Why Online Marketplaces are not helping eCommerce grow in Nigeria

by | Jul 25, 2016

Nigerians are certainly warming to the idea of shopping online —  especially through mobile  — and this is widely expected given how suited the concept is for addressing the needs of an underserved population with a fast-growing middle class. However, for eCommerce in Nigeria to really serve the masses more online stores are needed, which is a sentiment previously advocated for by Raphael Afaedor, Co-founder of Supermart.ng.

Despite how intimidating the popularity of big players like Jumia and Konga are, the truth is they cannot meet the needs of all Nigerian consumers alone, or at least to an exceptionally high level of satisfaction.


Suggested ReadThere is enough space for at least 15 Big eCommerce stores in Nigeria – PayPorte Founder


This then presents an opportunity for any online retailer to compete for customers and get ahead, provided its approach is strategic and well executed.

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Online marketplace or online store?

Today many small retailers are now looking to the internet to grow their business but rather than launching an online store a significant amount are choosing to join online marketplaces run by Jumia, Konga, Vconnect and WebMall, just to name a few.


Suggested Read: How to start selling online


The appeal for retailers to sell through these marketplaces is evident as it requires substantially less investment than starting your own eCommerce store and, in addition, these platforms act as powerful marketing engines, which are capable of driving incremental sales for SME’s. Marketplaces offer an almost “hands-off approach” to selling online and this is what truly resonates with small business owners who are understandably not well versed in the concept of online commerce. However, while this strategy may work well for them in the short-term, failing to establish an e-commerce store of their own is a risk that will most likely prove harmful to their growth in the long-run.

The sale is yours but the customer is theirs

Most retailers envision long-term success to include building a recognizable brand — just like Ruff ’n’ Tumble in children’s fashion, Shoprite in groceries or SLOT in electronics. However, choosing to exclusively sell their products through online marketplaces is doing little to help them achieve this goal because this strategy does not help acquire the most important ingredient for growth — loyal customers! For any business to grow it needs to build a loyal following of people who will champion their brand and spread word of their amazing shopping experience. This is where marketplace commerce fails many retailers.

Merchants are continuously buying into the promise that these marketplaces can help grow brand awareness and build customer loyalty, when in fact they are not designed to do that, or at least not to do it well. With the large investments many of these marketplace operators have put into their platform, their number one incentive is to keep transactions occurring within the marketplace where they can charge retailers a commission for each sale. To further their agenda, marketplace operators limit the ability of retailers to remarket to users directly, which only increases the difficulty for merchants to establish any meaningful relationship with customers and build brand loyalty. This lack of control over brand exposure means marketplace owners gain all the valuable credit for a happy customer whose needs were actually met by the retailer.

Not just about revenue

I know what you are thinking, “is that actually a bad thing? After all if revenue is being earned then the retailer will survive.” Again, this will likely only apply in the short-term. As these marketplace operators continue to scale their operations by adding more sellers to their platform competition for sales amongst merchants will intensify resulting in having to frequently adjust prices in an effort to stay competitive. This will further squeeze the profitability of this channel for merchants and weaken the economic argument for many retailers in choosing to sell through these marketplaces. Moreover, the lack of any true ownership of the marketplace by retailers leaves them extremely vulnerable to the impact of changes made by the marketplace operator. For example, a small change in the site layout or search function algorithm could have a huge impact on their sales performance. Challenges like these are what make growth uncertain for many small retailers who choose to gamble with marketplace commerce alone.

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How eCommerce can grow in Nigeria

For eCommerce to grow in Nigeria consumer expectations have to be met, and arguably exceeded. But as more merchants choose marketplace commerce over owning their own eCommerce site what we will continue to see is more stores selling online and not necessarily more online stores. This means buying options for customers will remain only a handful and, even more worrisome, perceptions, opinions and attitudes towards shopping online will be shaped by the performance of just a few companies.

While I do believe small business owners who are trying to get off and running with selling online should include marketplace commerce as part of their eCommerce strategy, as it will help them reach a wide audience, it should not be the entirety of it. More needs to be done to enable SME’s understand the importance of owning their own e-commerce store as well as actually helping them launch and manage it. Otherwise, Nigeria’s promise of being a giant in e-commerce on the African continent might be in danger.

Photo Credit: xroper7 via Compfight cc


This article was first published on Oyihoma Saleh’s Medium

Oyihoma Saleh
Oyihoma Saleh

Oyihoma is the CEO of KosavaDeals. He is passionate about African entrepreneurship and how technology will serve the new wave of connected consumers. He is also a Digital Marketer with experience in the consumer products, technology and finance industry. He tweets at @OyihomaS and you can connect with him on LinkedIn.

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Hugo
Hugo
5 years ago

Very well researched and equally well delivered article. I have been thinking the same thing but the delivery of this thought here is so well done. I have learnt something today.

I am bookmarking this piece!

Oceanic Land-Lubber
Oceanic Land-Lubber
Reply to  Hugo
5 years ago

May i add that the author failed to list the challenges to eCommerce stores chief of which is that they require massive investment in the form of advertising and affiliation. Most sellers on platforms do not want to be limited by the potential pitfalls of PR disasters nor do they have massive inventory to disburse. Check it

Hugo
Hugo
Reply to  Oceanic Land-Lubber
4 years ago

That’s very true.

Tolulope Olowu
Tolulope Olowu
Reply to  Oceanic Land-Lubber
4 years ago

Check what Oceanic Land-Lubber?

This is business 101, never handover your customers to a 3rd party.

This author (Oyihoma Saleh) is 100% on point!

The
biggest E-commerce businesses on the planet never started out by giving
away their customers. Nigerian business owners should start getting
their very own e-commerce websites and stop listening to bad advice and
half-baked people who dont know anything about building web technology.

If they dont know where or how to get started, then they can check out http://website.transolveltd.com

This
is a company with propritery technology, that will help guide your
business from a sole trader to a large enterprise with your very own
custom business web techonology.

Oceanic Land-Lubber
Oceanic Land-Lubber
Reply to  Tolulope Olowu
4 years ago

Your explanation checks out but it doesn’t respond to mine, that Marketplaces are easier for most people in terms of arbitration for example which is a massive issue in an ecosystem where trust is at premium. Rather be mad at Konga than Ekene in Alaba

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