With over 79% of the population having broadband access and leading the world time spent online [1], one thing is clear: Canadians love the internet. Despite this widespread and frequent access however, e-commerce spending in Canada accounts for only about 3.4% of the country’s total retail trade, compared to 8% in the United States (US), over 12% in the United Kingdom and even the G20 average of 6% [2]. Worse, while e-commerce is expected to continue to grow in the 16%+ range in the Europe a [3], more modest growth rate is projected for Canada. In a nation which seems ideally suited to e-commerce given its high rate of internet use, large geographic area and strong legal institutions, why aren’t Canadian’s shopping online? Do they simply not like it?

The question becomes even more puzzling considering the demographic and cultural similarities between Canada and the US. The age structure, GDP per capita and socio-economic make-up of the two countries are all quite similar [4], and Canadian’s consume the same products and media as their American counterparts. While one would expect the shopping behaviour of Canadian and American online consumers to be quite similar, the results are surprisingly different. It isn’t that Canadians are on average simply spending less online, but rather that far fewer Canadian internet users are spending money online at all. In fact, the average internet shopper in Canada actually spends ~50% more than the average US shopper, as calculated in Table 1.

Table 1: Select e-commerce consumer metrics in Canada and the United States[5]

Metric

Units

CANADA

USA

E-Commerce share of retail

%

3.4%

8.0%

Internet Access

%

79%

77%

No. of Internet Users

(M)

27

239

Percentage that shop online

%

54%

88%

No. of online shoppers

(M)

15

209

Annual spend per shopper

($)

1,362

827

While some of this increased spend can be attributed to higher prices in the Canadian market (the economist estimates that consumer prices are 15-20% higher in Canada than the US [4]), clearly e-commerce is working very well for some consumers and failing completely for others. Thus, one approach to increasing Canadian e-commerce volumes would be to focus on getting more consumers to start shopping online, rather than increasing the sales to existing online shoppers. Presently there are a number of barriers that have kept Canadians away from online shopping:

  • Lack of supply, both of retailers and product assortment: Only 18% of Canadian small and medium sized businesses sell products online, and those who do report less than 25% of their sales come from this channel. A recent government report indicated high costs, limited availability of IT staff and low economies of scale were the primary barriers for Canadian small businesses [6]. Further, a cursory investigation of Amazon.ca reveals there are far fewer products available than Amazon.com and few fulfilled-by-amazon partners.
  • High cost of importing products from the US: Given this limited availability and the presence of the North American Free-Trade Agreement (NAFTA), one would expect Canadians to look south to US online businesses that ship to Canada. Unfortunately, NAFTA only covers products produced in the US, meaning many products are subject to significant duties and tariffs when imported. Further, all products will be subject to provincial and federal taxes and brokerage fees to move the product across the border. The final tally can be as high as 30-40% above the checkout price [7]. This has led some US retailers to start setting up operations in Canada, but as a small country in an international context, it is often low on the list for expansion.
  • Widespread mistrust of online shopping: Recent consumer survey’s in Canada report that over 35% of Canadians are afraid to use their credit cards online [8]. These same consumers are highly mistrustful of only shopping, preferring to use the internet as an information source. Those who do shop online are most often purchasing travel or event tickets, rather than products [9].

 Given all of these barriers, it seems surprising that Google would predict the Canadian ecommerce market will double by 2016 [10]. But the fundamental opportunity is there: Canadians who do shop online clearly enjoy the experience, and improving the assortment, pricing and credibility of online shopping for Canadians is a problem that few businesses seem to be tackling.

 While the Canadian media views the government’s explanation of the problem as a “litany of excuses[11], and places the responsibility for fixing it squarely on their shoulders, perhaps a market based solution is more realistic. US retailers are rapidly expanding into the offline retail space and with Canadian operations one can expect they will build strong online presences as well. Further, business model of companies like Rakuten and its US subsidiary Buy.com, which build an online ‘mall’ and empower small businesses to get online and sell, could neatly address the supply, small business cost and credibility problems that plague Canadian E-commerce. Regardless of the solution, the widespread myth that Canadians don’t ‘like’ shopping online is misinformed.

