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This article is an excerpt from a new DHL report, titled The 21st Century Spice Trade: A Guide to the Cross Border E-Commerce Opportunity. The full document can be downloaded here.
Cross-border e-commerce represents a huge opportunity for e-tailers around the world. Consumers in many countries currently shop abroad for a wide range of products that are either unavailable locally or if so, higher priced, of less quality, or coming from a less trusted source – and they will do it even more in the future. Today’s diverse cross-border e-tailer landscape demonstrates that businesses of all shapes and sizes have the potential to ‘go global’ and benefit from new emerging spice routes. That does not mean, of course, that tapping into the cross-border opportunity is any trivial endeavour – although it is considerably easier than many might perceive.
A ‘test-and-learn’ approach that targets latent international demand can be a good springboard for players on their way to becoming international champions. But realising the full promise of cross-border e-commerce demands that e-tailers do more. They will need to take five steps on their path to becoming an international champion.
1. Strategic clarity
In order to really go after the most promising demand markets, players need to apply a strong offense and target the right consumers actively. As this will take effort, time, and money, e-tailers must first systematically find the most attractive consumer markets. Conducting a web traffic analysis is one source for enabling a better understanding of existing demand patterns for both the e-tailers’ webshops and the broader market segment in which they play. It is also helpful to review general indicators of current market attractiveness, such as e-commerce penetration or the degree of local e-commerce offering in a country or region – facts easily found online. However, this will only provide a static look at today’s market, not the future landscape once players start actively shaping it. It is therefore helpful to consider consumer tastes and trends more broadly. For instance, strong cultural proximity has allowed UK-based retailers to successfully sell to former Commonwealth markets; and Scandinavian fashion designers that have realised the lifestyle appeal of their look have conquered other European markets.
Next, the sales pitch needs to be defined. As discussed earlier, this can be availability, offering (including price), and trust based. Availability based players should try to find their product (or close substitutes) in the demand market under consideration. If they cannot find it, they need to ask themselves why. Is it too new or perhaps too unusual for foreign buyers to be aware of it? They need to find out if they have a source of differentiation and if it is defendable. For instance, in the case of a specialist manufacturer, selling under a protected designation of origin (e.g., in food) or having exclusive rights means you have most likely got a winner. And even for a non-exclusive retailer, unique scale or capabilities including a superior online shopping experience, product reviews, and superior customer service can offer a lasting advantage.
Ultimately, companies must plan their execution. They have to ask themselves: “What do we internally need to have in place in order to successfully sell into these countries? Do we have sufficient funding and capabilities to cope with international growth? To what extent does the plan rest on assumptions around regulations, changing consumer trends, or competitive dynamics? What is the level of confidence in these assumptions, have preparations been made, and is it going to be possible to change course if some of them turn out to be wrong?”
Thus, having strategic clarity requires researching and selecting the most attractive cross-border markets, tailoring the company’s sales pitch and value proposition to consumer preferences, and thoroughly planning how to execute the strategy, including among other things, establishing internal resources and challenging assumptions regarding the cross-border business.
2. The right assortment
After having strategic clarity on the cross-border target markets, e-tailers have to figure out how to tailor their offering to these markets in order to address cultural preferences or demand gaps not served domestically. Adapting the assortment involves some researching of local tastes. When operating in lifestyle categories such as home furnishings or fashion, taking a look not only at local competition but also at existing consumer research or even simply lifestyle magazines can be helpful. How many people, for example, are aware that purple, a noble color in many cultures, is the color of mourning in Brazil, to the extent that it is considered unlucky to wear it on any occasion other than a funeral? It pays to understand such specifics when entering new markets. If operating in a slightly more opaque category, being inventive is what counts. For a car parts supplier, for instance, taking an in-depth look at historical car sales from the past 20 years turned out to be a good predictor of the local demand it sees today. Such research can provide the starting point for establishing a localised webshop. Thus, A/B testing and big data analysis can help companies familiarise themselves with their target audience and iteratively tailor the experience for this audience.
One potential source of uncertainty for the product assortment can be regulation, especially when it comes to categories such as toys or electronics. Companies need to understand what trade barriers they face and how to deal with them. For instance, products need to be classified according to the Harmonised Commodity Description and Coding System (HS). An easy option to solve this challenge is to consult specialist providers in this area. Borderlinx, for instance, offers an “eligibility engine” that automatically catalogs SKUs for international selling and triggers a “prohibited goods alert” to protect both companies and their international customers from pursuing non-compliant transactions.
