The recent layoff exercise by e-commerce giant, Konga has continued to elicit different reactions from Nigerians. Konga reportedly laid off over 60% of its workforce, in what seems to be a move to drastically reduce operational costs. Industry observers are however not surprised by this decision; they argued that the business model adopted by online shopping platforms in the country was faulty, unsustainable, and that like a tickling time-bomb, it would explode. Also, the balance sheet figures from of these outfits have been unimpressive. The difficulties experienced in the market have affected Konga.
Though it has invested about $100 million, the company, according to its major investor, is worth less than $50 million. Challenges in the operating environment have depressed the valuation.
This articles seeks to examine the loopholes in the business model of e-commerce platforms operating in Nigeria. Solutions for achieving a thriving business model would also be proffered.
Major Issues in the Business Model
The pay-on-delivery mode of payment is a major setback to the business plan. Most customers take advantage of this to cancel orders after the firm has already incurred costs by transporting the products to the customers’ destinations.
“The delivery man leaves the WAREHOUSE and arrives at the customer’s address after an order has been placed and confirmed only for the customer to cancel such orders. Who bears the cost already incurred on logistics? It is widely believed that some customers feel protected by the option to pay cash on delivery for fear that the goods may not be what they want or that they may be defective. They also feel that if they have parted with money up-front (prepaid) the merchants are not professional enough to refund their cash while the merchants continue to suffer significant operational losses due to customers who end up rejecting the goods upon delivery,”an industry expert said.
People usually look out for loopholes in a system to take advantage of such imperfections. Many customers do not trust the system enough to protect them from fraud. The issue of card security for online payments is a big concern as most customers are afraid to give out their card details online. Customers’ accounts have been compromised after using their cards to carry out transactions through some online platforms.
There have been reported cases of compromise in the delivery chain of goods to customers. Sometimes, a delivery man encourages customers to cancel their orders with assurances that he can provide such products at cheaper prices for them. A situation where the delivery man has unhindered access to the merchants who supply those products to the firm gives room for sharp practices. The delivery man can easily connive with merchants and sell products directly to customers thereby diverting business from the firm’s platform.
Also there are reports of poor customer service from the online platforms. Sometimes, the products delivered are of low standard compared to the ones advertised on their website. The features highlighted on their sites are not the same as the products delivered. When customers try to complain, the customer support platforms are either slow or not available to respond and refunds are usually difficult to get. There are even cases of customer care agents discreetly asking for ‘roger’ in order to act fast on complaints. This unprofessional attitude has raised many questions of accountability and resulted in the loss of customers’ confidence in most online platforms. Customers will not return to a platform when getting value for their money is not guaranteed.
E-commerce platforms in the country need to re-strategize – take a step backward to take a giant step forward. The recent “house cleaning” by Konga might be painful due to loss of jobs by employees but it should be used as a period to self-reflect and come up with a better business model that will be viable in an environment like ours.
It is however heartwarming that Konga has announced that it will become a prepaid only platform in order to better satisfy their large customer base. This means Konga customers would now have to pay ahead of delivery.The cancelation of pay-on-delivery payment system is a welcome development; this will restore sanity to the business. It will also help the firm to stop incurring some bad debts which occur most times when customers cancel orders at points of delivery.
To put an end to sharp practices between deliverymen and merchants, the e-commerce platform should adopt a better internal control strategy which makes it difficult for both parties to collude. The platform should move from a commission-based marketplace to a subscription-based marketplace. The advantage is that merchants will pay for listing even if their items are not sold. This provides a consistent stream of revenue to the firm. The firms should also ensure a better welfare package for its workforce and adequate compensations. This should aid in curbing sabotage from disgruntled staff.
The poor customer service on these platforms is also worrisome. The need for an efficient, well-trained customer service cannot be over-emphasized. E-commerce platforms need to invest more in training its workforce.
Firms are created to offer value to customers and such value creation comes with effective pricing. Most online platforms offer discounts on their websites to attract customers and possibly increase sales but most times, customers are offered products of poor quality. It would be better to offer products of good quality which would improve customers’ trust even if the prices are higher. Now that Konga has decided to scrap the pay-on-delivery option, customers need to trust that the products being ordered would be exactly as promised when delivered if they are expected to part with cash before seeing the actual goods.
Some industry experts are of the opinion that our society is just not ready for the realities of e-commerce, and that the cost involved in the management of warehousing, deliveries, orders, etc., erode whatever marginal profits such companies will make. Perhaps the challenge is with the business model itself. There is however the bullish opinion that there are huge potentials in e-commerce business in Nigeria and with a carefully-drafted business plan, firms in the industry can overcome all current challenges facing the survival of the industry in our ecosystem.
What Enterprises must do to build a resilient brand in Nigeria
SMEs and businesses that want to survive must think beyond growth to remain in business and the only way to that is to build a resilient business.
