Lazada Conference Insights - Change of the Game Rules
My insights for Lazada Seller Conference is: The Game Rules had changed. Change is the only constant in life. Sense the change, embrace it, and maximize the opportunity it presented.
In the game of eCommerce, the marketplace like Lazada is a major stakeholder, affecting all other stakeholders. Thus we need to analyse the change and the impact it will bring to our business.
Previously the equation for the marketplace is:
Sales X Commission = Revenue
So, in this equation, SELLERS PROFIT was not a variable influencing Lazada revenue. Thus who cares if sellers make a profit or not? Previous programs such as Platinum and Gold sellers focus only one objective. - MORE SALES
In business 101, if everything is equal, if you want more sales, you need to lower the profit margin and sell at a cheaper price.
Thus, Lazada had been brutal in pushing lower price from sellers. They always try to enticed seller to forgo profit for preferred placement in Lazada platform. The end goal is more consumers buy due to low price which which results in more commission for Lazada.
But came the competitor which disrupt this equation – Zero Commission, Zero Payment Gateway. Free shipment for more than RM30 orders.
Such a strategy make sense in penetrating markets with a dominant player – by disrupting their business equation. It is effective, and with other seller-friendly approach, the competitor penetrated the market and helped make Malaysia eCommerce Scenario more interesting. Like it or not, to face the new disruptive strategy, Lazada reduce the commission to Zero Commission for Sellers.
By doing that, it resembles a war of attrition between the Giants. In this kind of competition, the one who last longer win.
Thus new equations emerge.
The 1st Equation is:
Sales = Expenses = Reduce the time you can last.
Why? The more sales generated will require more resource to support the delivery. More sales mean more subsidy, more customer care to solve the dispute between the seller and buyer and etc.
The 2nd equation is
More Capital = Increase the time you can last.
Undeniably, I had sellers who are very upset with Lazada performance on the recent development. Some want to drop Lazada. To all readers, hold on to Lazada as do I in below pic.
Base on the wallet size (Capital), Lazada with Alibaba resource has a huge wallet with great technology implemented in China. It seems on the long run, they still have the advantage.
The current problem is temporary. Lazada people are working to cover this shortfall in their value proposition. Thus looking at the long-term, Lazada platform is still a must for all sellers in eCommerce. It is most possible a substantial advantage for you to be here now facing all the problems, then to be here later when Lazada is stronger together with other sellers.
The 3rd equation:-
Non-commission revenue = Increase the time you can last in a war of attrition.
If you had notice, their best friend in their conference a week before has made a move in this competition by finding new ways to generate revenue.
Thus the 4th equation I think maybe is:-
More Profit for Sellers = More Revenue for Marketplace
What does that mean? It means Seller Profit perhaps will be a part of Marketplace Strategy
Let say, If Lazada can help you earn more profit (not sales), are you willing to pay them more? Heck, If they help me profit RM50 more, I don’t mind giving them RM10 back. Base on this logic, it is possible that Marketplace services will help you earn more profit in future.
So is the rule of Price is King not going to be valid anymore?
Well, I think the price will always be a strong buying decision variables, but I believe marketplace system will not be maximizing on this as previously.
How did I come out with this 4th equation?
One of the hint before this Lazada Conference is the new Seller Pick feature. You can have a significant advantage in your listing without depending on lower price or seller size. If there is no commission, seller size does not matter much actually.
The second hint was LazMall launched on 1st Aug 2018. The criteria to qualify is to have a substantial number of followers for online brands or adequate distribution of offline stores for retailers.
Zero commission does not apply for these type of sellers. Why?
They are targeting consumer segments which emphasize brand power than price and that always translate to higher gross profit margin. And in such business, brands have a portion out of the gross profit to market their brands, thus having no issues paying Lazada the funds to build their brand equity.
Does these hint existed in Lazada Seller Conference. Yes it does. From my perspective.
Speakers invited from Pestel & Mortar, Christy Ng & Colony were all about branding, positioning in Lazada and outside of Lazada. One of the clear message sent by all this speaker is no price war, but Brand Power. Perhaps this is Lazada message also, but delivered by other people indirectly to be more convincing haha.
