Gender Balance

In the past year the number of customers making online purchases was 1.4 million as of the end of September. The male/female ratio among internet customers has balanced out, and it is expected that from 2012 onward, more women will make purchases online than men. Internet retailers must increasingly be ready to serve female customers, which often implies a site redesign as well.

Coupon Deals

The focus of media attention in 2011 was clearly on online coupon sales. Although Groupon successfully pioneered this business model worldwide in 2007, the Hungarian market didn’t catch on until the second half of 2010, and the true breakthrough happened in 2011. Coupon sites have undergone a fast and spectacular development: the market, which had only a handful of participants at the beginning of the year, had nearly 60 competitors by the end of the year. Deal hunters can choose from up to 200 active daily offers.

FIGURE 1. LARGEST PARTICIPANTS IN THE HUNGARIAN ONLINE COUPON MARKET FOLLOWING THE GROUPON MODEL (BASED ON THE OCTOBER 2011 STATUS)

Source: GKIeNET survey (offers in Budapest and nationwide between October 1 and 31, 2011). Note: Lealkudtuk.hu, operated by Allegroup, is also a significant participant, but they are not based on the Groupon model.

When Hungarian coupon sites started (in late 2010 – early 2011), they offered only services, typically at a discount of 50% or more. Since impulse buying is primarily typical of female customers, the offers mainly target them. Accordingly, cosmetics offers alone number nearly 300, but travel and wellness offers are also very popular, and many restaurants also feature discounts to entice customers. In the fall discount offers started including products as well.

Contrary to media reports, the business model is excellent, and the large discounts have enticed many customers to make their first online purchases. GKIeNET has reported that the market may have a 2011 sales volume of 3-3.5 billion forints, about three-quarters of which will be divided among the three largest market participants.

Online Buyers’ Clubs

Coupon sites were not the only ones in the Hungarian online retail sector to come up with daily offers. 2011 was also a year in which discounts offered by buyers’ clubs took off. These sites are typically organized around an exclusive selection of premium products. Members can choose from the greatest fashion brands at outlet prices, with discounts up to 80%. Advertising these deals, however, requires a much more serious infrastructure and organizational background (logistical storage facilities, individual contracts with the brands), so the Hungarian market currently features only two large participants (Brands.hu and Fashion Days). However another large participant is expected to enter the market in 2012. Exclusive buyers’ clubs are expected to have a 2011 turnover of 1.5 billion forints, while the speed of growth is reflected by the fact that the 2010 volume was less than 1 billion forints, and in 2012 an expansion of another $1-2 billion is not beyond the realm of the possible.

The secret of the model’s success is in the campaigns and in the artificial restriction of access. Each sale only lasts for a few days, and is restricted to a given inventory, encouraging impulse buying among the members of the club. Information about the sales itself is restricted to club members, who can join by invitation only. New invitees are kept on waiting lists for weeks on end, thereby increasing the excitement of making it into the club. The operation of these exclusive buyers’ clubs helps brand owners as well, who can quickly and spectacularly unload unsold, limited inventory. This business model has been just as successful around Europe as in Hungary.

Buyers are typically fashion-conscious, under 40 buyers seeking name-brand items. The gender gap is smaller in this segment, owing to the fact that the emphasis is on the product, unlike in the case of coupon web sites. The most popular items are clothes, shoes, jewelry and watches, but there is also great interest in household appliances. At the same time, some exclusive services also made it to the portfolio of the clubs in the second half of the year, such as luxury trips and Caribbean cruises.

Online Classifieds Market in Flux

The year 2011 not only heralded the success of new sales models, but it also featured the rediscovery of old ones. The online marketplaces, which have been successful participants in the Hungarian online retail market, were challenged by the general classifieds sites. It has always been clear that these specialized sites had both worldwide and nationwide success in the real estate, job, car and dating markets, but general classifieds sites were less widely accepted in Hungary, mainly because of the popularity of the auction marketplaces.

Worldwide demand for auctions has been waning since 2010, and the marketplaces have increasingly featured fixed-price sales. As a result, the largest participants, eBay among them, have opened up to classified advertising. This trend reached Hungary in early 2011, and general classifieds sites are becoming more and more popular. Their impact is so strong that a significant percentage of the secondary, consumer-to-consumer (C2C) trading volume has migrated to these sites.

FIGURE 2 – CLASSIFIED ADVERTISEMENT MARKET (AS OF DECEMBER 17, 2011)

Source: GKIeNET
Note: the number of advertisements does not, in itself, reflect the popularity of the websites. For example, many sites do not let their advertisements expire in an effort to keep the number of ads high, which in turn results in less relevant hits for customers browsing the classifieds.

The reason for the popularity of the classifieds pages is that they are not transaction-based, meaning they do not ask for a commission based on sales. In fact, many online classifieds sites are offering free services in order to build market share. On the other hand, maintaining the quality of hits is a huge challenge for the operators of these sites, which may even result in the current growth period being followed by a return of customer interest to the auction marketplaces offering immediate transactions.

Of course, nothing is free, and eventually the Hungarian operators will introduce some payment system, but placing an ad itself is expected to remain free. International examples indicate that the most likely scenario is one where buyers pay for more on-target results, or sellers may pay a fee for an enhanced presence. In addition, there are examples where certain premium categories (such as real estate or jobs) require a payment. Hungary is currently in the phase where participants divide up the market. Never have classifieds sites paid this much for brand promotion as in 2011 (hundreds of millions of forints).

Online hypermarkets are on the rise

The year 2012 will likely bring at least as many changes and challenges in online sales as the previous year did. Media and telecommunication companies will put an increasing emphasis on the online sales of the services and products they offer, which is likely to result in major improvements and acquisitions over the next few years. Meanwhile, the largest internet retailers in Hungary continue to expand their product lines, and although they started out with the sales of different products and achieved their success through various sales strategies, all stores are currently working toward the creation of online hypermarkets, also known as ’web plazas.’

Aimed at the ’one-stop-shopping’ model, virtual shopping centers offer an increasingly wide range of products. More often than not, firms sell their own products and services, but there are already sporadic examples of stores serving as brokers that, in traditional terms, provide shop windows for professional retailers. This sales philosophy, just like in the case of their offline counterparts, can potentially transform our image of internet sales in the future. These developments are further boosted by the largest online retailer, Amazon.com, which is currently building its distribution warehouse in Slovakia to serve the Central and Eastern European market.

