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2016 the tipping point for retail e commerce in mexico

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With more Mexican consumers using the Internet
and smartphone costs dropping, the time has come
to bring the online shopping experience up to
international standards. Retailers that succeed
could see enormous sales.

In this presentation, we summarize the key highlights of our paper, which (1) Debunk the myth that Mexico’s E-Commerce growth is limited due to poor logistics/internet infrastructure and low credit card penetration, and (2) Identify the real challenges for E-Commerce in Mexico and present some of the opportunities for retailers in Mexico.

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2016 the tipping point for retail e commerce in mexico

  1. 1. 2016: The Tipping Point for Retail eCommerce in Mexico January, 2016 Industry report
  2. 2. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 2 Content ■This presentation summarizes the report which A.T. Kearney recently launched, which: – Unveils 2016 as the tipping point for Retail eCommerce in Mexico – Debunk the myth that Mexico’s eCommerce growth is limited due to poor logistics/internet infrastructure and low credit card penetration – Identify the real challenges for eCommerce in Mexico and present the key opportunities for retailers in Mexico 2016: Tipping point for Retail eCommerce in Mexico
  3. 3. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 3 B2C eCommerce in Mexico is expected to grow at a 26% annual rate, both in retail and services B2C eCommerce in Mexico, 2013 - 2019 (USD Billions) 1. Compound Annual Growth Rate Source: A.T. Kearney, eMarketer 2015 6.5 8.5 11.6 14.5 17.7 21.0 26.3 3.0 4.6 5.9 7.5 9.4 11.5 14.5 27.1 2016F 22.0 2015F 17.5 2014 13.1 2013 9.5 +26% 2018F 32.5 2019F 40.8 2017F Services & Other Retail +26% +26% % CAGR1 2016: Tipping point for Retail eCommerce in Mexico
  4. 4. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 4 Whatsoever, this B2C eCommerce growth will include a combination of different purchase journeys IllustrativeRetail purchase journeys, as of today 1. Call Center Source: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016 Value Creation Value Capture C Store Store StoreOnline & CC1 Online & CC1 Online & CC1 (Store as secondary option) Only Store Research Off-line Purchase Off-line ROPO Research Online Purchase Off-line Click to Collect Research Online Purchase Online Store Online & CC1 Online & CC1 Online & CC1 Show rooming Research Off-line Purchase Online Digital / CC only Research Online Purchase Online Discover Purchase & Pay Receive & Activate Explore & Decide A B D E Online & Call Center Store 2016: Tipping point for Retail eCommerce in Mexico
  5. 5. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 5 Last year, half of Mexican Retail consumers already included iterations online in their purchase journeys Internet users purchase behavior, 2015 (Most common purchase journey used1) 1. Numbers don’t add up to 100 as users might answer several categories Source: The Consumer Barometer, 2015 C Only Store Research Off-line Purchase Off-line ROPO Research Online Purchase Off-line Show rooming Research Off-line Purchase Online Core Digital Research Online Purchase Online A B DE 13% 9% 17% 14% 8% 7% 43% 36% 18% 19% 34% 21% 45% 43% 28% 24% 24% 35% Japan United Kingdom USA 40% 30% 25% 46% Mexico 48% South Korea Brazil 32% 2016: Tipping point for Retail eCommerce in Mexico
  6. 6. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 6 Online expenditure, by market Online expenditure per Digital Buyer (USD Thousands) Digital Buyers (% of Internet Users) Mexico online expenditure is still low, when compared with other international markets 82% 88% United Kingdom 88% 81% Mexico 38% Japan 31% ArgentinaUnited States 32% 73% 47% 76% 40% Brazil 74% 75% 48% South Korea 20152014 $0.5 $0.8$0.8 $1.3 $1.6 $2.7 $3.1 $0.6 $0.9$0.9 $1.4 $1.7 $3.0 $3.4 ArgentinaBrazilMexicoSouth Korea United States JapanUnited Kingdom Source: AMIPCI, eMarketer 2016: Tipping point for Retail eCommerce in Mexico
  7. 7. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 7 Our study debunks the 3 most accepted myths that Mexico eCommerce growth will be limited, unveiling a huge opportunity • There are global online payment solutions present in Mexico covering a wide range of alternative payment solutions (such as cash and prepaid cards) in 14,000+ PoS2 along the urban and rural areas of the country • Fixed broadband penetration is marginally lower than Argentina (12.7%) and Brazil (12.8%) … • … but widely compensated with the higher smartphone penetration in Mexico (32%) than in Argentina (31%) and Brazil (24%) • Mexico’s Logistics Performance Index1 (3.1) is higher than Brazil’s (2.9) and Argentina’s (3.0) • Moreover, Argentina and Brazil are larger countries with weaker delivery time promises (1.4x and 4.3x the area of Mexico) Most cited barriers for eCommerce in Mexico Low access to payment methods “Mexican households have 0.8 credit cards on average, well below Brazil (3.4) and Argentina (3.0)” Weak internet access “Fixed broadband has a low penetration of just 11.5%” in Mexico” Poor Logistic infrastructure “Logistics infrastructure is a barrier for eCommerce retailers that need to cover a large geographic area” 1. Logistics Performance Index (from World Bank, 2015) is based on scores on variables such as time to export documents, quality of port infrastructure, liner shipping connectivity etc. 2. Point of Sale Source: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016 2016: Tipping point for Retail eCommerce in Mexico
