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TECHNODRIVE

Competition in the e-commerce market is becoming tougher. Price dumping does not work anymore, the traditional channels to attract customers are getting more expensive, and buyers’ habits are changing. The owners of online stores are switching to new technological solutions.

Text: Polina Rusyaeva

Expensive off-road

Opening an online Italian fashion clothing store, issuing credit cards with built-in loyalty, providing ‘turn-key’ solutions for entities, launching a network of postal machines ... These are not news reports on e-commerce but the most recent initiatives of the Russian Post, a key logistics operator in the country which causes a headache for Russian online stores and their customers.

For several years western online sellers have made experiments with new logistic technologies thus trying to make life easier for customers. For example, the Ocado.com store of environmentally friendly products allows booking a delivery time and tracking online for customers.

In Russia, all these innovations make no sense until you solve the basic problem, the safe and sound delivery of the ordered goods to the customer, and most importantly in time.

The dependence of Russian Internet traders on the Russian Post in the e-commerce market is getting slowly but surely reduced. A study of the National Distance Selling Association showed that in 2009 95% of the orders passed through the Russian Post, and by the end of 2012 this figure had fallen to 55%. The logistics market is entered by large delivery services like IM Logistics and ‘Axiomus’ tailored to suit the needs of e-commerce. Market leaders outsource own courier divisions (for example, the ‘O-Courier’ company of the Ozon holding company).

However, not alternative logistic operators become a breath of fresh air in the delivery market but a network of postal machines. The company ‘Network of Automated Dispensing Points’ (the PickPoint brand), Qiwi Post and Logibox enable online stores customers to pick up the goods ordered at any time and pay for them on the spot.

An advantage of the postal machine networks is the reduced number of goods processing steps. According to Boxberry CEO Konstantin Yakunin, when goods are sent from one city to another by the Russian Post, they pass through about five sorting offices. For example, in the case of PickPoint goods are immediately taken from an online store warehouse to a single sorting unit and then completed for the delivery address and conveyed over to postal machines.

Andrey Starkov, marketing manager at Crocs explains: delivery of goods from Moscow to Magadan via PickPoint takes three to four days, and two to three weeks by regular mail.

However ‘for pleasure’ you have to pay, if the goods with a weight of 1 kg and it is worth 2,000 roubles are shipped via the Russian Post, it will cost the customer 112 roubles but the price of postal machine holders is twice as high (the infrastructure costs, service rate etc.). According to SF calculations, in 2012 three postal machine networks, PickPoint, Qiwi Post and Logibox already accounted for about 2-2.5% of the total delivery of goods from online stores.

The beauty of an order is its payment

Of the top 100 Russia’s largest online merchants 86 offer their customers the possibility to pay by credit card. As a rule, it is about payment on the website of an online store. However, not all consumers are willing to pay online with bank cards, even if they are willing to use their ‘plastic’ in the offline stores or restaurants.

Technological know-how in online payments in the West and Russia are somehow connected with mobile devices thus making the latter a payment tool.

The best known startup in the payment niche in recent years is the American service Square. The special card reader (dongle) is inserted into the audio jack of your smartphone or tablet, so the device obtains the feature of a banking terminal. The courier of an online store, which has delivered the order, can accept payment from the customer through a bank card.

According to Square, in September 2012, the volume of mobile payment transactions through the service reached $ 8 billion although a year ago, this figure did not exceed $ 2 billion. The Square service is used by over 2 million companies and entrepreneurs in the United States. The service charges a fee of 2.75% from any transaction. Square recently started selling its mobile card reader in Canada.

A similar Square service offers PayPal owned by eBay. The volume of transactions through PayPal Here is approaching $ 10 billion, an annual increase of about 150%.

The Russian payment segment tries to keep up with the global trend. Bank24.ru Privatbank, MTS-bank, the Yandex and RBK Money payment systems have presented their mobile payment terminals or mPOS-solutions connected to the audio connector of a device for the last year.

Mobile acquiring 2can (company ‘Smartfin’) created by Nicholay Zhmurenko and Yury Vladimirov can be considered the Russian fully-featured equivalent of Square. 2can with its card reader was the first mobile acquiring service that satisfied all requirements for secure payment by Visa and MasterCard in Russia. Last year InVenture Partners, Almaz Capital Partners and several business angels invested more than $ 2.3 million in 2can. Business indicators of the Russian players are not comparable with those of the world of course. Thus, according to SF, a few months of operation of mobile ‘Termites’ (as the mPOS solution of Bank24.ru is called) the amount of transactions through them exceeded 10 million roubles.