GKIeNET Internet Research and Consulting Co.

]]> http://gkienet.hu/en/news/768/feed/ 0 http://gkienet.hu/en/news/players-with-handsets-handsets-that-play/ http://gkienet.hu/en/news/players-with-handsets-handsets-that-play/#comments Thu, 24 Nov 2011 16:57:52 +0000 gkienet http://gkienet.hu/en/?p=756

Currently the most popular items in mobile app stores are mobile games. Games of skill and logic are the most popular among users, especially if they also have multiuser capabilities. At the end of August 2011 there were 2.4 million smartphones in use in Hungary, which is 25% of the 9.6 million total inventory, reveals the GKIeNET – T-Mobile Report on the Internet Economy.

The decision is with the player, not the handset manufacturer

Ever since the nineties, mobile games have played a key role in the overwhelming success or rapid failure of mobile handsets. The breakthrough for players, however, came with the emergence of smartphones, which are capable of running programs with graphics and processing requirements that are more complex than earlier ones. In order to unleash the creativity of game developers, however, it was necessary to find an environment where the choice about which game was popular lay with the consumer rather than the manufacturer. This kind of freedom has been achieved with the emergence of platform-specific app stores, where the only requirement is that developers adhere to the baseline standards of the platform owners. The emergence of the application markets was a true breakthrough relative to the earlier Java-based games that were also freely installable, because of improvements in usability and simplicity. Today anyone can produce and sell games for smartphones, making it possible for games to develop independently, without interference by the handset manufacturers.

Competing platforms and app stores

Mobile games mushroomed in this environment, and they are currently the most popular products in mobile app stores. Categories include athletics, cars and motor sports, role play and strategic games, as well as logic games and massively multiplayer online (MMO) games and even card games and games of skill. A 2011 Nielsen study states that gaming apps make up 64% of the downloads from the app stores of the three currently most popular platforms (iOS, Android and Windows Phone 7)

Share of games in the most popular applications by category on android market

Top lists of applications are mostly made up of gaming apps. For example nine of the ten most popular mobile programs in the App Store are games. It is particularly interesting that three of the ten most lucrative apps on the Android Market are also gaming apps, and all three of them are free meaning that they generate revenue for the publisher and the online store through their micro-transaction services.

Mobile games have also become social experiences

Games of skill and logic are undoubtedly among the most popular downloadable mobile games, which is due in part to the extent of this category; these are the most widespread games (card, sports and competitive games are considered specialized groups). The success of the popular games is largely attributable to their addictive nature or the humor involved. At the same time, complex control techniques are becoming more and more crucial for users due to the built-in motion sensors in smartphones,

The implementation of social functions increasingly motivate players to rerun games. The old “I played and succeeded” mentality is now often being replaced by the desire and possibility to share among those who play on smartphones: players have the opportunity to compete against each other by sharing their scores, while single-player games have a “Hall of Fame” function. Game developers and game publishers are trying to transform their games into new experiences that allow the sharing of results, creating a stronger bond between the game and the players. In terms of social model, games can be categorized in four groups.

1. Single-player games. Games played by one player alone; does not allow or support the sharing of scores. Results achieved by a player do not stimulate other players to get better scores.
2. Result share games. Single-player games that allow or support a function to share game results; scores stimulate other players to do better.
3. Contribution games. Multi-player games in which players play the game alone, more or less independently from other players, however, their actions can affect other players.
4. Player vs. Player games. Live multi-player games in which players play together simultaneously through continuous data exchange or Internet connection.

Position of the most popular mobile games in the  android market in terms of social model

Price does make a difference

In the case of fee-based games, pricing also plays a key role when it comes to choosing the users. Card and gambling games are the most expensive ones on the top lists of each category (4 games in the TOP 5 cost more than 1,000 forints). The majority of non-free games can be purchased for the equivalent of 400-600 forints on average (prices are already listed in forints on the Android market). Top lists in the categories of skill and logic games offer the least expensive items, which is a necessary but not sufficient condition for the overall success of these categories.

Smartphones on the rise

As seen elsewhere, mobile games have been rapidly gaining popularity in Hungary, as well, thanks to the increasing penetration of smartphones. 26% of all mobile phone owners play on their handsets on a regular basis (at least once a week). The population aged between 18 and 49 years makes up the majority of players, although there are no exact data on the percentage of regular players under 18 years, given that the devices used by children belong to their parents according to the contract.

Based on data available to GKIeNET, 84% of the Hungarian population used mobile phones at the end of August 2011; the number of people above the age of 18 with a mobile phone contract totaled 6.8 million. The number of active mobile handsets amounts to 9,6 million (not to be confused with the number of active SIM cards), while the number of smartphones in use is approximately 2.4 million, making up 25% of the total number of mobile phones in use. On annual average, smartphone sales will likely account for some 40% of all new cell phone sales in 2011, (domestically, new mobile phone sales are expected at 2.2-2.5 million this year, of which some 900 thousand to 1 million are smartphones).

What’s a Smartphone?

Service providers and handset manufacturers alike are using the phrase smartphone to describe the latest generation of phones with many capabilities not found in traditional phones. However, in order to have a unified (international) framework to track usage patterns, it would be necessary to have a unified definition behind the expression. In GKIeNET’s view any mobile phone with the following characteristics is a smartphone.

• It runs an operating system: smartphones are capable of running one of the 6 large operating systems (OS). The common feature of these is that they have been optimized for hardware items characteristic of mobile environments. Also they have a development environment (SDK) that makes it possible for third parties to write apps that take advantage of the hardware in the phone.
• Apps can be downloaded: as indicated in the previous section, simple mobile phones are only capable of running functions integrated into their software, meaning they can only be functionally expanded by the manufacturers. By contrast, if a mobile phone is running an OS, anyone can expand the range of products on offer (in efforts that are usually independent of the maker of the phone or the operating system).
• It has internet access: the mobile phone is capable of accessing a third generation and/or next generation mobile network. In addition, many smartphones can connect to WiFi hotspots as well.

