Six Billion Shoppers: The Companies Winning the Global E-Commerce Boom

Six Billion Shoppers: The Companies Winning the Global E-Commerce Boom

by Porter Erisman
Six Billion Shoppers: The Companies Winning the Global E-Commerce Boom

Six Billion Shoppers: The Companies Winning the Global E-Commerce Boom

by Porter Erisman

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Overview

An insightful, practical guide to e-commerce in emerging markets--and how to profit from their explosive boom.

From China to India to Nigeria, e-commerce is entering a golden era in countries that were long left out of the e-commerce gold rush experienced in the West. If the story of the first twenty years of e-commerce’s growth was set in developed markets, the story of the next twenty years will be set in emerging ones. The rise of e-commerce in emerging markets is being driven by three major trends: widespread internet adoption, a rising middle class, and, most importantly, innovative new business models that serve the needs of local customers better than the models used by western e-commerce giants.

Six Billion Shoppers takes readers on an exciting and colorful journey around the world to visit the next e-commerce mega markets and explore how a new e-commerce boom is opening opportunities for entrepreneurs and global brands alike. Traveling through Nigeria, China, India, Southeast Asia, and Latin America, Porter Erisman addresses e-commerce across these new markets and what it means for western brands. He argues that e-commerce in developing countries is revolutionary and will play a much larger role in emerging markets than in the West. With e-commerce in emerging markets entering a rapid period of expansion, Six Billion Shoppers explains how to seize the massive opportunity created by emerging market consumers and provides practical advice on how to ride this new business trend.


Product Details

ISBN-13: 9781250088680
Publisher: St. Martin's Publishing Group
Publication date: 09/26/2017
Sold by: Macmillan
Format: eBook
Pages: 256
File size: 2 MB

About the Author

From 2000-2008, PORTER ERISMAN worked as a Vice-President at Alibaba Group, joining the company just as it moved out of founder Jack Ma’s apartment. He is the writer/director of Crocodile in the Yangtze: The Alibaba Story, an award-winning documentary about the rise of Alibaba and its famous founder, Jack Ma. Erisman is also the bestselling author of Alibaba’s World: How a Remarkable Chinese Company is Changing the Face of Global Business. An expert on e-commerce in emerging markets, he has consulted to e-commerce companies in Africa, Asia, and Latin America and has spoken at high-profile industry events in over 30 countries.

Prior to joining Alibaba in 2000, PORTER ERISMAN worked for Ogilvy&Mather in Beijing. From 2000-2008, Porter worked as a Vice President at Alibaba.com and Alibaba Group, at various times leading the company's international website operations, international marketing, and corporate affairs as one of the company's first American employees. He is the writer/director of Crocodile in the Yangtze, an award-winning documentary about the rise of Alibaba and its famous founder, Jack Ma. An expert on ecommerce in emerging markets, he has consulted to ecommerce companies in Africa, Asia and Latin America. He lives in Shanghai, China.

Erisman is the bestselling author of Alibaba’s World: How a Remarkable Chinese Company is Changing the Face of Global Business.

Read an Excerpt

CHAPTER 1

HOW THE WEST WAS WON

O-ho the Wells Fargo Wagon is a'comin' down the street, Oh please let it be for me!

— The Music Man

Before you can truly understand e-commerce in emerging markets — and the mistakes it's already made — it's helpful to remember how e-commerce evolved in the United States. So I want to go back in time, to the American frontier — an open market if ever there was one.

*
IT'S 1875 ON the Nebraska plains, and as you watch the summer sun rise over your wheat fields, things are looking up. It should be a bumper year on the 160 acres that you occupied for five years and finally acquired from the US government. Thank goodness for the Homestead Act, you think to yourself. It's harvest time, and from now on, all profits from every harvest will be yours.

A rooster crows, telling you it's time to get the day started. You head outside and secure your horses to a mechanical reaper. You take a seat atop the reaper and grab the reins. With a strong whip and a loud "Yaaarrr!" you set the horses in motion. But before the squeaky wheel behind you has made a full revolution, you hear a loud snap! The horses veer off to the side, and the reaper spins out of control before finally wobbling to a standstill.

Darn it, you think. The leather on that brittle old harness must have broken. You dismount the reaper, examine the harness, and realize the leather is beyond repair. You'll need a new harness. So you unhitch the horses, take off the harness, saddle up your strongest horse and put the other in a field, and head off on the hourlong trip to town to visit the general store.

