Direct-to-consumer (D2C) brands have begun sprouting in Southeast Asia. The term “D2C” refers to companies manufacturing and shipping products straight to the consumer, skipping conventional stores and other traditional middlemen.
This allows savings on costs for distribution and benefitting the consumer through lower prices while maintaining end-to-end control, enabling them to make quick changes based on direct customer feedback.
While D2C brands might be new in the region, successful D2C companies have been around in the US for most of the 2010s. Many of these companies have evolved into household names in their respective industries – Warby Parker for glasses, Dollar Shave Club with razors, and Casper with mattresses.
The success of these companies can be nailed down to a few core characteristics – excellent branding and marketing, high quality products, affordable prices and convenience for the consumer.
Branding and marketing are essential given strong competition making it vital to stand out among the giants through innovative content and advertising. Dollar Shave Club for example created viral videos that propelled a cult following, despite only costing US$4,500 (RM19,462) and a day’s worth of shooting.
Warby Parker built a name for itself as the anti-Luxottica – high quality glasses at affordable prices by controlling their own supply chain and by going D2C, they can pass on savings to consumers.
The final characteristic, convenience, is illustrated by Casper. Casper ships the consumer’s mattress in a box instead of requiring you to go to a shop to test out mattresses. To ensure quality assurance, they offer a 100-day return guarantee. Return rate is under 5% where the dissatisfied products are donated to charity organizations in order to benefit local societies.
While we have seen greater benefits to consumers in terms of quality products at affordable prices, the question remains if the expensive customer acquisition costs through Facebook and Google ads through billions of venture funding justify the companies’ performances.
As D2C brands jostle for branding and market share, they resort to excessive marketing spending. As a result, their marketing expenditure increases disproportionate to their revenue. Casper in the first 9 months of 2019 made a loss of US$67 million on US$312 million in revenue with US$114 million in marketing, causing the unit economics to be negative as the lifetime value of a customer, is also relatively low given that mattresses have a 7-10 years purchase cycle.
[RM1 = US$0.23]
In contrast, despite the lack of venture funding, D2C brands in the region such as Oxwhite and Althea have mushroomed with slight variations. Uniquely to SEA, both brands adopt a pre-order model, sometimes taking months to deliver a product and requiring advance cash payments of products.
The similarity to Kickstarter is uncanny, as it funds the brand’s working capital. Despite the long lag time of goods delivery, we have seen both Oxwhite and Althea prospering in terms of sales as they enjoy strong brand loyalty – despite only entering its fifth year of operations, Althea has garnered almost 600,000 followers on its Facebook page, whilst Oxwhite has a strong following of 18,000 members in its private community forum where members actively engage with the founder on feedback and ideas for the brand’s future launches.
Strong sales volumes alongside significant decrease in customer acquisition costs for the companies’ products after 6-12 months of new products launches results in a profitable business unlike its American counterparts quickly in the early stages of the businesses.
The success of the pre-order model in SEA is simply attributable to consumer behaviour. Consumers in this region are more price sensitive, and therefore willing to wait in exchange for affordable quality products.
Another example is Signature Markets, despite taking typically 7-10 days of delivery, they have seen sales increase 20 times since 2016 with their revenue crossing the RM20 million mark in 2019 due to the strong brand and affordable pricing positioning.
[Disclosure: Signature Market and Althea are investee companies of RHL Ventures.]
Despite being a snacks business, the Signature Markets example perhaps points to the fact that e-commerce consumers in SEA are historically less pampered with the consistency of receiving their online orders within 1-2 days as compared to their US counterparts. As consumers become more sophisticated, we expect the service gap to narrow, as evident in the bricks and mortars space and the disruption from the D2C market.
Instant connectivity and access to customers have allowed D2C businesses to be nimble in terms of providing instant feedback and creating what the customers want and desire and at the same time cutting layers of costs from middlemen and distribution.
While the outlook for the D2C landscape appears to be positive, the real challenge will be for D2C companies in this region to grow sustainably and avoid the primary pitfall of spending uncontrollably on customer acquisition costs which may ultimately hinder their path towards profitability.
This article was originally published on Digital News Asia
In the wake of a two-week lockdown announced by the government, some 30 million Malaysians are now restricted to leave the comfort of their house unless necessary (P.S. going for a walk at the park does not count). Alarmed by the government’s drastic measure to combat the Covid-19 outbreak, citizens have begun to practice social distancing. For many, this means not using cash for shopping, or ordering from delivery services such as GrabFood and Foodpanda to avoid physical contact altogether.
This brings a new light on the perks of having an e-wallet installed in your smartphone. Being an avid debit card user for years, never did the writer foresee that he would one day face the need to sign up for a mobile wallet – and he is not alone in this. In fact, Nielsen revealed that only 8% of Malaysians use mobile wallets for payments. Granted, there is a plethora of e-wallets in Malaysia, each offering different promotions and cashbacks, but they have not been able to spur widespread adoption as what we see in China, a country acclaimed for its e-wallet success. So, why is that?
