Thailand's Drivers and Challenges to eCommerce

Benedict Leong

What’s Happening in Thailand’s eCommerce Market?

If you’re an eCommerce merchant looking to sell to Thai online shoppers, there are plenty of reasons to be optimistic about the market.

“Thai eCommerce grew the most in ASEAN with changes in consumer behaviour in 2018,” reported the Electronic Transactions Development Agency (ETDA) of Thailand in February 2019. The value of Thai eCommerce grew from around 2.7 trillion baht in 2017 to almost 3.2 trillion baht in 2018, and is expected to surge by another 20 percent this year.

Analysts from outside the country share this positive view. The Australian Trade and Investment Commission, or Austrade, reports that Thailand is the second-largest business-to-consumer eCommerce market in Southeast Asia, next only to Indonesia.

So what exactly is driving the growth of eCommerce in Thailand?

Factors driving the growth of eCommerce in Thailand

One of the strongest eCommerce advocates in Thailand is the government. Its Thailand 4.0 program is expected to boost eCommerce both within the country and with neighboring nations by supporting the digitalization of businesses and payments. The agenda includes strengthening Internet connection in the provinces, improving logistics infrastructure, and promoting further trade integration through its shared borders with Cambodia, Laos, Myanmar, and Vietnam.

Innovation by both private and public parties, the growing influence of younger generations of consumers, and active participation from foreign and local players are also driving the growth of eCommerce in Thailand.

We’ll discuss the factors driving eCommerce in Thailand in more detail below.

Increasing adoption of electronic payments

With numerous government-led initiatives to boost electronic payments, cash transactions in Thailand are expected to fall from the current 90 percent to 50 percent by mid-2020, according to the US Department of Commerce’s International Trade Administration (ITA). Thailand Business News also reported that mobile and internet banking transactions rose to 33% of payment transaction volume in 2017 from the 2010 value of just 8%

This helps to boost eCommerce as easier and more secure digital payment options can make the online shopping experience more convenient for both the customer and the merchant. Online payments also allow for more flexible delivery arrangements, like delivering to parcel lockers since the end-consumer doesn’t need to be present to make payment.

For instance, the Thai government launched PromptPay in January 2017, allowing locals to pay for transactions online without using credit cards. Through PromptPay, users can transfer money using the recipient’s registered mobile phone number or Citizen ID.

By September 2018, the number of PromptPay users had reached 45 million⁠—around 65 percent of the country’s 69-million-strong population. PromptPay transactions hit 2.9 million a day in June that same year, adding up to a combined value of 442 billion baht for the entire month.

Additionally, PromptPay’s reach has expanded beyond Thailand, as cross-border fund transfers with Singapore-based users are now being deployed through a partnership with the Bank of Thailand and peer-to-peer fund transfer service PayNow.

Thai banks are also innovating to encourage more customers to use their digital services for online payments. For instance, Kasikorn Bank launched Pay with K Plus, which allows real-time payment via Facebook Messenger. The program integrates K Plus, the bank’s app, into the messaging platform so users don’t need to enter their bank account numbers or switch screens when sending payments via Messenger.

For cross-border merchants, that means more ways to collect payments for online sales. Having more ways for your customers to make payment reduces their barriers to online purchases, which is great for online merchants.

Internet-savvy consumers comfortable with making online purchase

ETDA notes that Generation Y—those who are now around 17 to 36 years old—spent the most time online last year, especially on Facebook, Instagram, Twitter and Pantip, a local website and discussion forum. Consumers in this generation tend to be more comfortable than their older counterparts in making online transactions.

Social media usage is also driving online consumer-to-consumer sales. Line and Facebook Messenger top the list of Thais’ most used social media platforms, and are also frequently used by buyers and sellers to negotiate prices and confirm purchases.

Given Thailand’s mobile phone penetration rate of 98 percent and smartphone penetration at 71 percent, it’s no surprise that smartphone usage dominates eCommerce activity. A Q2 and Q3 2018 survey by GlobalWebIndex, cited in Hootsuite’s We Are Social report, revealed that 71 percent of Internet users had made an online purchase with a mobile device in the past month, compared to 32 percent on desktop.

Don’t just take these figures at face value, though. Despite the clear preference for smartphone use, desktop still delivers higher conversion rates, according to iPrice. In its State of eCommerce in Southeast Asia 2017 report, iPrice revealed that Thailand’s average basket size for desktop purchases was US$47, compared to US$39 for mobile.