Non the less, these brands paid Lazada for the marketing, and it matches with the equations in a war of attrition, won’t Lazada want to make these brand more successful to get more revenue?
One thing about Lazada Conference, they always break out to the different session. We had to select the tracks we want to enter. Even I came for 2 whole days, I couldn’t cover every track. The track I have chosen the first day was delivered by the Taobao University Speaker because I think her presentation aligned with Lazada strategy.
In this one day, the Speaker had never highlighted the power of lowest price. She never asked sellers to do it.In fact, there was a slide which the Speaker emphasize on the proper understanding of the cost structure to ensure you make money when using voucher. Hahaha
The message emphasize the opportunity of seller Lazada Store.
It was also about connecting audience outside Lazada into your own lazada store.
Some members debate on this slide that promotion and discount are about reducing the price.
My point in this debate is that Promotion & Discount is not always about lowest price directly.
It’s about delivering engaging and connecting content to the customer that your product is worth at a certain price level. And on critical dates, a special discount is available, to make the consumer believe that it is a Great Deal.
For example, if 2 similar product cost price is RM5.
One seller on regular days sells at RM6 without marketing or branding. On Key dates, he trades on RM 5.10 for only 0.10 profit. To a consumer, the 90 sen is not really powerful. The other product did a lot of branding, marketing, and product improvement to differentiate their product at RM40. Then at the key dates, they sell at RM20. That RM20 or 50% discount on limited time is a significant discount.
Thus the most extreme example will be perfume product. Perfumes cost is actually meager, but nobody plays at the low price. Everybody try to deliver high content to make the customer believe that the product is at a premium price, and then at key dates, create a promotion that consumer can’t resist. Gross profit, 95% for perfume product at times is mind-boggling. Read this: https://bizfluent.com/info-7743468-perfume-market-analysis.html
But this does not apply to non unique and price sensitive product such a "Milo". Not matter how your sell the content of Milo, for a RM10 Milo, you wont be able to sell it at RM40 hahaha. Dealers mostly engage in price war to move volume to enjoy rebates from Manufacturer. But manufacturer at times dislike this happening because it disrupt the whole distribution channels.
Then the speaker also for the first time in lazada event, highlight the importance of customer management and retention, so that Customer remember your brand!. Compare to the previous strategy of the customer always remember Lazada, this was a significant change due to no commission.
In the second day morning session, this is the slide which also delivered a powerful message about providing feeds in Lazada mobile APPS. In the future, sellers can event write blog and Livestream to sellers directly! Again setting lower price is not the message of this track.
Previously Lazada wanted to deal with consumers directly and block sellers from consumers so that consumers only remember Lazada. However in the afternoon slides, they are going to divert customer back to merchant directly! I guess this helps save Lazada cost in employing less staffs to deal with the customer, thus reducing the expense. As Lazada strategy seems to focusing best buying experience thru sellers own brand power and on time customer service, then blocking customer from reaching seller is not in align with this strategy anymore.
Some sellers do complain that their workload and expense will increase due to that.
Yes, it is a burden, but it is also a great opportunity. If sellers are able to make customer remember them, in the future even without Lazada, you can survive! Thus again it is about making enough profit to cover the expenses foreseeable in the future in branding and customer satisfaction.
Thus my simple analysis of Lazada Conference 2018 is about Brand Power. Price Positioning is still important, but might not be enough in the future. Brand and Customer Satisfaction will perhaps deliver the much needed profitability. However business own efficiency, effectiveness and cost structure affect the profitability also.
Actually, in business, Sales and Profit is a balancing act. Having a lot of sales at times looks great, and attract a lot of admiration. Profit is always hidden from public view and much hard to know. I had clients before selling more than 10 million annually, but with massive cost structure and low-profit margin, and yet clients with less than 1 million, enjoying a higher profit margin.
Which business model is better? Each has its pro and cons.
One thing for sure, the client which have high profit seems to enjoy life more and happier .
Note: as ecInsider have done a great job covering LazStar, it will not be repeated here. https://news.ecinsider.my/2018/09/lazada-alibaba-launch-lazstar-academy.html?utm_source=dlvr.it&utm_medium=facebook