The online market is gaining momentum like no other industry. Avoid clichés
Online Retail and the UAE
The online market refers to a business using an online store to sell products and services to its customers. There was a time when online transactions and engagements were considered with the highest levels of skepticism. Reliability and quality of products and services available online were always a big question mark (The National, 2009). Today almost all successful companies are using this as a channel for marketing and sale of their products and services. Brownbag.ae which is considered one of the first online retailers in the UAE claims that in 2009 the number of visitors to the site has risen by 25% between the first and the third quarter and therefore they plan to come up with more storage so that deliveries reach customers within the stipulated time and at the earliest. Also, despite the economic downturn the orders and traffic on sites like QuickDubai. Com had risen by 20 percent in 2009 compared to 2008((The National, 2009). The demand for online shopping is on the rise with new players entering the markets and existing ones trying to expand their reach. Research has shown (Mckinsey Quarterly) that those retailers that have physical stores captured a larger chunk of the internet market compared to those who did not have physical stores. This proves that cultural sensitivities around online retailing still exist; however, the window of opportunity is getting wider for online retailers.
United Arab Emirates is a federation of the seven Emirates and was formed in 1971 and have successfully managed to work closely and build a stable political and economic climate. The political environment of the UAE though a bit immature does not impede business and growth opportunities for the emirates. (Dubai the shopping destination, 2009). The ruler of Abu Dhabi claims the presidency since Abu Dhabi is the largest oil producer, followed by Dubai whose ruler is the vice – president. There is a federal framework within which Dubai shares with other emirates the political, military and economic functions (Dubai the shopping destination, 2009). However, some functions like civic law enforcement and provision and upkeep of local facilities fall within the jurisdiction of the respective emirates.
United Arab Emirates are Islamic, however, you will find that the country has a multi cultural nature and people of various nationalities come there to work. The UAE are very much keeping pace with the best and are technologically very advanced and knowledgeable. The IT industry in the UAE is cashing on in the fields of tourism, hospitality and the IT sector as a whole (Ukessays).
UAE & Business
With the import restrictions being minimal and no protective duties, the UAE has the most open policies for trade when it comes to the Gulf Cooperation Council .Dubai for example, by the virtue of its membership with the WTO, it ensures that exports are smoother and they have access to all new markets. With a clear and robust business framework within which to operate there is little ambiguity on the business norms and all policies are pro business (Dubai the shopping destination, 2009).
Wealth in the UAE largely comes from oil and gas exports though recently there has been a rise in real estate and share prices. It has a free trade zone that works for individuals and organizations who want to set up start ups. Since the emirates are very pro business, newer sources of revenue are being tapped. For example, the emirate of Dubai is also focusing on tourism and international finance (PR-inside). The economy is also very open to foreign direct investment (Ukessays).
The forward looking and open business environment is very conducive to new business ventures and the online retail business is not going to miss any opportunity that comes its way in this highly enterprising society. Since wealth is ever growing in the UAE finding a clientele would not be a problem. The only challenge would be to identify and form a network of trust worthy individuals who can ensure that right business opportunities can be seized at the right time. This situation can be challenging for immigrants who do not belong here as they may find it harder to acquire a bid compared to their local competitors.
At the same time the UAE is actively interested and involved in moving away from its dependence on mostly oil revenues (startup Nation). The markets in the UAE offer very attractive trading space for new ventures; however, this can work against the new ventures due to competition. In a business scenario where you potential for investment and returns are so high, you cannot negate the competition in any industry, online retail being no different (startup Nation).
The online market in the UAE is growing rapidly (MasterCard). It was found that 42% of shoppers in the UAE used the internet for shopping in 2011. This figure is far more than the 33% on the year 2010. The categories where you online purchasing has seen a considerable increase has been booking tickets online, followed by downloading music and using some coupon sites (MasterCard). According to a research by Euromonitor, customers in the Middle East are spending around $1.1Billion through the internet and by 2016 it is expected to double up to $2.2Billion( BBC, 2012).
An important finding (MasterCard) has been that most of the products that people avail through online shopping are high end products and services. Since the UAE is considered the hub for shopping it is almost naturally adopting to the newer, efficient and convenient means of shopping that is online (MasterCard).
Considering that the majority of the products and services sold online are luxury products we need to delve into why it is so. One reason for this could be that mostly those who are very affluent use this as a means of shopping and do not have the fear of being cheated online. This could do partly with their levels of awareness of a certain brand its availability online but for population that is not into online shopping there is still a fair amount of uncertainty and skepticism as to whether or not to buy online. Studies have revealed that most people read online reviews about the site and the product before purchasing anything online. Mostly the websites used are repeated over and over again and people don’t venture into newer websites offering same or better options easily (MasterCard).
