The MENA ecommerce landscape has matured rapidly, with Euromonitor reporting a staggering 25 per cent compound annual growth rate (CAGR) over the past five years. However, this growth is not without challenges.
One of the age-old issues in retail is the challenge of acquisition, and particularly the prevalence of discounting. Many brands on e-commerce now find that significant discounts – often exceeding 20 per cent and sometimes reaching 50 per cent – are necessary to achieve sales spikes.
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This in turn has led to troubling expectations among consumers that regular price reductions are the norm, with more than 65 per cent of millennial and Gen Z consumers willing to wait for sales and discounts they know are coming.
This problem is compounded by the initial expectation of e-commerce to save on capex, while adding convenience to the consumer. Lower expenses historically translated to healthier profit margins; however, the race to grow market share has pushed brands to take these cost savings into their trade marketing spends and exhaust them via discounting and bundling.
Step away from discounts
The bad news is that a recent study of more than 650,000 businesses showed that ‘growth-first’ firms are more than twice as likely to perform poorly than ‘profit-first’ enterprises. To make matters worse, consistent focus on discounting erodes brand equity in two big ways.
Firstly, this takes away from brand-building budget, which is essential for both volume and reducing price elasticity, a phenomenon that Les Binet, Head of Effectiveness at Adam & Eve DDB has written about at length. Secondly, constant discounting has been shown to reduce ‘expected price’, or the price consumers believe a product to be worth.
This perceived value can be incredibly challenging to rebuild. With that said, e-commerce has become a cornerstone of the global retail landscape. Its scale and reach are unparalleled. Innovations in e-commerce are a driving impact on multiple elements of our evolving culture and have directly driven the growth of some of the biggest brands in the world. E-commerce clearly cannot be ignored.
But to live the dream of increased revenue, we must learn to step away from discounting and go back to basics.
Bring back good, old-fashioned customer experience
Consumers approach digital platforms with a mindset of discovery, and understanding this mindset is paramount to e-commerce success.
The ‘Gruen Transfer’, named after an Austrian architect, describes how the glamour of the mall experience can alter mood, suppress rational decision-making and trigger impulse buying.
In e-commerce, this same phenomenon is triggered through frictionless shopping experiences. In simpler terms, #tiktokmademebuyit. By pairing compelling creative with shorter purchase paths, we can significantly increase conversion rates.
It’s no surprise that a lot of new innovations in digital media lead us down this path – tools like Google’s Circle to Search help to facilitate discovery, while Amazon’s platform partnerships and TikTok Shop facilitate faster purchases through social.
Continuing the retail analogy, it often seems like we have taken all the lessons from retail except how to deliver exceptional customer service.
E-commerce attracts a diverse range of shoppers with varying intentions, and reaching this diverse range of audiences in media is crucial. From window shoppers to focused buyers, the virtual aisles are teeming with potential customers but the same cannot be said of our retail staff.
How easy is it for customers to find detailed information about our product? Where do our customers go if they have unanswered questions? These are examples of the value that we gain by investing in improving product listings, website CX and chat or messaging functionality. In our bid to cut costs, it’s easy to forget the value that retail staff add to the customer experience.
The digital consumer journey cannot stand in isolation and advertising cannot be a proxy for good, old-fashioned customer service. By addressing other pain points in the consumer journey, we can alleviate the need to discount to secure the sale and walk away with a more satisfied customer.
Dream of profitability
Last, but certainly not least, offering consistent discounts erodes brand equity. If we look at Interbrand’s most valuable brands in the world, we see a clear trend – whether it be Apple (No. 1), Mercedes-Benz (No. 6) or Nike (No. 9), these are brands with intense emotional appeal.
From a practical advertising perspective, media plays a crucial role in building this equity. While search helps high-intent shoppers who have a good idea of what they want to buy, other channels like display help in brand discovery and building intent.
Correctly allocating budget between channels also means investment in campaigns that are completely disconnected from short term ROAS-led thinking and led by longer-term analytics and measurement solutions. By focusing at least some of our efforts on longer-term success, we can start to shift the needle slowly towards that dream of increased profitability and improved customer experience.
To sum up, the growth of e-commerce in the MENA region is a testament to its enduring potential. E-commerce has surged over the past five years, with an anticipated CAGR of 11.6 per cent through 2028. This sustained growth presents lucrative opportunities for businesses that stay attuned to evolving consumer trends and behaviours. By shifting our thinking to better customer experience and better branding, businesses can also start to realise the dream of scale and improved profitability.
By Terry Mo, Head of Digital, OMD UAE