The dusty road takes you past neighboring homesteaders. Some are out in the fields. Spread across the countryside are a mix of wooden homes and wheat fields, some still occupied and some abandoned by homesteaders who found living off the land too hard or too lonely compared with the bigger towns and cities they came from.

After clomping along a dusty road for an hour, you arrive in town, which is not much more than a small cluster of wooden buildings. You head straight to the general store, a two-story log structure that also hosts the town's church. After tying up your horse, you walk in through the swinging doors, pleased to see some familiar faces.

"Well, look who's here!" announces the shop owner, Lee Addison, as you enter the room. You make the rounds, shaking hands with the other farmers, and take a seat in a rocking chair next to an empty barrel that doubles as a table. Gina Addison, who is married to Lee, soon puts a glass of lemonade on the table for you. "This will help you cool down," she says. "There's more where that came from."

"So what brings you to town?" asks Lee.

"Broke my harness this morning. I'm hoping you've got one here I can buy."

"I think I've got one in the storeroom. It runs fifty dollars. Let me go check."

Lee heads to the back of the store and you turn to your friend John Moore, who lives down the road. "Fifty dollars?" you whisper. "I love old Lee, but that's a lot of money for a harness. Farming is a good living, but in my next life I'm going to run a general store. That's where the real money is."

"I know what you mean," John replies. "Lee's a good man. But while we're out there sweatin' in the fields, he's sitting pretty here, sippin' lemonade and making a handsome profit. But ever since I got that Montgomery Ward catalog, I buy my big-ticket items there."

"Montgomery Ward? What the heck is that?"

John cranes his neck to make sure that Lee's not within earshot, lowers his voice to a whisper, and pulls out a small booklet with Montgomery Ward Catalog at the top. "Here, take a look," he says. "I'll bet you can find that same harness in here for half the price of what old Lee's sellin' it for."

Curiosity piqued, you flip through the book until you come across a selection of harnesses. You're amazed by the variety: double-buggy harnesses, single-strap harnesses, long-tug harnesses, plow harnesses, and even goat harnesses.

Running your finger along the page, you come to a double harness. It's only $25!

"Told you so," says John. "It'll only take a few weeks to get here, and I've got a harness I can lend you in the meantime. And if you don't like the new one, you can send it back for a full refund."

"But do you trust these fellas with your money?" you ask. "There are a lot of hucksters out there."

"I pay it cash on delivery. When you get to the American Express office, take a look at the harness. If you don't like it, you can send it back. Satisfaction guaranteed."

"No penalty?"

"Not even a dime. In fact, the wife and I are putting in an order next week. If you'd like, you can put your order in with ours."

You take John up on his offer and put in an order. And because you are saving money, you decide to add a couple items — a new hand mirror for your wife and a harmonica for your son.

"Keep the catalog," John says. "I'll get a new one with the order."

You hear old Lee's footsteps and quickly slip the catalog into your satchel. "Let's just keep this between us for now," John says. "I don't want old Lee gettin' upset. I have to see him at church every Sunday."

Lee comes back into the room with the harness. "I found what you're looking for," Lee announces. "Why don't you come have a look?" "Thanks, Lee. It looks nice. But I think I may have found a solution. What do I owe you for the lemonade?"

"All right, sir, as you wish," Lee says with a puzzled look. "Don't worry — the lemonade is on me."

You slap a penny on the counter and shake Lee's hand. He deserves something for the fresh lemonade, after all. "Thanks, Lee. Always a pleasure."

You walk out the swinging doors, untie your horse, and climb into the saddle. As you ride away, Lee scratches his head and turns to his wife. "He's a nice fellow. But that sure is a long way to ride for some lemonade."

THE EVOLUTION OF RETAIL

When we think of the first e-commerce innovators, several names come to mind. Amazon's Jeff Bezos. EBay's Pierre Omidyar. Even my former boss at Alibaba, Jack Ma. But few people would put Aaron Montgomery Ward on their list. In fact, what I remember of Montgomery Ward from my childhood is a crumbling old department store in a nearby shopping mall.

But Montgomery Ward was the Jeff Bezos of his time. If a TechCrunch Disrupt conference had been held in 1875, Montgomery Ward would surely have been the headliner. His business model was both innovative and disruptive, changing the way people shopped in the American West.

