How eCommerce Markets Evolve

One of the topics I’ve spoken about at recent industry events is how global eCommerce markets evolve – more specifically, how markets shift from an early stage to one in which consumers spend lavishly online and buy across a wide variety of categories.

After interviewing dozens of companies about their experience expanding into different global markets, and after reviewing internal and external data, we’ve noted that markets tend to go through four phases as they reach the stage of well developed eCommerce. We identify these four phases as the following:

Phase 1: Connecting and Entertaining. In this phase, consumers are starting to go online and connecting with others through the online channel. Some 10-15 years ago, consumers were likely to go online and engage through email or chat; today, social networking has joined the ranks of one of the early activities of online users. Socialbakers’ estimates of Facebook users by country indicate that the network’s top five markets outside the US are Brazil, India, Indonesia, Mexico and Turkey – in such markets, the number of Facebook users today often surpasses the total number of online users just five years ago.

Phase 2: eBusiness Basics. In this phase, consumers are comfortable enough online to start engaging in activities such as online banking, and are starting to purchase early-stage categories online like travel. In places like Southeast Asia, visits to online banks are reported to be increasing steadily. Online travel, too, is booming in areas where online retail is still nascent: A 2011 report by India-based investment bank Avendus, for example, estimated that online travel purchases represented 87% of the eCommerce market in India.

Phase 3: Comparable Goods Purchases. In this phase, consumers start to shop for goods online that can be easily compared across sellers, e.g. consumer technology purchases or books and media. In a report my colleague Sucharita Mulpuru wrote back in 2008, she identified the categories with the most tenured buyers in the US as books, software and music purchases. Today, these categories – alongside others with tenured buyers like consumer electronics and computer hardware - dominate sales in many emerging eCommerce markets.

Phase 4: Subjective Goods Purchases. In the last phase of eCommerce adoption, consumers’ online purchases start to include those where there is traditionally a strong desire to touch, test or try on the items prior to purchase. This phase tends to include categories such as apparel, beauty and grocery. Today, consumers can turn to more sophisticated website tools - as well as extensive customer feedback - to make more informed purchases online. However, issues like inconsistent sizing and a lack of a returns culture have prevented apparel sales from shifting online in certain markets. In the grocery sector, there are many countries in which few online options even exist for those interested in buying.

While there are certainly exceptions to this linear progression, we see this framework applying across a variety of markets.  Clients interested in more details - and in which countries typify each phase - can read our recently published report on The Evolution of Global eCommerce Markets.


What makes the markets evolve

Interesting post, not read the report yet, but an important thing to consider is what makes a market evolve from one stage to the other. There are certain milestones that push customers into a higher ecommerce involvement, such as the boom of daily deals and flash sale sites. Each country goes through a similar fever and that is what awakes the interest of many into buying goods online, driven by the discounts. I'd say this takes the market from phase 2 to 3. That is also one of the main reasons why customers online expect to have lower prices than offline and compare so much at this stage. Then it takes time for the customer to change that mindset and make the market mature into phase 4. Another factor that pushes the market into the last stage would be the introduction of main retailers (and Amazon's too) in the national ecommerce sphere, I mean with a serious strategy (multichannel, etc) and not just a lousy website.

Thanks, good insights


All good points - there are definitely a variety of factors that drive consumers to shop online. Daily deals and flash sale sites are indeed a driver of first-time purchases in early stage eCommerce markets: In Russia, the founder of one of the daily deals sites indicated that up to 80% of first-time purchases in the country were on couponing websites.

The supply side cannot be underestimated, either - most early stage markets see much greater dominance by pureplays than traditional multichannel retailers, but markets at a later eCommerce stage tend to boast a number of well-developed, heavily used multichannel offerings by traditional retailers (China being one exception to this rule).

Our framework does not include every driver of eCommerce, but rather aims to provide some of the key category milestones to look for en route to a more mature phase of eCommerce. Great to hear your thoughts on other factors that contribute, as well.