 

[1] http://blogs.vancouversun.com/2012/03/01/comscore-canadians-top-world-for-time-spent-online-bc-tops-canada-for-smartphones/

[2] http://www.techvibes.com/blog/canadians-not-yet-sold-on-e-commerce-research-reveals-2012-03-19

[3] http://www.retailresearch.org/onlineretailing.php

[4] http://www.unitednorthamerica.org/simdiff.htm

[5] Compiled from:

http://www.statista.com/topics/871/online-shopping/chart/683/e-commerce-in-the-united-states/

http://www.onlineeconomy.org/e-commerce-m-commerce-just-commerce

http://www.census.gov/econ/estats/2010/2010reportfinal.pdf

http://www.parl.gc.ca/content/hoc/Committee/411/INDU/Reports/RP5535392/indurp01/indurp01-e.pdf 

[6] http://www.parl.gc.ca/content/hoc/Committee/411/INDU/Reports/RP5535392/indurp01/indurp01-e.pdf 

[7] http://www.thefinalcost.com/shipments/calculate/

[8] http://www.statcan.gc.ca/daily-quotidien/111012/dq111012a-eng.htm

[9] http://www.statcan.gc.ca/daily-quotidien/111012/t111012a4-eng.htm

[10] http://www.slideshare.net/trevornewell/google-canadian-ecommerce-june-6-2011-from-ecommercecamptoronto#btnNext

[11] http://www2.macleans.ca/2012/05/09/surprise-surprise-canada-lags-in-e-commerce/

 

 

 


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As Christmas gets closer, retailers are getting ready for their best sales season of the year by building up their stocks, hiring extra personnel and working extra-hours. For example, Wal-Mart’s sales during this season normally account for around 40% of their overall yearly sales [1]. Nevertheless, retailers are also getting ready for a great market share war, a war that has become fiercer year after year.

Brick-and-mortar retailers such as Target, Wal-Mart and Best Buy are implementing on a trial basis new strategies, along with old ones, in order to attract customers back to stores. For example, they will try to match in-store prices (Target, Best Buy) to those offered by strong online competitors. Additionally, they will increase the offer of different kinds of coupons: in-store and location-based mobile discounts (deals that customers can only get while in the store by for example scanning an in-store code), after being tired of customers using stores as showrooms for online retailers and using their cell phones to compare prices [2].

Furthermore, some are experimenting with new strategies for their store websites such as one-day-shipping or same-day-shipping for a fixed fee (Wal-Mart) and free shipping if the store is out of stock (Best Buy) [3]. All of these strategies seem to be targeted to compete with the almightiest of all competitors: Amazon.

For online stores, the key strategy is getting the product faster to its customers to try to produce a similar gratification feeling as getting the product at a store. This strategy is not new to Amazon, but recently it has started to be implemented by another online giant: EBay. EBay is teaming up with FedEx in order to have merchants print the labels from home and use the service at a discount [4].

Given the fact that brick-and-mortar retailers are trying to provide its customers with the benefits of online shopping in their stores and online retailers vice versa, one can’t help but wonder who will customers ultimately chose? There is one key aspect to each side that the other cannot replicate: seeing up-close and trying the products, and the comfort of not leaving home and making a purchase in a couple of minutes.

Another distinguishing factor is that on one side, there are competitors like Wal-Mart and Best Buy that play both in-store and online, and on the other, there are competitors such as Amazon and EBay who only play online. In the scenario where online retail prevails, will stores like Wal-Mart and Best Buy have to redefine their companies’ strategies? Will they have to allocate more resources to their online portals?

What if customers, given that all companies offer the same price, prefer the in-store shopping experience? What other strategies could online retailers implement to offer its customers a value-added experience?

Shipping strategies present a great business opportunity and challenge for carriers such as FedEx and UPS, but its ultimate success will be defined by “if” and “how much” customers are willing to pay for same-day and one-day shipping services [5].

I believe that the strategies being implemented are going to allow in-store retailers to capture some of Amazon’s and Ebay’s market share. Nevertheless, I don’t see how they can be economically sustainable if implemented over prolonged periods of time. Online retailers can afford the low prices they offer by not having to incur in the high costs of running a store, in addition to sales tax strategies.

Additionally, customers’ willingness to pay for short-time shipping may be very low, making this strategy not very effective. Amazon has achieved to have customers’ pay for its Amazon Prime subscription that offers shipping benefits by offering other valuable products with the subscription. For example, some of Amazon Prime’s benefits are: free two-day shipping and USD 3.99/item one-day shipping or same-day shipping in some cities, free lending of Kindle books and free instant streaming of selected videos [6]. Customers may not see flat-fees per purchase as valuable as Amazon Prime’s deal.