In 1872, the year Montgomery Ward was founded, the United States was the great emerging market of the world. The Civil War was nearly seven years in the past, and the peace accelerated a huge migration from East to West. The original spark for this migration was the Homestead Act, which Lincoln signed in 1862, thirteen months after the start of the Civil War, to encourage western migration by offering settlers 160 acres of public land. To earn the land homesteaders had to pay a nominal fee and live on the property for five years. After that it was theirs.

Before the Homestead Act, only 14 percent of Americans lived west of the Mississippi River. By 1890 that figure had nearly doubled. About 70 percent of the population still lived in rural areas, but the westward expansion helped make Chicago a major hub for the growing railway system. And where the railroads didn't go, express delivery services such as Wells Fargo and American Express served the western settlements with horse-drawn wagons.

The settlement of the West created an agricultural boom as the value of agricultural products tripled during the last five decades of the nineteenth century. During this period manufacturing became increasingly important, and by 1900 the United States led the world in manufacturing, producing twice as much as England and half of all of Europe combined. Although the diversity and availability of products quickly increased in the coastal cities, such goods had not yet found their way to the homes of customers scattered throughout the American West.

Residents of rural areas typically shopped at the local general store, which played an important part in the social lives of its customers, who had few other gathering spots. The general store was where the shopkeeper dispensed the latest crop intelligence and gossip about neighbors, and men might throw back some whiskey while complaining about the latest goings-on in Washington.

Yet farmers often resented store owners, who captured sizable margins on the products they sold. At the general store flour might be twice the wholesale price. The markup on shoes was 60 to 200 percent. Wool suits cost three times the wholesale price. And if customers purchased products on credit, they typically paid a punishing interest rate of 12.5 percent.

Against this backdrop came Aaron Montgomery Ward, a former general store manager and traveling salesman. Ward had worked and lived among farmers and was familiar with their problems. He came up with a catalog business so he could sell directly to them. With $2,400 and his brother as a partner, Ward's first catalog was a single sheet of paper, just a price list for a handful of products. By 1874 it had grown to a seventy-two-page catalog with images, prices, and product descriptions. The Montgomery Ward catalog was the first general-item mail-order catalog to be published and shipped to farmers. Ward told his customers they would receive "the lowest wholesale prices. ... By purchasing with us you save from 40 to 100 percent which are the profits of the middleman. ... Don't waste your money by paying $35.00 for an article which you can get for $20.00." Throughout the catalog were small nudges for skeptical shoppers to take a leap of faith: "Never let good opportunities go by. If you do, you will never be rich."

Ward knew westerners would be skeptical, so he encouraged buyers to check his references, saying, "We do not wish to be classed with the numerous swindlers of our city, and particularly desire every person to make inquiry about us before giving us an order. If this plan is always followed, honest men will be supported and swindlers will die out." He encouraged his customers to tour Montgomery Ward's warehouse in Chicago. He also encouraged customers to contact his team, saying, "We cheerfully answer inquiries" and "We have 25 typewriters always ready to wait on you." If you didn't want to pay COD, you could send payment by US Post Office money order, American Express money order, or cash at a local Express office (and "express" at the time meant package deliveries done by horse and wagon). Where these services were not available, customers could pay with postage stamps. And anyone who examined their order upon delivery and found it not to their liking could simply return it for a refund.

Before long, the Montgomery Ward catalog was available throughout rural America. By 1904 Ward was mailing more than three million of his six-hundred-page catalogs. While his catalogs did not replace the general store, they certainly challenged and disrupted it. Long trips to the growing cities to buy hard-to-find items were not as necessary. Montgomery Ward had brought Chicago's Michigan Avenue to shoppers on the frontier. With his catalog he'd put a well-stocked store on every kitchen table.

THE RISE OF BIG RETAIL

Had the Internet come along in Montgomery Ward's time, the majority of retail might have leapfrogged online, with Ward pioneering the way. But, as we know, this didn't happen, and America's physical retail infrastructure began its slow and steady evolution.

While catalogs battled general stores for retail dominance in rural America, cities gave rise to department stores, America's new "palaces of consumption." In 1878, when Macy's opened for business, a New York Times headline announced "The Great Sixth-Avenue Bazaar; Opening Day at Macy's & Co.'s — A Place Where Almost Anything May Be Bought." Other department stores appeared, including Marshall Field's in Chicago and Hudson's in Detroit. These glistening department stores, with their festive lighting and attractive window displays, became entertainment destinations, attracting city dwellers and visitors alike to spend an entire Saturday browsing the wide selections while dining at the stores' restaurants and tea rooms.

