WSJ - Asian E-Commerce Sites Lead World in Efficient Marketing
December 4, 2000
Tech Center
By CONNIE LING
WSJ.COM
HONG KONG -- Asian e-commerce sites are more cost efficient in attracting visitors and retaining customers than their U.S. and European counterparts, but their key to profitability may hinge on whether they can target a niche market or combine clicks with bricks, according to a survey by consulting firm McKinsey & Co.
The survey, made up of interviews with more than 50 e-commerce and content sites in Asia, found that Asian business-to-consumer sites spend an average of 10 U.S. cents in marketing expenses to attract a visitor each month, compared with US$1.50 in Europe and US$2.30 in the U.S. Asian customers also are more likely to revisit the e-commerce sites they've used, compared with U.S. and European customers.
The lower costs and high customer-retention rate are largely thanks to cautious spending and heavy use of direct marketing to existing customers. Asian e-tailers' late start in the e-commerce arena has allowed them to learn from mistakes by U.S. and European sites, according to McKinsey.
However, such cost efficiency hasn't been able to turn most business-to-consumer sites into profitable ventures, due to a failure to convert many visitors into paying customers. Less than 1% of Asian e-tailers' visitors become customers, while U.S. and European sites have managed to turn 2.3% and 2.5% of visitors into customers, respectively.
Niche players and so-called click-and-mortar companies may hold the key to profitability for Asia's struggling business-to-consumer sites, the survey found.
Most of the profitable business-to-consumer sites in Asia have zoomed in on a particular segment of the market. "These sites have a clear idea of who their target customers are," said Mike Sherman, senior marketing specialist with McKinsey. As a result, such sites have been able to keep their spending and operating costs down because of targeted advertising and focused operations, he added. Specialization also allows these e-tailers to charge a premium for their products, bringing in higher revenue per user compared with broader-based online retailers.
In contrast, online retailers that target larger markets than the niche sites tend to lose money, despite bigger traffic numbers and higher revenue. "The marketing effectiveness of these companies is not as strong [as that of the niche companies] ... and many don't know who their customers are," said Jonathan Auerbach, a McKinsey director.
Another option for floundering e-commerce sites in Asia is to bring online and offline businesses together. Such e-tailers often can use an existing offline brand to attract customers online, while at the same time reducing operating costs, creating higher profitability. McKinsey found that this type of retail site on average has five to eight times the conversion rate -- the ability to turn visitors into customers -- of pure-play dot-coms.
However, the relatively small size and fragmented national and cultural lines of most of Asia's local markets will make it nearly impossible for any business-to-consumer e-commerce company to grow to the size of dominant players in the U.S., such as Amazon.com, the survey found. The total business-to-consumer revenue in greater China and southeast Asia is expected to reach only US$35 billion in 2003, making it difficult for any e-tailer to have revenue in excess of US$10 million in the market.
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Dollars and Clicks
Asia Europe U.S.
Marketing per visitor per month US$0.10 US$1.50 US$2.30
Transactions per consumer per month 1.5 1.5 1.3
Average spending per consumer transaction US$40 US$79 US$66
Customers who return to site 30% 18% 28%
Conversion rate of visitors into shoppers 0.8% 2.5% 2.3%
Source: McKinsey & Co.
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Write to Connie Ling at connie.ling@awsj.com1
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