I believe that brick-and-mortar retailers’ price and shipping strategies can be very effective in order to win customers but they will hurt their margins, thus they might only be economically sustainable if implemented seasonally or during limited periods of time. Online retailers still have the bigger price advantage. Nevertheless, it seems that it is going to be a very happy Christmas for both customers and carriers.

 Sources and references

[1] http://noesisstar.com/target-to-match-online-prices-in-the-holiday-season-835

[2] http://www.latimes.com/business/money/la-fi-mo-amazon-target-price-match-20121017,0,5546399.story

[3] http://bottomline.nbcnews.com/_news/2012/10/19/14538755-amazon-retailers-do-combat-shoppers-caught-in-the-middle

[4] http://www.businessweek.com/news/2012-10-23/ebay-joins-with-fedex-on-shipping-to-compete-with-amazon

[5] http://www.businessweek.com/news/2012-10-18/same-day-shopping-lures-fedex-as-premium-business-wanes

[6] http://www.amazon.com/gp/help/customer/display.html/ref=hp_primeland_overview_2day?nodeId=200444160#free_2day


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Microsoft’s Surface Tablet will redefine the tablet market and dominate the business users segment. At least, that’s what Microsoft hopes. In an already crowded field, with the Kindle Fire, Nexus One, Samsung’s Galaxy Tab and of course, the u

biquitous IPad ushering in a new category of tablet computers, the odds is stacked against the company best known for it’s windows operating system. Microsoft has a chance to succeed, if it can get the critical mobilization strategies right and effectively acquire users to build momentum for the product.

Here are a few things it has done / can do:

Show You’re Serious About It: In true Microsoft fashion, it is proving to be very committed to the Surface. Not only have the average consumer been bombarded with advertisements in every channel imaginable (my favorite was a surface ad painted on the BART light rail system in San Francisco – capturing my attention just when I was most bored at two in the morning). In addition, the Surface launch party rivaled that for the Xbox (where Snoop dog even made an appearance!)

 Focus on Unmet Need:  It’s been long known that the Ipad is a great entrainment device. Heck, all those commercials you see show people drawing funky pictures or happily reading Dr. Seuss to their children. Microsoft recognized that the business segment is underserved in the tablet category. Thus, it was smart for the Seattle based company to include a nifty keyboard as part of the Space’s cover. Its office suite, USB computability and zippy processors were also aimed to appeal to the business segment. In the 90s, Microsoft won in the business segment with its reliability, security and capability of the Windows OS platform. If they can bring 1/10 of that expertise to the tablet market, they should be able to carve out a profitable nitch within the business community.

Encourage Apps: Ironically, Microsoft found itself where its biggest rival (Apple) was 15 years ago. Back then, when Savage Garden was on every radio station and millions turned to the final episode of Seinfeld, Apple’s Macbook was having trouble gaining adaption because many software simply were incompatible to it.  Just as the PC market hinged upon capability and access to broad range of software applications, today’s tablet market is the same way.  The Ipad and the Andriod systems have a huge advantage given the vast numbers of existing apps. To gain adaption of its Surface, Microsoft will need to encourage software developers to develop apps for its operating system. I hope it will be able to leverage its massive cash pile to do this. It also doesn’t hurt that its popular Office software will be available in a stripped down version for the Tablet, serving as an important complement. If Microsoft can successfully convince developers to develop apps for the Surface, it will also help to create a virtuous cycle with the Windows Phones, ultimately allowing Microsoft to jump back into the tech race. Of course, questions remain if developers would create apps for android, apple and Microsoft platforms. If there’s any hesitance on their parts, it’ll be very difficult for the Surface to gain mass adaption.

Overall, with Microsoft’s financial backing and integrated business platforms, the Surface can become a dominant player in the Tablet market – as long as it engages in the right mobilization strategy to acquire users.


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What is your Big Data strategy?

It may be too difficult—even with less than two weeks left—to predict who will spend the next four years in the White House, we do know of at least one winner who is here to stay for the next four years and beyond—big data (the collection, analysis, and use of demographic and consumer data collected both online and offline).