The industrial revolution gave rise to a growing middle class hungry for new products. Seeing this trend, Ward and his rival, Richard Sears, extended their businesses beyond the catalogs, starting and aggressively growing their own retail stores. Ward had no stores in 1926 but had five hundred just three years later. Sears rapidly grew his retail empire as well, building not just department stores but, after 1950, entire shopping malls, with Sears stores serving as the anchor tenant. J.C. Penney appeared in the western United States and built a large chain of department stores.

America's growing culture of consumption survived the Great Depression and World War II, only to explode during the postwar boom. With the Depression and two wars behind them, Americans were more than ready to shop. When they turned on their television sets for the first time, they were exposed to a steady stream of product propaganda created by Madison Avenue. With the winds of national media at their backs, regional brands sailed outside their traditional boundaries and grew into national brands.

During the 1950s the demographics of the United States were changing along with its geography. The growing interstate highway system, combined with white flight from the cities, encouraged the growth of suburbs. When the white middle class moved to the 'burbs, retailers followed, and American shoppers drifted away from downtown department stores and into the enclosed malls, strip centers, and mass retailers that took their dollars from the 1950s into the 1990s. In the suburbs retailers faced lower costs of doing business and less expensive land, which helped them cut prices. Increasing car ownership meant shoppers could not only get to the malls but also stock up on products, filling the huge trunks of their cars with a month's worth of supplies.

Retailers' consolidation into regional chains gave them even greater economies of scale. But it took a former general store owner named Sam Walton to recognize that American retail was ripe for yet another dramatic step.

THE WALMART EVOLUTION

If Montgomery Ward was the great retail disruptor of the nineteenth century, Sam Walton was his twentieth-century counterpart. His Walmart took physical retail to the limits of efficiency in a pre-Internet world. Combining scale with technology to bring down prices dramatically, he laid the groundwork and provided the inspiration for Jeff Bezos and Amazon. Walton's journey is worth exploring, because it helps explain the critical evolutionary step that emerging markets missed out on.

In 1945, when Sam Walton opened his first general store, a Ben Franklin franchise, retail in rural America was still fragmented and inefficient, with few chains that reached beyond their home markets. As Walton writes in his autobiography, "Our [Ben Franklin] store was a typical old variety store, 50 feet wide and 100 feet deep, facing Front Street, in the heart of town, looking out on the railroad tracks. Back then, those stores had cash registers and clerk aisles behind each counter throughout the store, and the clerks would wait on the customers. Self-service hadn't been thought of yet."

Having clerks fetch products off the shelf might have helped prevent shoplifting, but customers found the process slow and annoying. But more significant than the slow service was that shoppers in rural America still had the same primary complaint they'd had for a hundred years — high prices. Retailers' margins ran from 30 to 45 percent, yet they offered little selection.

Walton pioneered the idea of accepting lower margins in exchange for higher volumes. Women's panties gave Walton his eureka moment: he saw that discounting prices on women's underwear at prices well below those charged by his competitor across the street led to much higher sales volumes. In what seems like common sense now, Walton explained his insight by saying:

Here's the simple lesson we learned — which others were learning at the same time and eventually changed the way retailers sell and customers buy all across America: say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough. But this was really the essence of discounting.

Selling high volumes of discounted products was the founding principle of the first Walmart, which opened in 1962 in Rogers, Arkansas. Walton was not the only one who figured this out. The same year, several other major discount chains opened, including Woolco, Kmart, and Target. Backed by parent companies that were goliaths of retail, like F.W. Woolworth, S.S. Kresge, and Dayton-Hudson, Walmart's discount competitors enjoyed strong financing and decades of experience. Yet Walmart would eventually best its competitors and emerge as the titan.

(Continues…)



Excerpted from "Six Billion Shoppers"
by .
Copyright © 2017 Porter Erisman.
Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Title Page,
Copyright Notice,
Dedication,
Acknowledgments,
Introduction: A Shopping Mall in Every Pocket,
1 How the West Was Won,
2 The Rise of E-Commerce in China,
3 The Great Mall of China,
4 India — The Next Mega-Market,
5 India's E-Commerce Golden Era Finally Arrives,
6 Southeast Asia,
7 Latin America,
8 Africa — The Final Frontier,
9 Six Billion Shoppers,
Notes,
Index,
Also by Porter Erisman,
About the Author,
Copyright,

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