Optional but important smartphone characteristics:

• Full keyboards: most smartphones these days have a full QWERTY keyboard where each letter has a button of its own, meaning that each letter is accessible directly, without using special function keys, making text entry faster. Depending on whether the phone has a touch screen, the keyboard can be physical or virtual.
• E-mail clients (can) run on them: in addition to text messaging, which is available even on simple mobile phones, these smartphones also offer access to various email clients (partly because of the downloadable applications), making it possible to handle electronic mailboxes in real time.

]]> http://gkienet.hu/en/news/players-with-handsets-handsets-that-play/feed/ 0 http://gkienet.hu/en/news/hungarian-e-commerce-was-soaring-again-last-year/ http://gkienet.hu/en/news/hungarian-e-commerce-was-soaring-again-last-year/#comments Tue, 30 Aug 2011 11:37:35 +0000 gkienet http://gkienet.hu/en/?p=748 Online commerce in Hungary continued to grow dynamically in 2010, reveals GKIeNET’s survey published in August 2011. Sales at webstores, making up 1.8% of all retail sales in Hungary with a total value of 133 billion forints keep increasing in 2011 and may total up to 155-160 billion forints.

Online retail sales

There are very few areas in the economy that actually benefited from the recession that has been going on since 2008, with online commerce being one of them. Although many retailers feel that they are forced to undertake these developments, the increasing number of online customers does promise attractive growth potential for those who act in a timely manner.

The sales volume of online retailers amounted to almost 100 billion forints in 2009 and exceeded 133 billion forints in 2010, making up 1.8% of total retail sales. Revenues from online retail sales could amount to 155-160 billion forints in 2011, which, if actually realized, would make up 2.2% of the total retail sales. The sales volume increased 25% from 2009 to 2010, and is expected to grow by another 17-20% in 2011.

Figure 1. Sales by online stores between 2001-2011 (in millions of HUF)

Due to methodological reasons, the presented online retail sales figures do not include the data of auction marketplaces. “Sales volume” on these sites totaled 28-30 billion forints in 2010 based on the value of products they were bidding on (revenues of auction marketplaces reflect only the commission charged for the brokerage, but not the actual value of the products).

Product categories

In 2010 the most popular product categories in online retail in Hungary included the following (in no particular order):

• Food and drink, gastro (prepared food);
• Household appliances;
• Books, newspapers, magazines;
• Clothing, sports apparel;
• Computer technology;
• Entertainment  and other electronics.

The big ones get bigger

In 2010 the largest stores were able to increase their revenues without feeling particularly forced to transform themselves. As a result, practically all new entrants offering the traditional shopping cart system fell in the lowest revenue category.

However, a few new market players prompted the large actors, that had been relatively unstirred, to shift gears. Sites geared towards advertisements and closed theme-based communities increased in popularity at an unprecedented rate this year. In response to the new market trends, 7-8% of web stores offered their products or services on advertisement web sites, and 9-10% used auction sites for this purpose. Other online venues are typically used by smaller stores that tend to take advantage of price comparison sites, community pages and other online market places.

Services – growing discounts

We have to discuss online services as a separate category, of which e.g. tourism and insurance have been performing particularly successfully since the dawn of Internet commerce.  Promotion and coupon-based shopping has been on the rise in Hungary as well since late 2010, offering deals primarily in the areas of beauty, entertainment, gastronomy, travel, sports, adventures, wellness, health and education. Online revenues from services sold via coupons and promotions will exceed two billion dollars in 2011, and it is evident that the enormous discounts that are offered increasingly attract Internet users who had been wary of this shopping option.

Online shoppers

In the last quarter of 2010, 58% of the Hungarian population over the age of 14 (4.9 million people) had Internet access, of which 53% were daily Internet users, while the percentage of those who do not use the Internet at all dropped below 10%.
14% of the population over the age of 14 (1.2 million people) have already bought products or services online, which means that the number of those who tried their hands at online shopping increased substantially in 2010. 32% of the frequent Internet users (1+ hour monthly) has used the Internet for shopping at least once.

About the webstore survey

GKIeNET carried out its traditional annual webstore survey in the Spring of 2001. Within the framework of this project 3,000 online stores were surveyed, all of which were firms registered in Hungary and involved in online retail sales.

]]> http://gkienet.hu/en/news/hungarian-e-commerce-was-soaring-again-last-year/feed/ 0 http://gkienet.hu/en/news/bonuses-and-coupons-the-market-to-shake-up-e-commerce-part-33/ http://gkienet.hu/en/news/bonuses-and-coupons-the-market-to-shake-up-e-commerce-part-33/#comments Wed, 15 Jun 2011 11:55:42 +0000 gkienet http://gkienet.hu/en/?p=726

Researchers can only measure the robust competition between bonus[1]/coupon companies, but the judges are the consumers themselves who act on the offers they find the most lucrative. In order to decide the who is the market leader question one needs numbers and analysis, i.e. we need to enumerate the possible criteria by which an answer can be found for a given time period. Part three of the joint research by GKIeNET and the E-business Research Center of Corvinus University evaluates the indices and the turnover of businesses.

Metrics that may be used in the evaluation

Owners can best measure the business acumen of a company by looking at the net, after-tax revenue at the end of the year. However, in a market going through explosive growth, it is important to consider many factors that are important indicators in addition to financial results, and those results must be considered not just from the owners’ perspective but also from the vantage point of business partners (in this case retailers). In the bonus/coupon market indicators that are suitable to use for evaluating business performance throughout the year include revenue, bonuses/coupons sold, the number of offers, the average discount size, the average amount saved and the metrics describing relationships with consumers and retailers.

Research is made more difficult by the fact that bonuses/coupons are available online for more and more cities outside Budapest since April 2011, making it necessary to track competition nationwide. Nationwide measurements, on the other hand, have started only recently, and the data show that the bonus/coupon market outside the capital is still underdeveloped. The present research summary covers the period between May 2, 2011 and May 30, 2011 at the latest, and is based exclusively on offers valid in Budapest. The figures shown here pertain to the three currently leading bonus/coupon sellers (in alphabetical order: Bónusz Brigád, Kupon Világ, Napi Tipp) as well as an “up-and-coming” business (Kuponunk).