While the role of data in elections is nothing new, both presidential campaigns are collecting and using data in new ways to influence voting habits. As the New York Times reported earlier this month, both campaigns have purchased demographic data that detail consumers’ shopping habits, financial histories. The campaigns have also planted cookies on voters’ computers to track the web site preferences and interests of potential voters. Voters who visit BarackObama.com and then, say, a pro-choice website, may see targeted ads on other web sites emphasizing Obama’s pro-choice stance. That said there is little evidence that any of this works. As Robert Santos, a senior methodologist at the Urban Institute in Washington, D.C. cautioned to Forbes Magazine, “over the past five or 10 years we’ve started to understand how to process big data, but it’s not a game changer yet in politics.”

It is not just in politics where big data has the potential to disrupt. A recent McKinsey & Co report has found that the use of big data could drive significant value for businesses around the world. The report estimates, for example, that if US healthcare companies were to leverage big data, they could create over $300 billion in value (from both revenue and operational improvement) every year. Retail companies could increase operating margins by as much as 60% with the correct big data strategy.

So are you in trouble if your business does not have a “big data” strategy?

The answer is not yet, but you should probably start thinking about one right away. Online and e-commerce businesses already use the online data they collect from their visitors to better display and target their products. But the truth is that we are still in the second or third inning of the big data game. The advantages of big data may be coming, but it’s still largely unproven—like Facebook’s advertising model. Companies are just understanding how to use data (both the data they collect and data they purchase) to target consumers and turn them into customers. As one retailing marketing executive told me this summer, “I know it is important, but I just don’t know how to fully take advantage of all the data I have yet.”

We’ll find out this November if big data is the election game changer that the media and political pundits claim it to be. But no matter the outcome, it is clear that businesses—both online and offline—will have to use the consumer data collected on the Internet if they want to compete in the new economy.

Sources:

1.       www.nytimes.com/2012/10/14/us/politics/campaigns-mine-personal-lives-to-get-out-vote.html?_r=0

2.       http://www.forbes.com/sites/netapp/2012/08/29/big-data-takes-center-stage-in-the-2012-presidential-election/

3.       http://www.mckinsey.com/insights/mgi/research/technology_and_innovation/big_data_the_next_frontier_for_innovation


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Using Social Networks for Fundraising

In the November edition of the HBR, Misiek Piskorski, an associate professor at HBS, describes his findings on what makes some social strategies work and why some fail ( http://hbr.org/2011/11/social-strategies-that-work/ar/1 ).  Failed experiments primarily include companies who “merely imported their digital strategies into social environments by broadcasting commercial messages or seeking customer feedback.”  Successful social strategies do one or more of four things: “Reduce costs by helping people meet, increase willingness to pay by helping people meet, reduce costs by helping people strengthen relationships, increase willingness to pay by helping people strengthen relationships.”

The lessons can be applied to an area in which I took an interest a few years ago – school alumni giving.

———-

I am very loyal to my high school alma mater, but always wondered why my fellow alums gave less to our school after graduation than do graduates at rival private boys’ schools.  Most friends adored my high school while we were attending.

Fundraising is increasingly important to sustain school operations.  Tuition hikes have made private schools less attractive to middle class and upper-middle class families with talented, would-be applicants.  Therefore, applications have dropped precipitously, leaving mostly students from wealthy families to fill classrooms.  As tuition hikes far outpace inflation, the annual budgets have prompted schools to draw more and more from their (often modest) endowments.  One way to alleviate this problem is through higher alumni giving rates that bolster endowments and fund need-based and merit scholarships.  Given the difficult economic environment, fundraising through standard channels (calls from volunteers and school alumni offices) has become increasingly challenging.

I’ve wondered how social media could help allay the problem.  One company trying to help schools and other organizations raise money is AlumniFidelity.  The company helps alumni and development offices at high schools, universities, churches and other organizations use a cadre of loyal alumni to raise money from disparate networks of alumni.  Hence the firm’s slogan that “The finest way to add is to multiply.”  AlumniFidelity helps individuals construct a website on the company’s platform to raise money for an institution.  The company charges institutions a monthly fee for their services and takes a small percentage fee from all monies raised by individuals.  To date, the company has helped raise over $4,800,000 and boasts over 12,600 active donors.

AlumniFidelity has focused on the fourth of the four tactics for successful social strategies.  The company lets organizations use a large network (active alumni who act like class agents) to strengthen relationships with their own established networks (former classmates/fellow alums), making it more likely alums will make generous donations.  It has made giving a more personal act by coupling the donation with a personal relationship (the fundraiser) that began at the institution receiving the funds.  Contrast this with the mechanical feeling of reading a credit card number over the phone to an alum you’ve never met.


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