. Artificial Intelligence (AI) is a key part of this model. The AI looks at your likes and dislikes and uses that to recommend products. This results in personalized recommendations that convert at a much higher rate and you take a cut off each purchase. You own the experience layer and platform for affiliates. But this model works if you can manage many apparel brands because the more the data the more your valuation. Choice and a frictionless user experience is key here.

3. Brand supermall: This model is Business to Business (B2B) led. You get 50-150 of the largest brands curated for quality and appeal, acquired and managed by a high touch B2B sales model which means your own sales team.

AI based customer recommendations and insights generated from data are sold to these brands as a Software as a Service (SaaS). These are used by brands to make products that sell better. Apparel has a secret problem. A large percentage of apparel products fail. This model will reduce that failure rate. Once you have perfected the algorithm the ability to replicate this model in other countries is easy.

4. Budget ecommerce: This model is sourcing led and needs efficient supply chain management and operations as a key competency. You will be an ecommerce platform for super cheap products at super affordable prices. Sourcing will be handled by you. You will make money from lots of transactions at low margins.

In other countries this model often uses brand knockoffs. I do not condone this but it is important to mention.

5. Direct to customer integrated fashion: This model is branding led. You have your own manufacturing. You build your own hip label for Gen Z & Millennials. The focus is on high end branding, high marketing spend and maintaining comparatively higher margins. This model gets most return on investment when it keeps Pakistan as a manufacturing base but has regional and international clientele. You can do this with retail but also without, in which case marketing spend will need to include search engine optimization and marketing costs and competency, ideally in a cofounder.

6. Beauty portal: This is a content led model. Information, tips, trends, news, looks are at the heart of this portal with integrated ecommerce. The focus is on local skin palettes and weather conditions. This model is best with your own brand as the content which will be video heavy will set you apart and elevate you. Instagram and TikTok are your main social channels for driving traffic above and beyond web. An app will be key here, with personalized recommendations based on camera scanned clothing and skin color built into the mobile user experience.

7. Gifting platform: This model is culture led. Honestly, I am shocked no one has done this specifically as their core business yet. This model focuses on sending gifts for personal or cultural occasions. In our culture gifting has a large share of disposable income spend. This model is further optimized by predictive analytics for bulk sourcing based on spending data trends.

8. B2B procurement: This is an efficiency led model. Large businesses do a lot of procurement and all of this is inhouse. This procurement is full of inefficiencies and corruption. Ecommerce is both cheaper and transparent. This is another model which will require a B2B sales force for the largest clients and a small call center for balance clients and for customer service. With integrated inventory and customers management tools, the uptake with large clients should be immediate. The key is to get that first large client and make it a success.

Execution in ecommerce is really hard. Digital payments need to be managed with widest number of financial institutions possible. You have to make sure customers get what they order. Almost every third delivery has significant delivery issues. Inventory management is an issue across the ecosystem. Content capabilities are terrible. You need to add a hundred thousand items or even over a million in some cases. How do you do that with pictures, the right labels and description? (Brandverse is trying to do that in Pakistan and I hope they succeed!) – How do you get regional language labels? How do you get the talent across logistics, technology and retail to execute well? However, for startups that manage to solve these issues while adopting one of the above business models, a multimillion dollar valuation awaits.

Habibullah Khan is a Contributing Editor for Daily Times on all things digital