Zalora has rapidly grown to become one of the largest ecommerce retailers (etailers) in Asia, and now the brand's busy disrupting traditional retailers with physical, real life, pop-up stores! I caught up with Tito Costa (MD Zalora APAC) to learn more how he got Zalora to the top, and what tips he has for ecommerce startups.
Q: Zalora has recently started operating real world physical stores, which is a very unique step for an online retailer / ecommerce business. Where did the idea for the pop-up store come from? Why are you setting up pop-up stores?
There have been two big enablers that are really driving ecommerce growth, the penetration of the internet & the massive penetration of smart phones.
Unlike other markets, consumers in Asia have just started getting into ecommerce. So we need to find ways to make people more comfortable with ordering online. The popup store is an initiative to educate customers and to take them from browsing to buying.
The big idea was to bring people who have never bought anything online, who are not comfortable with the idea of ordering something online, and to bridge that trust gap or information gap. It allows them to try things on, to really touch, feel and smell the products. When they're comfortable, we help them create an account and buy it online from within the pop-up store.
"Pop-up stores bridge the trust gap and help convert traditional retail clients to ecommerce clients"
We weren't sure if a pop-up store would be enough to bring a customer from browsing to purchase, but we discovered that the answer was "Yes! Yes it is". Just the process of buying gives the customer a sense of instant gratification. Even though they're leaving without a bag, it doesn't seem to impact the shopping the experience.
Q: The pop-up stores are the very definition of Show Rooming. It's a huge disruption of classic retail. How do you feel this will impact the offline retail industry?
These are still early days, we've run a few pop-up store experiments, but they're still just experiments. We've got some great data, and learnt a huge amount. The pop-up stores are a very small part of our overall business. We are still an ecommerce retailer.
Q: How have the pop-up stores performed & what have you learnt?
We had two big learnings from the pop-up stores:
- Pop-up stores help to drive customer acquisition
The first big learning was that pop-up stores actually do help us acquire new customers. From a customer acquisition point of view, 60-80% of people that bought were first time customers, they browsed in store, then created accounts and purchased online before they left. Which was great, because our initial hypothesis was confirmed.
- Loyal customers use pop-up stores too
The second big learning was one we didn't expect. Loyal customers came to the store to interact with our brand in a completely new way. That made us think that the pop-up store has a retention benefit. It's a way to engage with existing customers on a much deeper level.
The question is, how big can it scale? We can reach 99% of our current markets using centralized fulfillment and distribution, but we can't do the same with pop-up stores. The pop-ups stores help us in metropolitan areas, to better establish our brand position, acquire new customers, or run a specific campaign.
Q: How do you measure the impact of the pop-up stores? What metrics are you using?
We used a few simple measures:
- Orders placed in the store
- Foot traffic in the store
It's much more difficult to measure things offline than it is online. There's no plug and play analytics tools, and there are a lot more estimations. It's a very different environment for an ecommerce provider, for example offline the conversion rates were surprisingly high! We are used to seeing anywhere between 1% and 3% online, whereas most offline retailers get over 40%
Our third metric is more complex:
- Customer re-activation
We were trying to re-activate the customers we acquired in pop-up stores, so that they behave similarly to our online customer base.
Our working assumption was that if the first purchase was made in a safe environment, it would be much easier to sell to the same customer the second time using purely digital methods. Which turned out to be true. Our regular digital campaigns work in exactly the same way for customers acquired through the pop-up stores. This meant that we can focus on developing a better lifetime customer value, not just a single purchase value. A successful business shouldn't be based on one time transactions.
"We focus on developing a better lifetime customer value, not just a single purchase value. A successful business shouldn't be based on one time transactions."
Q: When you look at the online stores, they're very different from ecommerce. The marketing methods are vastly different. How did that affect your marketing? How did you go and promote this?
We used two methods of promotion:
- Leveraging our existing following
When we launched our first store, we already had a large base of followers & newsletter subscribers. So we promoted it using our existing customer base. We reached out and got a great response. Our existing base of subscribers was invaluable.
- Traditional PR
The traditional PR angle was very successful, we got a lot of coverage and a lot of excitement. It was the first play of an ecommerce provider going offline in south east Asia, so everyone was interested in covering the event. The concept was so novel that we were something of an attraction!