Revenue indicator

Any analysis endeavoring to survey bonus/coupon sites will find revenue to be the most important metric.

Accordingly, in May 2011, Bónusz Brigád had revenues of 112,819,552 forints, Kupon Világ 99,463,019 forints, Napi Tipp 52,451,569 forints while Kuponunk sold 9,279,300 forints through their Budapest bonuses/coupons.

Bonus/coupon sales indicators

The number of bonuses/coupons sold refers to the number of transactions a site managed to execute. However, caution must be exercised when interpreting these figures due to several factors. The actual number of bonuses/coupons sold can be different from the figure shown on the website, for example when customers choose to pay by wire transfer but then fail to actually transfer the amount after submitting their intention to buy the products. Data assessment is particularly questionable in the case of NapiTipp.hu, where PayPal is offered as a payment option, yet the majority of customers chose to pay by wire transfer over the period of this study (for the time being, PayPal is not a widespread payment option in Hungary). If the number of paying customers falls short of the indicated number of coupons sold, revenue figures are obviously lower. The other factor that needs to be taken into consideration when interpreting the indicator of the number of coupons sold is the fact that the number of offers and the number of corresponding coupon sales (transactions) are not necessarily interrelated.

Based on aggregate data, Kupon Világ sold a total of 22,366 coupons from 71 offers, which translates into 315 coupons per offer and a price of 4,474 forints. Bónusz Brigád, on the other hand, advertised 58 deals, selling 20,069 bonuses at an average price of 5,662, with an average of 346 bonus sales per offer. Napi Tipp sold a total of 8,153 coupons for only 23 deals, while the smallest market player, Kuponunk, sold 1,152 coupons for 24 advertised deals in Budapest.

The number of offers indicator

The number of advertised deals may convey the impression of abundance, but it is not a reliable indicator in itself. First of all, it is up to the strategy of the company how many deals are displayed at a time, because attention, and even shopping propensity, may diminish when one is presented too many offers at once. Secondly, the sales teams of the bonus/coupon websites research many deals, and by now many merchants volunteer to provide offers, of which a company picks the best ones in line with its quality standards. Thirdly, as mentioned earlier, the number of advertised deals is not indicative of the weekly number of coupons sold, instead it is related more closely to the category of the offer or its uniqueness.

Based on the indicators along these lines, Kupon Világ offered the highest number of deals in May 2011, yet Bónusz Brigád proved to be more efficient, given that their sales per deal were ten percentage points more effective. This translates into an advantage of 2,000 thousand transactions if the number of offers remains fixed.

To experts the ratio of coupon sales to advertised offers indicates primarily the effectiveness of sales teams, as well as the categories to which market players orient themselves, and how they succeed with the advertised offers. From this point of view, Bónusz Brigád and Napi Tipp are much more “conscious” in picking out their offerings, and although the number of offers is smaller than at Kupon Világ, there are also fewer offers with low sales volume.

Average discount rate and savings amount indicators

The average discount rate and the corresponding savings indicators are probably the most misleading metrics in comparisons. Both are being used widely by companies for marketing purposes, despite the fact that the success of firms is only indirectly shaped by the potential boosting effect of significant money-off bargains on impulse shopping.

Based on the May data, the savings amount and the average discount rate at domestic bonus/coupon sites are as follows: 201,214,212 forints and 79% at Napi Tipp, 216,346,638 Ft and 69% at Kupon Világ 143,046,842 Ft and 56% at Bónusz Brigád, and 12,874,300 Ft and 58% at Kuponunk. Based on the indicators discussed above, however, it is obvious that these two indicators do not bear the slightest relation to revenues, the number of bonuses/coupons sold or the number of advertised offers.

Indicators measuring the relationship with customers and merchants

Assessing the relationship with customers and merchants is the most difficult task. Customer feedback can obviously be tracked by the actual number of bonuses/coupons sold (of which we have no exact data, since companies like to keep these figures hidden), but feedback posted on social media sites is particularly valuable to merchants. The number of Facebook followers indicates how many users are reached daily by the offers. In addition, the number of users registered on the site could also be a good measure (newsletters can be sent to email addresses). At the same time, the two indicators have to be treated separately, because they represent different dimensions and are not necessarily interrelated.

As of May 2011, the number of Facebook followers totaled some 185,000 people at Bónusz Brigád, 105,000 at Kupon Világ, 54,000 at Napi Tipp, and 32,000 at Kuponunk. No data are available on the number of registered users, though.

The number of Facebook likes associated with an offer can also be interpreted as an indicator, however, this is less reliable feedback, given that customers do not necessarily express their opinions about an offer. The number of likes per offer depends heavily on factors such as a description or a game related to the offer. The number of Facebook likes registered to the May offers are as follows: Kupon Világ: 5,586, Bónusz Brigád: 4,787, Napi Tipp: 1,286, Kuponunk: 718.

In addition to the above considerations, the second part of the present series pointed out that another significant factor is how much room is allowed by the owner of the bonus/coupon site to promote the brand name of the merchant. Since it comes down to visual exposure, it is virtually impossible to compare the sites by exact measurements. Therefore we trust our readers and merchants to make this assessment.

Bónusz Brigád was the market leader in May 2011

It is difficult to summarize the results measured in May 2011. The data clearly show that there are two truly dominant major participants: Bónusz Brigád, which started out as a Hungarian SME, and Kupon Világ, owned by the international Rebate Networks. Napi Tipp is also a strong contender (bear in mind that there are more than 50 companies in the Hungarian bonus/coupon market), while Kuponunk was included in the analysis to compare the results of a competitor that started later than the rest (in March 2011) but was doing business nimbly.

All factors considered, Bónusz Brigád appears to be the current market leader on the basis of Budapest offers surveyed in May 2011. The conclusion is supported by the revenue indicator, the more efficient sales per offer metric, the high number of Facebook followers and the conscious and appropriate use of advertising. Based on comprehensive interviews with the two major competitors, Bónusz Brigád has approximately one-third as many employees as Kupon Világ, meaning that their revenue per employee indicator is also much better.

