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.