- Above the line advertising (Hong Kong only)
We didn't have any above the line marketing, except in Hong Kong. Where we had an existing out of home campaign running so we mentioned the pop-up-store. Although it didn't say "Click here for..." it was quite successful, and had a really good, effective call to action.
Q: Web rooming (checking prices and then going in to a retail store to buy) is a big issue for some ecommerce sites. Now that you've got the physical store are you worried about web rooming?
We know that this happening. If you ask a traditional retailers, they'll say people showroom. I think there's a flow both ways. Where ever you sell, getting people to buy is about making the customer experience good enough.
Q: Can you tell me about your social media campaigns? What's working for you?
Since the beginning we've been quite active on social media. We were originally focused Facebook paid and organic, and subsequently chat apps in the region. If you look at Social media penetration in South East Asia it's over 100%. When we ask, more people say they use Facebook than say they use the internet. Social media is where they're spending most of their time. If I compare Asia to the US & Europe, the share of social media advertising is much higher in Asia.
It seems that discovery is a lot more common on social media. If you live in Asia you're more likely to hop on a chat app and ask friends rather than search - which is the opposite of Europe. So we've followed suit.
What has worked well? It keeps changing, in 2013 there was a moment where organic Facebook traffic was very large, and then it became noisy and competitive - creating a lot of pressure to move towards more paid Facebook advertising.
So from a mobile perspective we're looking at approximately 70-80% of users visiting us on mobile. It's not just Facebook - across all platforms mobile is playing a huge role. Over the last 18 months we've seen a big shift happening. The time spent on mobile is considerably more. With an increasing amount of time on chat apps (e.g. Line & WeChat) and social media, and not as much on search. That's where the eyeballs and attention are.
The conversion rate is lower on mobile, but that's a skewed metric. If you look at per visit, people come more often - because their mobile is readily available. If you look at mobile app users they come back much more often.
So per user the contribution is higher, but per visit contribution is lower.
Q: When we look at the customer journey and the channels, are there many customer touchpoints before purchase?
We've been diversifying our sources of traffic and perhaps as a result of that effort, there are many touch points before conversion. The lower funnel channels, mobile ads & email are very good at converting, but social media is great as an upper funnel contributor.
Things are always evolving, Facebook is evolving, as a marketer you have to be able to move the customer along the funnel. You need to leverage targeting & re-engagement products to increase conversions.
Q: So what channels would you recommend for a young company to spend their advertising dollars on?
For us social media has been great for discovery. As a young company this is very compelling, this is where you can acquire and expand our customer base. Over time shift your attention toward retention & loyalty.
The issue is always that channels evolve, meaning the effectiveness of a channel changes very quickly. For instance daily-deal/coupon sites, when it was new it was very effective & very high conversion rates. There was little competition and it was great, then it became noisy, there was fatigue and conversion rates dropped. We see this happening over and over again with channels.
As a new company you want to advertise on Facebook and get new customers. This is more competitive, but the fastest way to hit the ground.
You always want to be in the least noisy channel, they're the most effective. The problem is that it takes effort, it takes patience and you need to spend money looking for those channels. It's not obvious and takes time to find them. It's like oil exploration - you need to try and find oil, a pocket of good customers that can be acquired profitably. Everything gets more competitive over time, so you'll need to keep exploring.
Q: In terms of social sales, is there a substantial difference between customers that arrive socially and those arriving from any other channel? Time to purchase or any other factor?
For customers that reach us socially, the time to purchase is longer and the value of the customer tends to be lower. Which is to be expected, because the social media customer is younger and has less spending power, resulting in smaller basket sizes. The big trade-off is that the volume of consumers is much larger.
Q: What do you feel is the most effective campaign you've run? Something that you might look at internally as a showpiece?
There is no silver bullet. What we have observed is that the more product focused and the more personalized a campaign is, the more effective it is. Especially in competitive platforms, the only way to get profitable customers is to know more about the customer. Otherwise you'll be out competed.
Put whatever proprietary knowledge you have of your customer to good use so that your marketing becomes more effective. This is powerful and has a lot of potential in retargeting campaigns. Our retargeting campaigns have been surprisingly effective. It'll probably be great for 9 months before this becomes crowded and becomes less effective.