Beyond the metrics measured (which we view as the sole basis for establishing market leadership) we must also emphasize that Bónusz Brigád is a leader in development, the most important factors of which are the following:

• They were the first in Hungary and the second in Europe to launch iPhone and Android apps;
• The apps not only allow the user to make a purchase but they save printing as well;
• They offer a 100% money-back guarantee;
• They were the first in Europe to introduce personalized offers in cooperation with Gravity, another Hungarian-owned business.

Many various articles are published about bonus/coupon sites. We wish to emphasize, however, that these companies have a stable business model, and that they have opened a new business channel on the internet.

GKIeNET, BCE E-business Research Center

Click to the pictures for the original sizes

]]> http://gkienet.hu/en/news/bonuses-and-coupons-the-market-to-shake-up-e-commerce-part-33/feed/ 0 http://gkienet.hu/en/news/bonuses-and-coupons-the-market-to-shake-up-e-commerce-part-23/ http://gkienet.hu/en/news/bonuses-and-coupons-the-market-to-shake-up-e-commerce-part-23/#comments Wed, 08 Jun 2011 11:30:29 +0000 gkienet http://gkienet.hu/en/?p=713 In 2011 Hungary has joined the ranks of countries where bonuses/coupons are sold online by the million, even though it is not yet clear what the legal status of the product being sold is. The intense interest in discounted products and services may create the illusion of being market leaders in several participants at the same time, which is reflected in companies’ business communications. Part Two of GKIeNET’s joint research with Corvinus University’s E-business Research Center reveals that in order to answer the Who is a market leader in what, one must first understand the underlying business model.

New services in e-commerce

Deals offered by bonus/coupon websites typically fall into one of nine categories: beauty, gastronomy, travel, entertainment, fun, wellness, sports, education, and health. With the exception of tourism, each category covers services that had previously been only advertised but not sold online. This means that the newly emerging online sales strategy is unique not only because the underlying business model is new, but because it made services marketable online that had not been traditionally offered over the internet. But what, in fact, is the product being brokered?

Not necessarily what it seems

When internet users first see a money-off coupon, they are not likely to be concerned with what they purchase. The majority of them know from recent internet shopping experience that if they are not completely satisfied, they have the option of canceling a transaction within eight days. In addition, negative reviews published on social media sites, forums and blogs can be so harmful to online merchants that they will do anything to avoid them and to please the customers. Before focusing our attention on the analysis of the business model, a crucial question needs to be addressed:

For purposes of invoicing and paying VAT, it is important to clarify whether a coupon as an instrument allowing the bearer to receive a discount is in fact:

• an advance
• a type of (personalized) marketing or advertising service
• or a non-cash form of payment.

Retailers operating in Hungary are using all three options, but several of them have asked the Ministry of National Economy to clarify which approach is correct. At the same time, internet retail tends not to wait for country-specific tax law findings, and seeing the low barrier to market entry, several companies have started selling coupons for deep discounts, partially or completely copying Groupon’s business model.

The secret of success

For the business model to work, retailers need to be persuaded to offer significant reductions that can be posted on bonus/coupon websites in the form of limited-time deals. Groupon’s success can be attributed to the fact that retailers pay substantial commission to the company on top of the discount of 50% or more off their products and services. Groupon offers a 50% commission on coupon sales, which means that retailers have to give up at least 75% of the full price.

Coupon websites in Hungary started off with the same business policy, but there have been considerable differences in commission rates. The majority continues to charge 50% of the sales price as commission fee (just like Groupon), but owing to the intense competition many offer services at lower commission fees. Via Groupon Stores, which is not available in Hungary, it is up to the stores to decide if they pay the company a commission of 10, 30 or 50 percent. The higher the commission, the more consumers will have access to the deals.

At the same time, there are relatively few products and services where businesses have a markup high enough to cover the promotion on top of the discount and still make profit. Consequently, businesses apply one of two strategies when deciding if the promotion is worthwhile.

1. The fist strategy considers the discounted products or services as advertisement. Businesses mark down their prices so much that they do not make a profit or even lose money, but in return they receive substantial advertising exposure for the duration of the sale thanks to the widespread bonus/coupon website, which would cost them way more than the rate of the discount.
2. When implementing the second strategy, businesses offer the expected minimum discount of 50% but still make a profit on the products and services they offer. This strategy is worthwhile if, despite the significant discount, the revenue generated by the increased number of customers is comparable to selling smaller quantities at higher prices.

Both strategies can potentially lead to success if the services offered please the customers and make them either return in the future or buy additional products or services when using the coupon. Bonus/coupon websites lead customers to the “front door” of the store, and it is the quality of service the seller provides that determines whether customers lured by coupons will return for future shopping.

The bottom line: Advertising exposure

The Groupon model has another key element, which is not about money, but about the service provided to the business offering a deal. On the one hand, the bargain can be accompanied by a description, which, if written by professional journalists or bloggers, will increase sales. On the other hand, it is an important question whether the coupon website advertises a bargain under its own name or with the brand name of the seller, offering a business partnership. If sellers receive these services as well, it is a win-win situation for all participants (customers, sellers and agents), which guarantees the sustainability of the business model.

In contrast to a traditional webstore, deals on bonus/coupon websites are available only for a few days. Advertising the actual deal is not enough to maintain consumer interest in the long run; brand marketing and the support of customer communities also play a crucial role. PR involves a bi-directional communication via online channels, for which Facebook provides the easiest platform. Many users are eager to be part of the “life” of the website offering their favorite services; Customers communicate with each other, and they can be in active contact with the site operator, as well. This development basically creates a “fan” base around the website, in which members shop not just because they see irresistible bargains, but also because they are emotionally attached to the site and expect it to deliver the best (reliable) deals.

The market where everyone is market leader

GKIeNET and Corvinus University’s BCE E-business Research Center conducted comprehensive interviews with the majority of the Hungarian bonus/coupon websites over the period of February-May 2010. During the interviews several businesses claimed to be “market leaders” in the market of bonus/coupon sites. We have no desire to doubt anyone’s statements, but we do have the intention to develop the basics of an assessment system. To this end, we have to evaluate the marketing activity of the bonus/coupon websites based on the number of advertised deals, the extent of the savings, the number of sold coupons as well as the revenues. The number of ‘likes’ on Facebook, the number of registered users (the potential recipients of newsletters), and ad spending are just as important, because they enable merchants to reach a broader public. The next part of our series sheds light on the results of these assessments.

