5 Key Issues for E-commerce in the Philippines

This question on my Formspring inbox had me talking to a few friends and colleagues in the online shopping business for feedback and input. Basically e-commerce in the Philippines is a viable business model but there are several pitfalls and problems that can make or break your company. I’ve narrowed it down to 5 key issues that you have to resolve in order for you to have a good chance at making your online business work.

Trust
The problem with online shopping in the Philippines is that the industry has a pretty bad reputation with all the scams and fake deals that have been happening on Multiply and Sulit. For some reason people just love depositing big amounts of money into the accounts of people they don’t know and they just leave it up to God if they’ll get the item that they paid for or not.

If you’ll set up your own online store, you need to confront this issue buy having accredited payment facilities, trust badges (more on this on a separate entry), and I seriously suggest that you just make Multiply or Sulit complimentary and make your own online store. If you don’t have capital, you can start with Multiply but try to save up so that you can buy your own domain and e-commerce capable site so that you can expand your customer base and revenues.

Your Salesman
Your website is the most crucial element in this entire thing. The website is supposed to function as your 24/7 salesman. You have to take into consideration the design and the functionality on the view point of the target market. Is your site easy to navigate through? Are you highlighting the register or buy functions? Is it simple enough that anyone can make a purchase without too many questions and doubts?

Payment
Cash on delivery (COD), advance bank deposits, and even Paypal just won’t cut it. COD is not sustainable and you won’t be able to scale your business unless you have your own squad of delivery boys. You will also be limited to your geographical location. Bank deposits just won’t work because of the “trust” issue. The moment you say that your only payment option is bank deposit you will probably lose a whole lot of customers already. The problem with Paypal is that the awareness level for it isn’t that high yet in the Philippines.

If your target market is mostly composed of Filipinos who are in the A/B/C1 bracket, I strongly suggest you have a good mix of payment options. Offer all the stuff I mentioned above and also find a way to integrate credit card payments into your site. There are a lot of affordable options already available out there (for as low as P25,000). While the credit card penetration here isn’t that high, it’s still a significant market.

Other good payment options would be Globe’s GCASH and Smart Money.

Delivery
Here’s the next big problem — how do you get the goods to the customer? Filipino shoppers are impatient and want instant gratification so you have to get the product as quickly as possible to a customer after the pay if you want repeat business. The good news is that there are a lot of delivery/shipping companies that do pick-up already (like XOOM). All you have to do is to put a operational system in place that you have someone who will contact the delivery service to pick up the product from your warehouse/place and deliver it to the customer.

Cash Flow
This is a major setback to businesses who will primarily use credit cards for payment. If you go to the usual suspects in setting up your e-commerce facility, they will tell you that there’s a 30-day waiting period before you actually get paid after your product reaches the customer. That means that your money will sleep for 30 days. Yikes right? That’s a pretty long time to wait. There are some e-commerce platforms (Smilds) that offer a 7-10 day waiting time which is the lowest I’ve seen so far. If you’re going to integrate credit card payments then better make sure you properly manage your cash flow.

Over-all I think the e-commerce industry in the Philippines has huge potential, but we have to think of selling our products to the world and not just locally. Yes, the credit card penetration in the Philippines is low but it’s pretty high in the US and Europe. Instead of focusing on how to expand the credit card users here maybe we should be coming up with globally competitive products.

I hope you guys find this entry helpful! I know it’s not that exhaustive. Maybe I’ll write more pieces on e-commerce in the future.