B2C Markets Keep Right on Growing in Asia-Pacific

Business-to-consumer markets in the Asia-Pacific region are still growing by more than 100 percent per year, mainly as a result of the online activities of large established consumer companies, according to a report by the Boston Consulting Group (BCG).

Among the report’s findings: Online B2C revenues have more than doubled in 2000, accounting for $6.8 billion across the Asia-Pacific region, and they’re set to double again in 2001, reaching $14 billion. The report also forecasts an annual increase of 36 percent in the number of people online in Asia-Pacific, leading to an Internet population of 245 million users in 2004, up from the current 98 million users.

“The focus on dot-coms has diverted attention away from the fact that business-to-consumer markets in Asia are actually booming. Our research found 81 percent of online B2C revenues in Asia are generated by large, established companies,” said David Michael, a vice president in BCG’s Hong Kong office.

BCG identifies three “killer categories” in Asia’s online B2C market: financial brokerage, computer hardware and software and travel. In 2000, financial brokerage was the biggest killer category with commission revenues of $1.57 billion (up 121 percent from 1999). Sales of computer hardware and software reached $1.38 billion (up 75 percent), while online travel sales accounted for $980 million (up 188 percent).

BCG also interviewed the e-business managers of more than 100 leading Asia-Pacific companies and discovered that most remain optimistic about the growth of their online consumer channel.

“Our findings clearly show that there has been no turning back from the Internet revolution, and many leading Asia-based consumer companies believe their online channels are vital to reaching out to their customers” said Nikolaus Lang, a project leader in BCG’s Kuala Lumpur office. “But their biggest challenge remains how to use these channels more effectively to cut costs and create new revenue streams.”

Financial services providers across the Asia-Pacific region expect 20 percent of their customers will transact mainly online in three years (e.g., funds transfer, stock trading), according to the report. Telecoms expect that more than 10 percent of their current customer base will transact online in 2004 (e.g., electronic bill payment). Airlines and tour operators believe that nearly 10 percent of their customers will buy tickets and book hotel rooms mainly online in three years’ time. Utilities have lower expectations, but are still confident that a significant proportion of their customer base will transact online.

For consumer markets, the report predicts the most significant long-term impact of the Internet will be to change how large companies interact with their customers. Their customer relationships can no longer be just about buying and selling. This is particularly relevant for industries in which business is based on information-intensive relationships with large customer bases such as financial services, airlines, telecoms and utilities.

BCG’s report stresses seven distinct challenges must be overcome if large Asian companies are to manage their online channels effectively:

  • Value creation online: Although 82 percent of the companies interviewed said their top management is strongly committed to online B2C activities, the majority are still searching for ways to accelerate the payback from their online investments.
  • Generic customer approach: Most respondents said their online value proposition focuses on customer convenience and choice (rather than the low prices that characterized earlier online offerings), but 67 percent are not yet targeting specific customer segments online.
  • Management of customer relationships: More than 75 percent of companies surveyed collect customer data online, but less than one-third use it in a way that creates new revenue opportunities.
  • Technological problems: Although 72 percent make use of their existing IT systems for online activities, most e-business managers said that technology problems are on the top of their agenda.
  • Quality of end-to-end shopping experience: Convenience is the most often cited value proposition for the region’s large multichannel players (48 percent), but the user-friendliness of their Web sites is limited and their fulfillment performance is not optimal.
  • Risk of channel conflict: Although 98 percent use their offline brands and 50 percent their retail networks to support online activities, many multichannel players generate channel conflict with lower prices online.
  • Organizational evolution: Large Asia-based companies need to more effectively coordinate their online strategies with their offline operations. But the majority of multichannel players still have separate online and offline businesses.

Looking forward, the report predicts that consumer e-business in Asia-Pacific will be influenced by three major developments, all of which will have a strong impact on the strategic positioning of Asia-Pacific’s large companies online. First, as online penetration reaches more than 50 percent in the region’s developed countries by 2004, more and more large companies will face a customer base in which at least one out of two customers will be online. Second, online adoption of non-sales-oriented transactions will increase significantly. Third, after the demise of many Web-based retailers, the online strategies of multichannel players will focus on developing long-term strategies that create new revenue opportunities.

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