In fact, even though mobile traffic to eCommerce sites peaks on weekends, conversion rate actually dips. While conversion rate for Thai online shoppers reaches a peak of 108 percent on Wednesdays, it falls to 78 percent on Saturdays and 81 percent on Sundays.

That means you should target both desktop and mobile users when creating marketing content for your eCommerce business.

Social and conversational commerce

As we discussed in the previous section, Thais are heavy users of social media and messaging platforms. This has spurred the growth of social commerce, in which businesses and individuals sell products directly to consumers through social media. Austrade cited a report by eCommerceIQ that showed Thailand was the world’s largest social commerce market in 2017, with 51 percent of online shoppers buying products directly via a social channel.

As a result, conversations are playing a bigger role in driving eCommerce conversion.

“SMEs in Thailand are building businesses through conversational commerce on Facebook and Messenger. For instance, Thailand is the top country in APAC and one of the top five countries globally where people send the most messages to businesses on Messenger,” said Natapa Phruthisaranphong, Product Marketing Manager of Facebook, APAC Business Platform and Messaging, in a press release for the launching of Pay with K Plus.

It’s no surprise, then, that Line Corporation—the developer of messaging app Line—recently acquired SellSuki, a Thai startup providing social commerce management platform for online sellers. The two companies have closely collaborated over the years, allowing social sellers to close and manage sales through chat messaging.

In fact, customer service is the top use case for artificial intelligence (AI) in the country, accounting for 69.23 percent of deployments. Companies are developing or deploying chatbots to keep pace with inquiries, requests, and comments sent by customers on social media and messaging platforms.

The opportunity is clear for eCommerce merchants: get on social media, now. Use social and messaging platforms to promote online sales, provide product information, and address customer concerns. This is much cheaper than building your own website (although you can definitely do that, too) or buying ads on popular sites.

Growth beyond the capital state

In 2018, ITA observed that demand for eCommerce services “is coming not only from Bangkok but also from the other provinces, such as Nonthaburi and Chonburi”. This reflects the Thailand 4.0 agenda of increasing Internet activity across Thailand’s provinces. At least 25,000 villages have received fibre cable installations, and 50,000 more will have received these connections by the end of 2019.

As an online seller, this increased access to the Internet, along with e-payments initiatives, will broaden your potential market in Thailand. Combine this with the fact that there tend to be fewer malls—and thus, products—the farther a place is from the capital and the provincial centres. This gives you the opportunity to offer provincial buyers a much wider product range than they can find in offline stores.

Cross-border openness

The ITA expects cross-border market opportunities in Thailand to grow by around 25 percent as a result of the country’s digitalization drive. In fact, it estimates that cross-border business-to-consumer eCommerce in the country will grow to US$1 trillion in 2020.

This is great news for eCommerce merchants, as Thailand is taking steps to increase eCommerce activity with other countries in the region. Take, for instance, the cross-border payment scheme with Singapore’s PayNow. Thailand is also welcoming more foreign investments into its eCommerce sector. Amazon, for example, opened an office in Thailand early this year. In the near future, you can look forward to initiatives by the Thai government to increase cross-border eCommerce activities.

Challenges for online sellers eyeing Thailand

Every industry or market comes with a unique set of challenges, and Thailand eCommerce is no exception. Here are some reasons why the Thai eCommerce market is not a completely rosy landscape:

Preference for foreign brands/ Established loyalty to existing brands

Foreign brands have long made their way to Southeast Asia by setting up their own brick-and-mortar stores or displaying their goods at department stores. So if you’re an individual eCommerce merchant or SME competing against established brands, Thais’ loyalty to established foreign brands may be more of a threat than an opportunity for you.

This would be the case if you source your products from manufacturers in China, are trying to establish a private label, or are creating your own products. Thai consumers’ desire to stick to the brands they know can also make it difficult for you to introduce unbranded products or less-popular brand names originating from your country.

The global management consulting firm Boston Consulting Group claims that Thais are the most brand-conscious and brand-loyal among Southeast Asian consumers.

According to Deloitte’s Thailand Consumer Survey 2018, as cited by Austrade, Thais overwhelmingly prefer foreign brands across these categories:

  • personal hygiene products
  • digital cameras and other gadgets
  • and more

 

This preference holds true for households across all income levels—from those earning less than 18,000 baht a month (less than USD 600) to those earning more than 85,000 baht  a month (more than USD 2600). The only exception is for clothing and footwear, as most households prefer local brands in this category. (The top income bracket, though, see an almost equal split in preference between foreign and local brands.)