3. The global local webshop
Consumers coming from abroad want to be able to shop like locals. Translating a website is easy nowadays with consumers having services such as browser plug-ins for website translation at their fingertips. A truly global webshop needs to be multilingual and actually, multi-everything. This means offering multiple locally adapted landing pages (showing a tailored assortment as described previously and a welcome message that promotes players’ international shipping options), multiple locally preferred payment options, or multiple currencies in which users find adjusted prices that are rounded as they are used to (e.g., US$99.99 is a more common price tag in the US than $100.07 and likely to convert better). Success in offering the right localised experience can be monitored when comparing bounce rates, number of page visits, or the average duration spent on the page of domestic and international visitors – the better providers manage to convert foreign users, the better they are doing.
One major concern for shoppers is non-transparency about the real cost of an international purchase. Companies can ease consumers’ minds by offering them fully landed cost calculation at checkout, including accurately calculated shipping rates, VAT, and duties. As mentioned earlier, service specialists such as Global-e or Borderlinx can help in this area. Another option is to leverage the customs brokerage services that logistics providers make available as part of their door-to-door offering. For example, Delivery Duty Paid (DDP) is a particularly handy service that allows merchants to pay all charges for their customers up front. Buyers can still be charged a fee, but the risk of unpleasant surprises and an underwhelming customer experience after checkout is eliminated.
Not only sales through companies’ webshops drive cross-border sales, but also sales through third-party platforms. Whereas in Western markets, especially North America and Europe, consumers tend to use e-commerce platforms like Amazon and eBay, it is mainly locally grown platforms that are popular in China or India. Chinese consumers shop for instance from marketplaces such as Alibaba’s offerings T-mall and Taobao, and Indian consumers from Flipkart – all are marketplaces that have not been established in Western countries, but have been founded specifically to meet local consumer preferences. In order to successfully sell into international markets, e-tailers should look to build a presence on those platforms.
4. Warehousing and fulfilment
Once having successfully set up a locally adjusted offering that allows consumers in the right target markets to shop like locals, players should ask themselves how they can best fulfil their orders. The spectrum of fulfilment options goes from one central hub to serve all global demand to a fully localised approach. Finding the best model depends on a number of factors, primarily overall demand, regional differences and predictability of consumer tastes, breadth of product offering, as well as required speed to market.
A more centralised approach will often be optimal from a cost perspective, but may limit a player’s ability to compete with local or regional competitors on speed and customer experience. One way to compensate for this is to establish a hub-and-spoke network in order to move the top-selling SKUs closer to the local markets once some level of scale has been reached. Another way – and really the only one for small and medium-sized players – is to go with faster shipping options. Premium logistics providers offer guaranteed next-day delivery to intra-continental and 2- to 3-day delivery to inter-continental destinations, both with specified morning delivery times if required.
5. Delivery choices
Once the described ingredients for successful cross-border selling have been secured, companies are set to attract consumers and have a footprint in place to serve them. Delivery would now seem to be the simple part of the equation – but it is not. Offering the right delivery choices can prove to be an important conversion driver.
Many e-tailers find this difficult. In our survey, e-tailers that do not offer cross-border options noted logistics-related aspects as the biggest challenges for selling cross-border, with 74% of all respondents naming high shipping costs and 67% noting complex logistics as significant hurdles. They also pointed out that speed trumps price: most e-tailers covered in the survey ranked speed (37% of respondents) as the most important logistics need, not price (24% of respondents).
Reporting on the role of logistics as a differentiator, they noted that guaranteed delivery days or times (named by 22% of all respondents) and fully transparent track and trace (17% of respondents) could be the elements of a winning formula that sets them apart from their competitors.
So what should players make of this information? With long delivery times as the one thing that is probably keeping both buyers and sellers awake at night, premium shipping is the necessary gold standard in some product categories. In medium- to high-priced fashion, for instance, it is common for e-tailers to only offer time-definite shipping. Their margin easily pays for the extra cost, especially when it comes to cross-border, in which average order values can be significantly higher than domestic ones.
In other product categories or at lower price points, the trade-off between speed and price as the two biggest “wants” in the market may not be as clearcut. But even where premium shipping is not a one-size-fits-all solution, it is an important addition to any e-tailer’s shipping options since consumers like having choices. If a company does not offer it, consumers will buy their last-minute gifts somewhere else. One major consolidator explained how 20% of all international sales they fulfil on behalf of a diverse customer base ship with an express option. And the survey results confirm this as a smart choice: as mentioned before, those businesses in the survey sample that offered expedited/ premium shipping – across all segments – grew 60% faster than peers who only offered standard deferred shipping.