1. Higher bank account penetration. Historically, China has a larger unbanked population compared to Malaysia (16% in China vs 7% in Malaysia). Accustomed to making payments with their cards, Malaysians are simply not incentivised to desert the banking system for mobile payment. Au contraire, due to its massive unbanked population and insufficient banking infrastructures, e-wallets offered unprecedented convenience to China’s cash-based economy.
2. Fragmented industry. Quite evidently, Malaysia’s e-wallet market is extremely fragmented, with more than 10 players battling for market share. This is in stark juxtaposition with China’s consolidated industry where WeChat Pay and Alipay account for more than 90% of the market. Tencent and Alibaba have been successful in creating an all-embracing ecosystem in which users pay for their food, utilities, insurance and more. Meanwhile, e-wallets in Malaysia lack usability as merchants and users alike have to choose from a dozen of platforms.
Notwithstanding that, the government recognizes the benefits of a digital economy – i.e. traceability of money, elimination of corruption, and effective monetary policy formulation, etc. It has also taken an active stance in encouraging Malaysians to go cashless, showcased through the introduction of e-wallet regulations as well as central bank’s commitment to deploy a system that unifies all e-wallets under a single system. More recently, the government launched a RM450 million programme (e-Tunai Rakyat initiative) to promote the use of Grab, Boost, and Touch ‘n Go’s e-wallet. However, up until now, policymakers’ endeavour has been lacklustre, to say the least, as the uptake of mobile wallets remains tepid. In that case, what can be done to foster the adoption of e-wallets?
1. Educating Malaysians. In this day and age where money laundering and pilferage are ubiquitous, the primary hurdle for e-wallet adoption remains that users associate them with debit and credit card fraud. However, the truth is all local e-wallet players are governed by the BNM and subject to data protection and security regulations. In response, the government and market players first need to address the misconception. The population should be informed of the multi-factor authentication process, and money-back guarantee offered by e-wallet providers to ease the adoption.
2. Targeting the right audience. The disappointing attempt by the government to stimulate e-wallet usage could be that they failed to target the right group of people. To elaborate, under the recent e-Tunai Rakyat initiative, only Malaysians above 18 years of age who earn less than RM100,000 annually are eligible to receive the RM30 in an e-wallet of their choice. By doing so, the government has essentially omitted individuals earning more than RM100,000 annually. Ironically, these are the people with higher disposable income, who are far more likely to be regular shoppers/spenders. They should, therefore, be part of the audience for subsequent programmes in the future.
3. Reaching out to the rural community. Looking at China as a reference, it is obvious that the unbanked population in rural areas have the biggest incentive to adopt e-wallets. Unfortunately, the majority of merchants and residents in Malaysia’s underdeveloped areas are unfamiliar with such technology. To encourage the use of e-wallets, the government needs to introduce the concept to rural dwellers through workshops, billboards, word of mouth, and other forms of marketing.
As an integral building block of a digital economy, e-wallets present a remedy to the dauting corruption issues in Malaysia. Needless to say, the country has a long road ahead in its journey towards cashlessness. Hence, the government and citizens share equal responsibility in building a cash-free nation where business transactions are facilitated, and money laundering can be curtailed.
This article was originally published on e27
The recent COVID-19 outbreak has exposed one of the most integral elements of modern society – the schooling system. UNESCO reports that at least 290.5 million students’ educations have been thrown into disarray due to the outbreak. Parties most vulnerable to this shock would be those suffering from inadequate schooling systems in the first place – a segment that much of Southeast Asia unmistakably belongs to. As students are forced to stay home, schools have started to experiment with alternative education delivery methods, largely spearheaded by the region’s startups.
We must first address the elephant in the room: the poor quality of education in Southeast Asia. Take the Indonesian government, which has made education central to its agenda. Indonesia boasts an impressive 93% net enrolment rate for schooling, yet 55% of Indonesians who complete school are functionally illiterate. This can be attributed to factors including overcrowded schools, inefficient teaching methods, and the mismanagement of public schools. The COVID-19 outbreak did not induce any new failures in the education system – it simply provided the trigger for other parties to step in and provide meaningful and innovative alternatives for learning.
Education Technology (EdTech) startups are not new, nor are they few and far between; in Vietnam alone there are at least 87 different EdTech startups. Indonesia’s Zenius and Vietnam’s Topica Group are among the older EdTech startups, being founded in 2007 and 2008 respectively. However, the two received large funding rounds only very recently, with Zenius raising USD 20M in 2019 and Topica Group raising USD 50M in 2018, largely fundraising on the back of improving digital infrastructure and high internet and smartphone penetration rates.