GKIeNET, BCE E-business Research Center

Click to the pictures for the original sizes

Group purchasing power

Despite the economic slowdown, online commerce has been growing  steadily, as sooner or later the increasing number of internet users tend to embrace the internet for their shopping needs, as well. After the crucial initial step most first-time users become regular online customers.

By creating buying communities, internet users represent significant purchasing power. Businesses that can unite them can potentially obtain substantial group savings off the regular prices of products and services. All they need for success is to secure offers that are tempting for customers, as well as a viable business model.

New sales model in the e-commerce market

Beginning in mid-2010, websites based on a new sales philosophy emerged next to the auctions, which had been the primary widely popular online shopping option. Websites offering deals through bonuses/coupons have been on the rise since the initial success of Groupon in the US, which was founded in 2008, and these sites are still in their early stages of growth.

The main attractions of online companies based on coupon bargains are the discounts of 50% and more, given that hot deals like these encourage impulse shopping.  Shoppers visit these sites because knowing the deals, they do not want to miss out on the irresistible bargains, and not because they need something, however, they are required to make instant decisions given the time limit of the offers. The rapidly rising number of sites promoting discount and bonus/coupon shopping have more and more attractive daily offers, and new online bonus/coupon firms are being launched almost every day.

figure 1. – launch dates of the various players in the domestic e-coupon market

However, the e-commerce sites offering bonuses/coupons also show evidence of the long-tail effect: a few sites make up 80-90% of the total turnover, while the growth curve of the rest gradually lags behind the market leaders. Occasionally businesses concentrate on specialized product groups, as seen in the development of various sites in other countries.

The ideas came from overseas

Websites offering daily deals started to evolve despite the initial failure of Mercata. Woot.com,  launched in 2004 and eventually acquired by Amazon in 2010, was the first to successfully implement this business model, which typically lends itself to clearing surplus inventory. Woot, however, was primarily focused at selling discount-priced products.

Groupon, founded in November 2008, has focused on the marketing of services rather than products, which they have been selling electronically in the form of group coupons (groupons). As of April 2011 Groupon is active in 300 markets of 35 different countries, with over 35 million registered users and an annual turnover of over half a billion euros. The company is expanding worldwide at a remarkable rate, and they acquire the largest local market players wherever they can. A few examples of their acquisitions: Following the purchase of Mob.ly, a mobile technology company, Groupon acquired the European MyCityDeal (May 2010), the South American ClanDescuento (June 2010), the Singaporean Beeconomic.com, the Japanese Qpod.jp, the Russian Darberry.ru (both in August 2010) and the Indian SoSasta.com (January 2011).

Building on Groupon’s success, many competitors entered the market. A more prominent one is the Washington-based LivingSocial, offering coupons in as many as 400 cities across the United States, Canada, the United Kingdom, Ireland and Australia in May 2011. In China the first Groupon-like deals site was called Tuangou, and thousands have followed suit since then. Other substantial international market players include BuyWithMe, Jasmere.com, Fab.com, Weforia, Groop Swoop, Groupalia, TownHog, TeamGrab.com, Baredeal.com, Agenzy.com,  DailyQ.com and eWinWin.

Some sites focus on certain segments from the beginning: the British Keynoir provides exclusive hand-picked lifestyle offers to its members, while in two large cities in Indonesia (Jakarta and Badung) promo-seekers can purchase restaurant coupons on Lapar.com. Given the increasing number of promotional offers, more and more smaller businesses will likely specialize in niche markets.

This is only  the beginning

Bonus/coupon web sites backed by companies with billion-dollar venture capital investments have started a new advertising trend, entering the market as new actors with new advertising solutions. At the same time there are relatively few products and services where retailers can afford to offer discounts of this magnitude.  Instead, the discounts are offered with marketing-type goals in mind, aiming to lure new customers. These, in turn, are hoped to become repeat buyers at the full price. Customers, on the other hand, see an opportunity to try a new product at a reduced price, and the bonuses/coupons may even become gifts.

Bonus/coupon sites have every opportunity to bring significant changes to the online retail market in 2011 in Hungary as well. The business model works just as well in this country, without major changes compared to solutions found to be successful overseas.

Bringing in new online customers

Even though the first Hungarian bonus/coupon websites launched less than a year ago, 1.5% of the 14-74-year-old  population had purchased products or services this way in April 2011.[1]

This development of online consumer sentiment is especially interesting considering that as recently as 2009, nearly half (47%) of Hungarian consumers had a negative attitude about coupons, which were still paper-based then, and marketing professionals were also cautious in using them. (GKIeNET survey, 2009, N=1000). This was mostly due to a mentality that perceives cheap or discounted goods as shameful. Complications surrounding coupon-based purchases and often hostile attitudes by retailers, as well as a mistrust of the online shopping environment have added to this. However, this negative attitude may be changing as a result of online sales, and the power of the community may create trust in consumers. April 2011 data identified large discounts as the main impetus in initially trying bonus/coupon purchases for 19% of consumers.

Positive reception by consumers has lifted bonus/coupon websites into the ranks of the fastest-growing online ventures. The next part in our series of articles will analyze the business model behind the success.

GKIeNET, BCE E-business Research Center

Click to the pictures for the original sizes

Content creation vs. content consumption

Based on their usage patterns, users can be classified as content generators or content consumers. It is easy to see that (among mobile devices) laptops and notebooks are more suitable for content generation than the currently available tablets, whose operating systems are rooted in mobile platforms. However, an American survey also reveals that the average user spends only about 25% of the day creating content, while the remaining 75% of the day is spent consuming content: browsing, watching videos and movies, reading e-books or playing. There are few more convenient solutions for these activities than the tablet.

Figure 1 – content creation vs. content consumption

Source: GKIeNET – T-Mobile

Internet users will always need high-performance devices, whether laptops or desktop PCs, in order to perform serious work, run graphic applications, write long and complex emails, manage their video folders or edit their family photo albums. Consequently, if content generation is the dominant everyday activity, then a laptop or a high-end netbook is clearly a better choice. People generally appreciate if a mobile device is small and light, but the tiny display and the virtual keyboard are not sufficiently helpful for productive activity. Of course many people compromise but the properties of these devices make them unsuitable for performing complex tasks on a sustained basis.