Olatunde Olajide is an Associate Partner at Verraki Africa, a tech firm that provides business solutions to drive inclusive high-quality growth for the nation’s Small and Medium Enterprises, big firms, and governments.
In this interview with Nairametrics, Olajide urges SMEs and other enterprises to improve their technology resilience and build resilient organisations. Excerpts:
What is the biggest technology gap you have seen in the response of businesses to the pandemic?
I will like to answer this question from the perspective of how some industries have reacted. I think it was clear that several industries were more ahead of the curve than others in terms of digital readiness. For example, we know that the banking sector already put in play digital offerings on digital channels, ahead of the pandemic, and so it was easy for them to easily upgrade some of the services and just maintain that during the pandemic.
We also know that the telecommunications industry was also digitally ahead, with digital channels and offerings.
What sectors were taken unawares?
Unfortunately, it wasn’t the same experience for other industries, e.g education. There was a World Bank survey last year that tried to understand the impact of the pandemic on education, and the results revealed that only one-third of the sample survey of primary and secondary school students were able to engage in any form of virtual education during the lockdown.
The ability to participate in a virtual class was dependent on several factors. First, is the hurdle of cost, which may be less of an issue for pupils in private schools, but a significant challenge for the bulk of students who are in public schools. During the lockdown, the government eventually came up with several initiatives, e.g., for students to listen to the radio and television. But at the beginning, it was not too easy and it took some weeks of catching up for that sector to even make any headway regarding their readiness.
The health sector also experienced some delays. During the lockdown, it was almost impossible to have consultations done, till after they were able to use the channels that we typically use for communication to start consultations.
Can these gaps be bridged?
These gaps are still very much with us but to a large extent, we can say that they are gradually being bridged.
What other technological challenges have your observed?
Security is a clear area of challenge. Working from home entails that employees sign in and work from different locations with the resultant challenges of unsecured Wi-Fi and likely security breaches.
How would you describe the last decade in terms of the Tech space?
Over the last decade, the world has seen several disasters. We saw the tsunami that happened in Japan about 10 years ago and the level of destruction on live television. We also saw how Ebola ravaged Africa between 2014 and 2016 and disrupted education at the time, for about three months. We also had Occupy Nigeria in 2012, the #EndSars protests in 2020, and the biggest pandemic we have experienced, COVID-19.
So, we have had a decade of disruptions, disasters, and unplanned incidents and I think it is obvious that the world will continue to see these disruptions in several ways. No one thought of COVID-19 and the incredible extent to which it would disrupt life as we knew it.
One of the focus of your firm is resilience. Why is the message of resilience pertinent at this point?
SMEs and businesses that want to survive must think beyond growth to remain in business, and the only way to that is to build a resilient business. Let me quickly illustrate with the analogy of a camel. A camel is an animal typically found in the desert, but it has evolved as an animal that survives in extremely hot and cold weather, interestingly. And that’s how businesses need to be built and modelled for the long run.
Are you saying enterprises should not aim at becoming unicorns in a short time?
While it is good to grow very quickly, and become a unicorn in a short time, it is increasingly more important – given the trends we are seeing – to build a resilient business.
More organizations must think, “How am I going to survive whatever is going to come next? What is coming after COVID-19 and how do I survive it? How would I maintain my business? How do I diversify my focus and make sure that my products are accessible across different geographies?
How do I build a diversified strong team where I can attract and get the best talents regardless of wherever they are, to do the work we need them to do? How do I embed the message of resilience into the business model?”
These are questions every business and entrepreneur must begin to ask and answer. That’s why this message is very important; organizations need to start thinking along these lines to embed resilience into every fabric of the organization to be able to survive existential threats.
So, going further, resilience then means sustainability, safety, adaptation, flexibility, and long-term thinking. Several enterprises and governments are beginning to prepare resiliently, e.g., the Lagos State Government has a Resilience Office.
How is technology resilience different from disaster recovery?
Disaster recovery is essentially what it is. There is a disaster, so how do I recover from it? Resilience is different in the sense that you think through the systems to withstand the disaster and continue your business and operations without shutting down.
Resilience is the ability of the systems you have put in place to withstand operational stress, cyber attacks, and any kind of change that may come in. As Niyi Yusuf mentioned recently, the level of technology resilience of an organization is more or less equivalent to the resilience of the business. And this more so in this period where businesses are pivoting to digital.
The unrelenting nature of cyber attacks is also important. Statistics show that every day, hackers are devising new ways to infiltrate security systems. Cyber attacks come in different shapes, forms, sizes, etc.
As you are investing in technology to improve the security of your environment, hackers are also investing in developing different ways to penetrate the security of your enterprise.
Business leaders must think of building technology infrastructure that is resilient, flexible, easily adaptable, and can enable the business to make changes as quickly as possible.