  8. 8. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 8 1. Survey conducted (n= 1680) by Google Consumer Survey 2. Point of Sale 3. Open discussion. Not part of A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016 On the other hand, several key questions arise, on Corporate Trust and Omnichannel strategies Barriers for Online Purchase in Mexico, Nov 20151 11% 15% 22% 37% 47% No good prices or discounts Shipping is expensive or not appropiate to my needs Don’t feel comfortable giving away credit card data Can’t find what I’m looking Don’t trust that shipment will arrive Open discussion • Which pay on delivery methods might be more efficient? • How the delivery can be leveraged with current PoS2? • Which alternative payment methods would be suitable for first and subsequent iterations with clients? (cash payment, coupons, prepaid cards, …) • Which is the best combined assortment strategy on the online and offline PoS2? (long tail vs high rotation) • Which is the best combined pricing strategy on the online and offline PoS2? • Which is the best combined service level and post- sales strategy on the online and offline PoS2? Key questions3 2016: Tipping point for Retail eCommerce in Mexico Corporate Brand & Trust Omnichannel strategy
  9. 9. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 9 Today in Mexico, achieving global standards on Omnichannel Customer Experience is a winning competitive advantage A.T. Kearney score for online purchase, Mexico 2015 EoY1 1. Sample of low scoring features during the online purchasing process 2. A.T Kearney recommendation based on international best practices review Source: A.T. Kearney paper “A tipping point for Retail eCommerce in Mexico”, 2016 61.9 33.0 23.8 50.0 57.1 66.7 57.0 42.9 42.9 14.3 14.3 52.4 42.9 42.9 38.1 57.1 Detailed Help and recommended topics Data required for registration Store Pick up delivery option Express delivery option E-mail confirmation with product description and deliver Online chat availability and answer promptness Brand Assortment Product pictures Product assortment Response time Regular delivery time Scheduled delivery option Time for solution (Reimbursement or change) Easy to follow return process Self tracking process Detailed Return Policy Minimum 85 points to become globally competitive2 Purchase Experience Delivery & RetentionWebsite Experience 2016: Tipping point for Retail eCommerce in Mexico
  10. 10. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 10 Therefore, based on the findings of our paper, we recommend to tropicalize 3 key international Omnichannel strategies 1. A.T. Kearney proprietary methodology Source: A.T. Kearney Winning Omnichannel strategies for Mexican retailers (A.T. Kearney selected global best practices analyzed) Coherent pricing & assortment strategy Seamless customer experience Alternative payment methods • Adjusted online / store pricing and assortment, consistent with (if relevant): – Cross-migration strategy between channels – Different price sensitivity of customers – Different assortments (long tail & niche products vs high rotation SKUs) • Alternatives to the pure online payments (e.g. credit card in the web): – Cash payments in convenience stores – Pay on delivery – Pick up on store • Excellence on integrated user experience: – Multi-device platform, but mobile first – Implementation of PCE1 (Pivotal customer events) strategy – Strong website performance 2016: Tipping point for Retail eCommerce in Mexico
  11. 11. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 11 Leaders that have effectively integrated their channels have realized three key benefits Integrated Channel Engagement Benefits 1. Source: J.D. Power customer satisfaction ratings of select players – leaders achieve top quintile customer satisfaction; in addition, companies that implemented integrated multi- channel distribution have realized top quintile improvement in customer satisfaction 2. 77% of consumers surveyed prefer bank offered P2P payments over PayPal (Source: Fiserv consumer survey) 3. increased channel migration to self service can reduce average over-the-counter costs by 68% (Source: Tower Group) 4. As cost of acquisition is significantly higher than cost of retention Source: A.T. Kearney • Top quintile improvement in customer satisfaction1 • Up to 33% higher x-sales • Multi-channel shoppers spend up to 4X • Retention improvement of ~5% (which has a multiplier impact on profitability)4 • Cost reductions on transactions of up to ~70% • Productivity improvements of up to 30% Improved Consumer Engagement • Consistent customer experience across channels • Improved customer satisfaction and loyalty Higher Growth • Higher share of wallet • Higher retention and lifetime value • New revenue sources2 Optimized Cost to Serve • Optimized product to channel mapping • Developed self direction capabilities3 • Smoother channel migrations Demonstrated Results (Global Examples) 2016: Tipping point for Retail eCommerce in Mexico