As soon as the part of the day arrives when content consumption takes precedence, tablets are practically unbeatable. Like smartphones they are highly portable, but they offer a much more convenient and flexible way of web surfing, watching videos, listening to music, playing games or even reading e-books. Learning to use tablets does not require hours of studying manuals thanks to the touchscreens, which allow any type of activity to be performed.

Netbook v. PC

A 2010 survey by Retrevo America, the largest network testing and distributing consumer electronics products, among its customers indicates that 780 of every 1,000 buyers decide for a tablet rather than a netbook. This year an estimated 50 million tablets will be sold worldwide, which matches netbook sales figures, but in 2012 the tablet market may exceed the volume of low-end 11-12 inch netbook sales.
Netbook manufacturers are increasingly positioning their products as low-end laptops, but sales data indicate that the “primary computer” role of home desktop PCs is fading away, but of course this is not exclusively due to the emergence of tablets. Consumer demand is guiding manufacturers towards mobile devices as more and more users want to access the desired content anywhere and anytime.

No revolution yet

It would be premature to talk about a tablet revolution in Hungary, but the increase in demand is palpable. Nearly 420 thousand portable computers were sold in 2010, almost 25% of which were ultra portable netbooks. Although both the appearance and the handling of tablets are much closer to the needs of the average user, these devices are popular only with early adopters in Hungary. The spread of tablets is helped by the fact that mobile service providers subsidize the devices if the subscriber selects a plan geared towards tablets, just like they do in the case of mobile phones.

While online purchases totaled 99 billion forints in 2009, they will likely exceed 135 billion forints this year (excluding tourism and insurance-related services), with the Christmas season being the most relevant period in e-commerce. Online stores in Hungary record almost one-quarter of their total annual sales between mid-November and December 20. The increase in online shopping indicates that Hungarian consumers also increasingly chose the convenience and price discounts that most  online stores provide. The fact that we usually find lower prices online than what we expect or what we are used to in traditional retail stores obviously encourages consumers to shop around on the internet. Consumers are also starting to take advantage of their smartphones to find the desired prices and web stores.
In line with the trends of the previous years, approximately 1.2-1.4 million Hungarian consumers purchased various products or services online in 2010. At the end of 2010, 15% of all mobile handsets in Hungary, some 1.5 million phones, can be considered smartphones. This percentage changes from month to month: During the Christmas season this year, every third new phone that was sold was in this category, just like in many other countries worldwide. It is not surprising that more and more people use their internet-capable handsets for mobile purchases, as well.

FIGURE 1. – WORLDWIDE SPREAD OF SMARTPHONES BASED ON NEW PHONE SALES

Barcodes aiding mobile purchases

In the fourth quarter somewhat more than 1% of all internet content was accessed via mobile phones in Hungary.  At the same time, in the 2010 Christmas season as much as 1.5% of all online traffic was made up by purchases initiated through mobile phones. This is mostly due to the spread of smart phones in Hungary (and worldwide) in 2010. Thanks to affordable mobile internet packages, more and more users are discovering the capabilities of their handsets, using them for browsing during daily downtimes, and even for product purchases more recently.

In addition to paying for highway usage, lottery purchases and parking, product purchases in online stores and through downloadable price comparison apps are increasingly prevalent. The latter have the additional major advantage of being able to read product barcodes using the handset’s built-in camera. This information is then used to look up similar products in a price comparison database, thus helping the user to find the most favorable price. As a further advantage, the opinions of other customers can also be recalled instantly next to the product descriptions, helping would-be customers make their decisions. These shopping applications have become available on several mobile platforms in the past year.

Thanks to these developments, a number of electronic and other products have started featuring so-called 2D barcodes in addition to traditional barcodes. The difference is that the 2D barcodes can store more information, such as the product manufacturer’s web address or an extended product description.

FIGURE 2 – AVERAGE SHARE OF PRODUCT PURCHASES BASED ON SCANNED BAR CODES WITHIN ONLINE SALES IN 45 COUNTRIES

Mobile product purchases are coming

The hands down leaders in mobile purchases are Japan and South Korea, but a similar change in consumer attitude has become perceptible in the United States as well. The American research firm Coremetrics, which focuses on online sales, has issued its latest report, covering the Christmas season. It says that some 5% of the $2.4 billion online purchases were made on mobile phones, while mobile browsing has a 5.8% share within all content access, and smartphone penetration is around 24%. These numbers reflect a nearly 50% overall growth in the country, compared to 2009.

Slowly but surely

The changes in consumer attitudes worldwide and in Hungary clearly point to the spread of online purchases, the prevalence of smartphones and the interconnectedness between the two.
In a favorable sign to those with an interest in online retail, the majority of Hungarian consumers are paying for services offered electronically with electronic payment methods, which foreshadows a gradual increase in the use of electronic payment methods for physical products as well.

]]> http://gkienet.hu/en/news/e-commerce-on-mobile-phones-heavy-traffic-also-from-smartphones-in-2010/feed/ 0 http://gkienet.hu/en/news/gkienet-%e2%80%93-t-mobile-smartphones-are-navigating-us/ http://gkienet.hu/en/news/gkienet-%e2%80%93-t-mobile-smartphones-are-navigating-us/#comments Wed, 24 Nov 2010 10:08:19 +0000 gkienet http://gkienet.hu/en/?p=643 The past three years brought a breakthrough in the world of navigation devices: PDA devices used solely for navigation are gradually being replaced by smartphones. In September 2010, 1.5 million navigation-enabled smartphones were used in Hungary, giving momentum to location services, reveals the Report on the Internet Economy published by GKIeNet – T-Mobile.

Ten years ago visionaries at Hewlett Packard created a short movie on how they imagined the future of navigation services. What seemed as a futuristic vision back then has actually become technologically feasible by now, with the imagined services gradually becoming reality around us.

Obviously, navigation devices were in the early stages in 2000. GPS modules attached to PDAs were the only alternatives to GPS devices suitable only for navigation purposes, and maps purchased beforehand had to be uploaded from a computer.  In addition to their price, a major drawback of these solutions was that users were not thrilled about traveling with yet another device in their pockets. As a result, they tended to use them only in the car, and almost ten more years passed until navigation and location-based services really gained a foothold.