Another reason is because of digitalization. When the 2008 financial crisis came, there were significant regulatory changes and now we have seen regulatory changes as well with the likes of fintech and all that. With increasing digitization, a lot of organizations are leveraging fintech, fintech products, building their digital products, and all that.
Customers’ expectations are also dynamic. Today, most people have smartphones and can do transactions with them. Organizations should be able to provide services regardless of the device their customers use.
What should MSMEs/ corporates/ do to build technology resilience?
To build technology resilience, the first thing is to evolve your business model to become flexible and resilient. I think SMEs have that advantage of learning over businesses that may be struggling to adapt.
But they are several angles from which we can look at this. First thing is that resilience begins with the people, so you need to make sure you get the right people and build the right capability in the team to be able to manage the resilient infrastructure that you are going to put in place.
When we talk about capability, we are talking about skills, know-how, incremental hiring, contracting, etc. Every organization also deals with vendors and these vendors contribute to your delivery of services, both internally and externally.
So, corporate and SMEs should focus on vendor management. Also, it is important to think about the culture of resilience and making resilience a part of the DNA by integrating it into the people in the organizations, the systems, the processes, the goals, objectives; essentially working resilience into everything about the business.
Organizations should also improve their processes. At the beginning of the pandemic, some organisations had digital solutions. Unfortunately, the solutions were designed in such a way that, you couldn’t use them outside the office.
They had to re-architect the solutions to enable their workers to use the infrastructure outside the office, which took some time. Corporates and MSMEs need to have flexibility in mind when designing their processes to be able to ensure that these changes do not impact their businesses.
How does Verraki support its clients on their digital resilience journey?
As advisors, we have to be ahead of the curve in terms of technology capabilities. At the beginning of the pandemic, two of our clients approached us to help them on their digital resilience journey. One was upgrading a digital product and needed help on quality assurance to ensure that the project was delivered. We also had another client that realized the need to digitize during the pandemic and started that process.
We supported the client with conducting quality assurance by conducting reviews of their DevOps application development and delivery processes on Azure Cloud, as well as Azure Stack infrastructure setup, and provided recommendations on the whole end-to-end Azure application development process.
We also provide thought leadership and practical experience/scenarios that resonate with our clients. Because of these, they see us as a trusted partner for solutions designed to improve business and digital resilience.
FG to support MSME contribution to economy to boost development – Minister
The Minister said that the FG has schemes aimed at improving the post-pandemic climate for SMEs in Nigeria.
The Federal Government declared that it is working with stakeholders to improve MSME participation in the economy through improving the business climate which will create jobs.
This was disclosed by Amb. Mariam Katagum, Minister of State for Industry, Trade and Investment, at the 7th EMPRETEC Global Summit, on Tuesday, themed “The Role of Entrepreneurship, MSME and EMPRETEC in post-COVID-19 Resurgence.”
The Minister stated that the MSME sector of the economy is the growth engine of any economy which contributes to its development, job creation and export, amongst others.
“An MSMEs survey indicates that Nigeria’s SMEs contribute nearly 50 percent of the country’s GDP and account for over 80 percent of employment. No doubt, the sector is pivotal to Nigeria’s growth, including reducing poverty and unemployment levels.
It has, therefore, become more apparent that supporting entrepreneurs and small businesses by creating opportunities for MSMEs to thrive is essential for increasing productivity, creating jobs, and boosting our economy.
This is why the Government is working with stakeholders across all sectors, to create the enabling environment for entrepreneurs and MSMEs to ensure that they grow now and into the future,” she stated.
On economic sustainability
The Minister said that the FG has schemes aimed at improving the post-pandemic climate for SMEs in Nigeria. She also disclosed that the FG launched the National Policy on Micro, Small and Medium Enterprises (MSMEs), a framework for the resolution of the challenges faced by the sector.
The programmes launched by the FG includes the Survival Fund and Guaranteed Off-take Schemes, operated by a Steering Committee in the Ministry of Industry, Trade and Investment.
“The Government of Nigeria had, prior to the outbreak of COVID-19, initiated the MSMEs Clinics scheme as a strategy, aimed at providing support for the MSMEs in the country.
At the clinics, operators in the MSMEs space are engaged by regulators and business advisory experts, on issues ranging from entrepreneurship, skill development, finance, quality & standards, and on how to facilitate and grow their businesses and enterprises,” she added.
What you should know
Nigeria’s unemployment rate as of the end of 2020 rose to 33.3% from 27.1% recorded as of Q2 2020, indicating that about 23,187,389 (23.2 million) Nigerians remain unemployed.
A combination of both the unemployment and underemployment rate for the reference period gave a figure of 56.1%. This means that 33.3% of the labour force in Nigeria or 23,187,389 persons either did nothing or worked for less than 20 hours a week, making them unemployed by our definition in Nigeria.
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