On the policy front, Indonesia has started to forge ahead in terms of devising new policies to address these developments, as evident by the founder and CEO of Indonesian EdTech behemoth, Ruangguru, being recruited by the President of Indonesia to serve as one of his Special Staff. In an attempt to leverage technology to better collate student data, the Ministry of Education has introduced the e-rapor, a system of collecting and disbursing end-of-semester report cards digitally instead of printing out hard copies.
The concept of livestreaming a class is by no means a new concept. However, the outbreak has turned distance learning into a popular topic of discourse, as students are forced to attend classes online from their homes. Teachers thusly turn to startups such as Malaysia’s FrogAsia, which takes the classroom to the cloud, bringing online distance learning into reality. A convenient side effect of this is that teachers are now free to teach without the constraint of a packed classroom, giving them the ability to reach larger cohorts. This unique advantage addresses issues that are fundamental to the region’s education system – the glaring shortage of teachers and classrooms. Given a generation that is increasingly digital-savvy and willing to adopt new technologies, entrepreneurs are progressively identifying addressable pain points and developing new and creative methods for students to receive their education.
With the closing down of schools, a centuries-old education system has been thrust into what could be a new normal – the mandate of social distancing forces teachers to be creative with how they deliver their lessons, whilst making sure the experience seamless and efficient. The environment surrounding the education system in Southeast Asia has been long overdue for disruption, and with governments largely being inactive, we believe it is up to entrepreneurs to step in and pick up the slack. The Southeast Asian EdTech scene is largely at its early stages, so expect the COVID-19 outbreak to be the tipping point of the industry’s break out.
This article was originally published on e27
Undoubtedly, the dominance of social media in our daily lives has influenced and shaped the way we interact nowadays. Instagram has become a platform for people to share daily footage of their lives; typically, the most glamorous side. This gave rise to the emergence of ‘social media influencers’, ranging from celebrities to what we term as ‘micro-influencers’, i.e. influencers with up to 20k followers. What’s driving this phenomenon is the sense of validation, self-esteem and happiness influencers attain as they feel ‘socially approved’, or more importantly, the money they get to put in their pockets.
This brings us to the question: how difficult is it to get more followers on Instagram? It’s a public secret that influencers will do anything to get more followers and likes on Instagram, including spending hours to snap a carefully staged photo at the trendiest cafés or restaurants, and plenty of effort to pick the ideal filter that conveys the mood of the picture. To stand out amongst a sea of influencers, some may take more extreme measures to be eye-catching. From interacting with wildlife and exotic animals to sitting at the edge of cliffs and high-rise buildings, some influencers are literally risking their lives to keep their audience engaged and to attract new followers.
Perhaps one of the easier (albeit controversial) ways to gain more followers is by purchasing followers from a third-party. Imagine having thousands of followers flowing into your Instagram account instantly with just a simple click. You could get hundreds of followers starting from $3, or 5,000 followers for $40 from sites like Buzzoid and Hypez! Though it may seem tempting to purchase followers, the followers offered by these sites are most likely gathered by automated bots that lack engagement. So how do we spot these influencers?
One commonly used way to verify audiences’ authenticity is to examine the level of influencers’ engagement rate, which is determined by the ratio of total number of likes and comments to total follower base. According to influencer marketing platform Scrunch, engagement rate of less than 1% on Instagram is below the industry standard. If you have ever come across someone you follow that has an unusually huge number of followers, but without engagements on their posts, that could be one of those users paying to boost their ‘insta-fame’. With that said, brands solely focusing on influencers’ followers count may in fact be overpaying influencers with no actual influence to reach a non-existent audience.
Despite the fact that Instagram has procedures in place to combat these inauthentic activities, artificially growing followers seems to remain a popular option for influencers in Southeast Asia. A study by Influencer DB revealed that Instagram influencers in the Southeast Asia region have a low audience quality grade, especially in Malaysia (31.2%) and Thailand (37.9%). Here, influencers’ audience quality is valued based on their audience’s activity and profile. It is suggested that a decent quality distribution would consist of audience that are active users of Instagram, following little to no fake accounts and are not excessively following more channels than it can consume.
Essentially, having a low audience quality means the so-called followers are mostly inactive accounts, or automated bots controlling these accounts. With these accounts getting much harder to be detected, engagement fraud continues to be one of the major concerns for brands and agencies alike. Nonetheless, there are various ‘influencer auditing tools’ that can be used to help assess authenticity of audience, such as HypeAuditor, Hypr and Social Audit Pro to name a few.
Having created an environment where people highly emphasise the number of “likes” and followers, Instagram’s recent announcement to test hiding “like” counts from public view has definitely shaken the entire influencer landscape. As it is currently tested in a few countries, users who are part of this trial will no longer be able to view likes on posts except for their own. While this action is said to help remove social pressure of Instagram users, we wonder how it will impact influencers and businesses once this new feature is fully rolled-out.
This article was originally published on Asia Tech Daily