Shopping online is not restricted to the internet alone. It also includes shopping on the phone and that is a trend which is soon catching up. Consumers have been found to invest in the purchase of applications, cinema and airline through the mobiles and this trend is only likely to increase in the coming years (MasterCard Survey). Products available online also allow you to analyze the properties of the product including how eco friendly it is. This further leads to more and more people engaging in research and eventually purchase of products online.
To understand the position of the online retail business we need to refer to the theoretical basis of marketing and entering into new market strategies and theories that are available. One way to understand the online retail market and its position is to analyze it under the following factors through Porters 5 forces model. There are factors that impact markets and the position of the products. As per porter these are:
- The threat of new entrants: mostly related with barriers to entry in the market with regard to economies of scale, capital investment required, customers switching cost, access to industry distribution channels and likelihood of retaliation from existing players.
- The threat of substitutes : refers to price levels getting limited due to the presence of substitutes thereby lowering attractiveness and profitability
- The bargaining power of buyers: the higher the cost of the item bought from the suppliers the less attractive the industry is. This happens when there are many buyers and few suppliers and the suppliers integrate and the industry is not key to customer for the suppliers.
- The bargaining power of suppliers: this also falls back primarily on the supply demand equations
- The degree of rivalry between existing competitors
For example, if a customer wants to buy an air ticket online, he would typically go on the sites that sell tickets from various airlines and see which fare suits them the best. In the above scenario, the likelihood of getting a cheaper ticket was higher when travelling by air was a luxury. But with an increase in the airlines, the price of the tickets is becoming more and more competitive. This can be attributed to the fact that in today’s aviation industry there are many airlines plying to and fro and therefore the bargaining power works in the favor of the customers. Talking about competition, the geography being covered, the demographics of population being targeted and the purpose of flying all will determine an airlines place and success in the industry. An airline that is covering more ground has corporate accounts with organizations and comes up with offers to lure the middle class or the senior citizens will be a threat to any other airline that falls short on any of these factors.
The Middle East is not a very hot spot in the world of online retail but it is soon getting more takers for it (BBC). According to a study by the BBC locals in Saudi Arabia and UAE are getting more comfortable using credit cards and thereby purchasing online. Online sales in markets like Egypt and Iran have also surged due to social networking sites becoming more and more common (BBC). Market players in the online retail industry are taking that extra step to beat all competition. For example, sales are not restricted to physical goods like books or clothes but online retailers are also offering coupons for restaurants and spa’s and delivering them at doorsteps (BBC).
There can be no better way to understand an organization better than breaking it down to identify and comprehend what are the basic systems that it comprises of. The process of understanding an organization in its totality with a close analysis of its sub systems can give a very in depth understanding. It is extremely important to understand the input, transformation process and output in order to understand any organization in an industry and the online retail can also best be understood like this. Though all organizations have numerous activities that they conduct in the transformation phase but they can be broadly classified as under Porter Value Chain, 1985. As per porter a business can be broken down into two basic parts- the primary activities involved and the secondary activities involved. The Factors are briefly described below:
- Inbound Logistics: refers to all activities required to receive , store and disseminate inputs with regard to the suppliers
- Operations: all operations that are required to transform inputs into products and services
- Outbound logistics: refers to all activities pertaining to collecting, storing and distributing the output
- Marketing and Sales: all activities that require to inform the buyers in an attractive manner so as to be able to induce the buyer to purchase the product or service and facilitate the process of purchasing
- Service: refers to ensuring that the product or service that has been sold continues to work as effectively and conduct all necessary activities for customer satisfaction even after the product or service has been sold
- Procurement : the process of acquiring the required inputs and resources for the firm
- Human Resource Management : the processed and activities involved around recruiting, hiring , training, developing , compensating and dismissing a personnel from the organization
- Technological Development: all the hardware , software and other equipment required including the technical know-how and procedures of the organization would fall under this
- Infrastructure: everything else that needs to be structured and complied with like the legal matters, the finance and accounting practices that are followed, public affairs , quality assurance and general management will all fall under the purview of infrastructure
If you apply the above to the online retail business it will greatly enhance our understanding of the market and opportunities for it and its future in the UAE. For the online retail business the factor that works most in its favor is that capital investment is minimal, you do not need office space for it, though as is shown in research above online retailers with physical stores that customers can access are considered more reliable and used more than those that do not. The crucial factors that play a huge role in attracting the right customers to the online shop is the way it is designed , the quality of products that it offers and an effective marketing strategy that is successful in wooing the right audience (Startup Nation). An online retail shop the biggest investment is intellectual. You need to read the psyche of your potential customers well and design a website in accordance with that. The way your website looks will be the face of your store and the quality of products offered or testimonials will be the main tool that can be used in marketing the site, especially if it is a new venture and there are no physical stores. One needs to be tech savvy to tackle this aspect as delicately as needed or else hire a specialist or a web designer. The mindset of the consumers towards online shopping will determine the growth of the online retail business.