Price consciousness

Thais are described as “cautious” and “incredibly price-conscious” consumers. In fact, ecommerceIQ’s E-Marketplace Survey Thailand 2018 showed that “cheaper product prices” ranked among the top reasons Thais shop online.

Thais’ tight purses are also reflected in the country’s average eCommerce basket size of US$42. It’s lower than that of Singapore, Philippines, and Myanmar—despite the fact that Thailand is Southeast Asia’s second largest economy and, as mentioned, is the region’s fastest-growing eCommerce market.

Online fraud

In ETDA’s Thailand Internet User Profile 2017 (link in Thai), 51 percent of consumers listed a fear of scams as their reason for not shopping online, according to Austrade. In fact, of the 2,000 complaints on average that the agency receives from consumers each month, half of them are fraudulent eCommerce cases. These include products that are different from what sellers promised, as well as items that never reach the buyer.

Research firm Experian concedes that with increased online activity and digital convenience, the likelihood of fraud exposure rises. The firm found that around 19 percent of Thais have become fraud victims across the eCommerce and service segments.

However, they also found that 51 percent of their Thai respondents were willing to share more data online if it meant increased protection from fraud. Thai online shoppers are also less likely to switch service providers in the event of fraud compared to more cautious consumers in Japan and Hong Kong.

To increase trust in your online store, see if you can encourage more shoppers to leave positive reviews. Thais are incredibly social media-savvy, and love to message businesses and SMEs during the purchasing process. It won’t be easy, but give them a great experience and be as responsive as possible and you’ll be able to overcome the fear of fraud hurdle.

Use of ad blockers

Within Thailand’s digital-savvy population, 46 percent of Internet users use ad-blocking tools. That can be a challenge for you if you rely heavily on ads placed on websites and apps.

Fortunately, there are other ways to promote your products, such as through creative and educational content, social media ads and messages, and promotional campaigns.

Jumping into Thailand’s eCommerce landscape

If the trends in Thailand’s eCommerce landscape tell us anything, it’s that it’s time to dive in. The opportunities are large given the government’s support and consumers’ receptiveness to online sales.

To make the most out of your foray into Thailand eCommerce, keep in mind the following tips.

Offering payment methods they’re comfortable with

  • Offer a variety of digital payment methods. These can include fund transfers and digital wallet payments. However, as cash is still king for now, you’ll need to partner with a last-mile delivery service provider that accepts COD.

Social media tips:

  • Increase engagement in your social media pages through contests and content. Build a community by responding to people’s messages, sharing user reviews and customer photos of their purchases, and educating your audience on the items you sell.
  • Make your social media posts shoppable. Find out whether or not you’re eligible to do so on platforms like Instagram and Pinterest. Learn how to implement this feature, or keep an eye out for when it will be made available to businesses in your market or industry.
  • Have a team which can respond promptly and in a friendly way to social media messages from potential and current customers. You don’t necessarily need a chatbot for that.
  • When you can’t respond right away, turn on the messaging platform’s auto-response feature. Leave a message explaining in both Thai and English when the customer should expect a response. (As a benchmark, around 25.9 percent of the brands respond in real-time through Lazada live chat, 22.2 percent replied within 30 minutes, and 22.2 percent replied within an hour in a test done by eCommerceIQ.)

Product, Price, and Clear Communications

  • You can also follow top influencers in Thailand to see what people like and engage with.
  • If you’re selling products like those carried by popular foreign brands, highlight the similarities between what you and they offer. Also, try to understand what makes that brand appealing and adopt it in your marketing messages. For example, if a clothing brand within your same niche promotes a creative, carefree lifestyle, you can do the same.
  • Be competitive and strategic in pricing products. Use price comparison engines, such as Priceza, to benchmark your prices against competitors.
  • Make sure your product descriptions accurately depict the items you’re selling.
  • Optimise your content and ads for both desktop and mobile. Keep in mind that while mobile brings traffic, desktop wins in conversions and average spend.

Finally…

  • Have a reliable shipping partner with a stellar record of successful and on-time deliveries.

 

These strategies can function as a starting point to help you leverage the trends in Thailand eCommerce while also turning these challenges into opportunities. By doing your research, using suitable communication and marketing channels, and choosing your partners well, you can prepare yourself for a successful eCommerce venture in Thailand.

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