Gamification

‘Congratulations, you have become the buyer of the day!’ such an SMS was received by a customer of one of the stores that are connected to the Russian mobile SailPlay loyalty platform. The customer received a ‘title’ having made a purchase worth 1,400 roubles; that was the biggest check in the store on that day. On the next day the same customer received a new message: ‘How awful! You are no longer to be a buyer of the day!’ The consumer returned to the store and bought goods worth 8,000 roubles and a week later asked the seller how to earn more points and get another title.

The proceeds of the operator of one of the largest Russian loyalty programmes Mnogo.ru of the company ‘Lavtek’, according to ‘SPARK-Interfax’, in 2007 was 92 million roubles, on 2011 93.4 million roubles. These data only confirm the idea that the traditional loyalty programmes built on pure mathematics have become commonplace and are not very efficient.

Almost all Western loyalty technologies used the latest trends, e.g. virtualization, social networking and geolocation. Some loyalty programmes are the applications for mobile phones that capture the customer location in a store or restaurant, and then accrue reward points. Others use the QR-codes, a customer makes a purchase, the store gets a code to be scanned with a smartphone, and again gift points as a gesture of thanks.

In Russia social networks are also used as reference services, and check-in in them (the ability to mark your location) becomes a habit. The mobile platform SailPlay founded by Jakov Filippenko and Leonid Shangin concerns both these areas (in early 2013 the project raised investments from Altair Capital Igor Ryabenky, for an undisclosed amount). About a dozen of partners are cooperating with SailPlay today.

The founders of SailPlay believe plastic cards become anachronistic and tie a loyalty system to the mobile phone number of a customer. SailPlay platform enables retailers to create their own loyalty programmes (as in the case of SMS ‘customer of the day’). The founders of SailPlay rely on gamification, buyers get ‘badges’ like ‘Night Shopaholic’ for certain achievements and to synchronise user activities with accounts in social networks.

Mobilisation

‘Five millions? 5 million roubles to develop and support an application? Don’t make me laugh. Never!’ reacted so the owner of an online shop of the top 100 in our ranking concerning the possibility of launching a mobile application. Such scepticism would surprise Western businessmen.

‘As lately as four years ago, mobile commerce was almost non-existent. Today, every third purchase on eBay is made using a mobile device’, Steve Jankovic mobile vice-president of the world’s largest auction says. A co-founder of the shopping startup Fab.com Jason Goldberg assures that smartphones and tablets generate more than 50% of sales for his company.

In Europe, according to the zanox Mobile Performance Barometer, according to 2012 results, e-commerce accounted for an average of 2.2%. But in the fourth quarter, this figure rose to 5.6%. According to Forrester, mobile sales bring to American retailers only 1.5% of all online orders. However, Forrester also predicts that by 2017 the mobile segment will grow by 33% annually and reach $ 31 billion, about 9% of the total online sales.

Data Insight analysts claim that the proportion of mobile traffic in Russian stores is 3-5%. In general this is not surprising. Of the top 100 online retailers only 14 companies have mobile applications some of which are not conducive to purchase (see ‘Test Drive’ on that page). Food delivery is the only segment that is reasonably developed in the Russian e-commerce. Mobile applications based on Android are for example ‘Tanuki’, ‘Yakitoriya’ and ‘Pronto’. According to unconfirmed reports, up to 60,000 orders with the minimum amount of 1,000 roubles pass through the ‘Tanuki’ application monthly.

The poll of SLI Systems showed that during 2013 about 40% of retailers (500 respondents) in the world were planning to launch the mobile version of the site, another 20% their own application for smartphones. Experts predict that global spending on mobile applications will grow from $ 7 billion in 2010 to $ 35 billion by 2015.

Expensive and not very fast Internet in the regions and the unwillingness of people to buy online still have not stopped entrepreneurs wishing to do business in online trading. According to J&P, the mobile Internet is used by over 22.5 million owners of smartphones and about 2.5 million tablet owners in Russia. It is therefore surprising that Russian businessmen are sceptical mobile applications.

01.05.2013
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