Social navigation

Given that integration is stronger than ever, it does not come as a surprise that similarly to the dominance of PCs in the 80s, the Internet in the 90s and laptops and notebooks in the 2000s, this decade features the widespread use of smartphones. Traditional, largely offline PDAs gradually merged with mobile phones with no operating systems, creating the suddenly popular category of smartphones, in which location-based services soon became the standard.
Thanks to the built-in GPS receiver these devices became way more than navigation-enabled mobile phones. The applications we use are able to deliver localized information based on the knowledge of our location, for example they can display restaurants or cafes around us, or allow us to share our actual location with others at any time through a social network site. There are also social applications that allow us to log into a location, which lets us collect points that can be converted to discounts at an increasing number of restaurants, cafes or stores. And if we have a destination in mind, we can take advantage of one of the many point-to-point navigation applications.

Figure 1. Connection between navigation and social services

Everyday services

The best way to understand the opportunities offered by the new developments is to imagine how these new devices might help us cultivate our relationships in the future. If a man wants to surprise his girlfriend with a bouquet of flowers on their anniversary, he needs a bouquet, a place where he can buy it on the way home, and it helps to remember the date of the anniversary and the kind of flowers the girl likes. Some can do this without any technological help, but those who are a little forgetful or simply overworked can take advantage of a smartphone helping the process:

1. The phone can pop up a reminder that today is important – it is the anniversary;
2. On the way home it can indicate nearby florists that are still open;
3. Once at the flower shop we can get a reminder of what we bought last year and what flowers our girlfriend likes or dislikes, and so we can make sure we buy her favorite.

Of course, the flowers can be replaced with any gift or service, and the people in the story can be friends or business partners. Location-based services offer huge opportunities, providing several new and innovative small and medium-sized enterprises with opportunities to enter the market.

Smartphone instead of GPS

According to the experts of the ComScore market analysis firm, the number of people in the British, French, German, Spanish and Italian markets using their mobile handsets for navigation while driving instead of a separate GPS unit increased by 68% in 2009. The firm has found that in these five countries some 21.1 million people use mobile phones for navigation: this number is 700 thousand more than the total number of those who bought a GPS navigation device in 2008 or 2009. The forecast projects that the market will double in the next years, and, given the zero cost the other EU countries will quickly catch up. As a result, the European mobile navigation market may grow to 55-60 million customers by 2014.  Juniper Research, another research firm, is forecasting 1.5 billion worldwide users of location-based services by 2014.

Table 1. Mobile navigation users in the five largest economies of the EU (in millions)

Hungary among the developed mobile markets

Though at a slower pace, Hungary is following international trends. According to data by the National Media and Infocommunications Authority, there were 11,832,566 active SIM cards capable of accepting calls in the country in September 2010. This number is more-or-less constant, given that new SIM cards are not always purchased along with new handsets. According to a June 2010 research by GKIeNET, the adult (over 18) Hungarian population had more than 6.5 million mobile phones (83% of the total population had a mobile phone), of which 1.2 million units had a GPS receiver and were web-enabled. 2-2.5 million handsets are expected to be sold in 2010, 20% of which are smartphones with some kind of navigation software. This puts Hungary among the developed mobile markets based on the number of users as a percentage of total population, given that the share of smartphones in the total mobile market will be around 15% at the end of 2010.

A growing number of Hungarian online stores are redesigning their image in order to appeal to female shoppers, and current trends indicate that women will make up one-half of all Hungarian online customers by 2012. The number of online shoppers in Hungary totaled nearly 1.1 million over the past year, and the majority of internet users are also browsing the world wide web to do product research prior to shopping, reveals the Report on the Internet Economy published by GKIeNET–T-Mobile.

Changing times

In the early days of internet shopping in the late 90s, those few online store owners who anticipated a rapid boom in online shopping in Hungary within a few years typically sold products and services geared towards men. Consequently, the category systems of early online stores reflected male logic: thematic structure, hierarchic appearance, with images aimed at describing products matter-of-factly rather than evoking emotions.  Impulse shopping was out of the question under these circumstances; therefore, advertisements were not dominant except in some occasional banners.
The world of online shopping has seen tremendous changes, and Hungary is no exception. At the end of the first quarter of 2010, 3.6 million people aged between 14 and 74 (42% of the entire population) used the internet for a minimum of one hour per month, and nearly 1.1 million consumers made a purchase via the internet during the twelve months preceding this period.

Figure 1. Number of internet users and online shoppers in Hungary (Q1 2010)

Source: GKIeNET – T-Mobile

Female online shoppers

Shopping, or the acquisition of everyday consumer goods in the household segment, is generally associated with women. Yet, the first items to be sold in online stores were mostly durable consumer goods for the most part, owing to their higher per-item value as well as the dominance of male online shoppers. The percentage of male online shoppers has always been higher in Hungary, even though their proportion within the entire population is lower, given that women’s life expectancy at birth is almost 8 years higher than men’s.

Figure 2. Online shoppers as a percentage of the Hungarian population, by gender (aged 14 to 74)

Source: GKIeNET – T-Mobile

The online sales of food and household chemical products, clothing, as well as toys increasingly involve women in internet shopping. As a result, women are expected to make up 50% of all internet shoppers by 2012, breaking the trend of male dominance.

Figure 3. Internet shoppers by gender (14 to 74 years)

Source: GKIeNET – T-Mobile

Trust is the key

The appearance of online stores is changing in line with this trend: simplified category systems are increasingly being replaced by attractive product displays accompanied by images in warm-toned colors and price labels accentuating the percentage discount rather than the actual price, catering to the preferences of women shoppers. The focus on female shoppers creates a striking change in both the appearance and the offerings of online stores.
The majority of Hungarian internet users go online to gather information prior to shopping. The past few years have shown, though, that the percentage of those who made online purchases in the past year changes in line with the rate of internet banking customers, clearly reflecting consumers’ trust in electronic transactions.

Figure 4. Online activities of consumers (14 to 74 years)

Source: GKIeNET – T-Mobile

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