Technically, for online retail you need to choose and operating system that enables customers to purchase goods and services and for the store to track all online transactions. A virtual shopping cart will also be a key part of the infrastructure and technology required for online retail. A shopping cart is like a basket of products or services from which the consumers can choose (Network Solutions). As far as the product is concerned it has been found that niche products that are no easily available in the markets do better as online commodity. Once you have decided on the type of product, you need a system that enables you to accept payments online (Network Solutions). And finally, you need some creative marketing that targets the right audience and enables to divert online traffic to the site.
That online retail is going to be a sizable part of the retail business as time goes by is very evident. However, few factors can contribute towards its growth and accelerate the rate at which retail space is occupied by this channel. Traditionally customers have been vary of believing online transactions and offers, however, that is changing. A Study by MasterCard conducted in 2010 has indicated that the respondents who did not purchase online sited the primary reason of not using online retail due to payment security issues. Performance reviews of products and services that are being sold through online retail are now readily available. Also, physical stores add that extra comfort zone for the traditional buyer. Though not all ventures that are into online retail can afford it and it may not even be necessary for every retailer to have this, but it certainly acts as big attraction, especially for a conventional buyer. Also the area that online retailers have delved into is skewed niche products that are not readily available in stores or malls. To ensure that the online retail market penetrates through all levels of society it is imperative to ensure that the products that are offered be not only of the highest quality but also more appealing to masses. Something that a new mom or a working mother would need on a day to day basis and not just gadgets and gizmos and other products in this league. A model that enables us to understand the online retail business is through the Ansoff Matrix. Igor Ansoff focused on the products and markets of the firm, both present and potential. The matrix focuses on how to grow existing and new products in existing and new markets. Even in case of online retail it is vital to understand what product one is launching through this channel, what market already exists for this and how to establish the site in an existing or new market. Creativity will play a key role here as once the markets reach their saturation point, the marketing strategy for the products will have to be effectively changed. The geographic regions that the market covers will also lead how well this online retail channel of sales appeals to the clientele. The culture and business environment will vary with each region and so will the marketing strategy (QuickMBA). It is a safer launch pad for products that have been around and the customers are familiar with. For a new product that the customers have not seen or know much about, it will be difficult to penetrate the markets. Market research will help to fill the gap here, though it still may take a while before customers get acquainted with and feel comfortable with a new product and a virtual shop.
An underrated yet impactful factor that was one of the first steps towards accepting online retailing was that broadband enabled computers in most household. This lead to a growing number of people from middle and high income groups to browse the net more liberally and explore online opportunities (Euro Monitor). Consumers have also started moving from the conventional cash down payment mode to using credit card which further leads to enthusiastic buyers and sellers and a greener online market (Euro Monitor).Statistical data shows that the online business in the UAE has been growing (AMEINFO). The recession played a blessing in disguise for the retail market as buyers started to surf the net for cheap but good deals. The range of products that people are buying online is also increasing from just gadgets and gizmos to even apparel (AME INFO). Online shops are now also offering products like baby care products, garden furniture, personal care, homeware and more (Euro Monitor, online Retailing in United Arab Emirates). Though online shopping is still not the preferred channel for majority of the population here but a shift in the shoppers ‘ attitude is gradually taking this means of buying and selling to be a sizable and frequently used platform for buyers and sellers alike. With advances in the levels of market research being conducted in the industry and more and more customer appealing products and customer friendly prices being delivered at the door steps online retailing is will soon see the shift from being the not so preferred way to shopping to may be the only way customers prefer to shop.
To sum up the business environment in the UAE is open and friendly to newer ways and channels of selling. The online retail business already exists here and the population is increasingly getting familiar with the online brands and sites. Given the shopping and business bent of mind of the people here it is safe to say that online retail is here to stay; it is just a matter of time before the virtual world of shopping becomes real for all.
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