  12. 12. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 12 From our point of view, Omnichannel requires a solid foundation from strategy to organization, systems and supply chain Source: A.T. Kearney Omnichannel key strategic issues to be addressed Our toolbox to succeed in Retail eCommerce in Mexico • Defining digital value chain opportunities • Reshaping business strategies with e-business • Defining an Omni-Channel program objectives • Defining the role of each channel • Communicating a new message to the consumer • Aligning the organization • Defining products and services • Establishing a unified pricing strategy • Balancing service levels with cost and customer lifetime value • Keeping up with dramatic growth • Developing an operating model • Incenting the entire organization Strategy alignment E-Business MarketingValue Proposition alignment PricingAssortment Service Level Organization Systems Supply Chain Adapting corporate strategy Execution strategy 1 2 3 Online and offline channels can not be considered separately !!!
  13. 13. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 13Source: A.T. Kearney analysis The 2015 Global Retail E-Commerce Index™ A.T. Kearney 2015 Global Retail E- Commerce Index ranks the top 30 countries in both developing and developed markets for their online market attractiveness. Connected Consumers Are not created equal: A Global Perspective This study looks at the “connected consumers” motivations, shopping behaviors, and how they differ in developed and developing countries. Back to the Basics in Omnichannel Retailing: Delighting Your Customers The Omnichannel Consumer Preferences study is the newest in our series of breakthrough research in retail innovation. On Solid Ground: Brick-and-Mortar is the Foundation of Omnichannel Retailing The report summarizes the findings of the study, input from a variety of retailers and property developers, and A.T. Kearney retail sector analysis Other A.T. Kearney studies Retail & eCommerce (I of II) Our Digital think tank and Omnichannel publications
  14. 14. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 14 E-Commerce - Next Frontier in Global Expansion Online shopping is changing how retailers develop their global expansion strategies. Our E-Commerce Index reveals which emerging markets hold most potential for online growth. Source: A.T. Kearney analysis Beauty and the E- Commerce Beast The world of e-commerce has long been the "beast" that beauty retailers and brands were trying to avoid. But time has come to tame it and stakes are high for those that miss the opportunity A Fresh Look at Online Grocery Online food retail again tops the agendas of grocers as more shoppers surf the Web to buy fresh foods and packaged products. The leaders "deliver the goods" using smart, customer- friendly strategies. China's E-Commerce Market: The Logistics Challenges As China's growth continues, conditions for e-commerce are improving. But logistics remains a major challenge for e-commerce players. Will logistics bring down the e- commerce industry Engaging Multichannel Consumers As more people interact with more companies in more channels—from websites and mobile apps to in-store online kiosks—chief information officers (CIOs) are delivering value from cross-channel integration Digital Marketing: Don't Miss the Forest for the Trees Connecting with today's customers requires a 360- degree perspective. They expect real and relevant interactions, so online and offline cannot be one-or-the- other propositions Other A.T. Kearney studies Retail & eCommerce (II of II) Our Digital think tank and Omnichannel publications
  15. 15. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 15 Other A.T. Kearney studies Digital Business Our Digital think tank and Omnichannel publications
  16. 16. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 16 Thank you for your interest! Please refer me further questions to: Jaume Sues Principal Jaume.Sues@ATKearney.com A.T. Kearney, S.A. de C.V. Av. Santa Fe 481, Piso 18 Santa Fe 05349, México, D.F. +52 55 5089 9308 Direct
  17. 17. A.T. Kearney | 2016: The Tipping Point for Retail eCommerce in Mexico 17 Americas Atlanta Bogota Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission- critical issues. For more information, visit www.atkearney.com.

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