eMarketer’s Jeffrey Grau and Karin von Abrams
shed light on the fascinatingly disparate markets
that make up Europe’s online economy.

By Tom Dellner

Any analysis of European e-commerce is bound to be frustratingly complex. As with all online economies, it’s a moving target: new sites and commerce-enabling technologies are introduced on seemingly a daily basis. Additionally–and even more significant–Europe is anything but a homogenous online market. Differences in technological infrastructure, financial systems and social and business cultures abound, making each nation’s
e-commerce economy unique.

To sort through this complexity, Electronic Retailer sat down with two of the leading experts in the field, eMarketer’s Jeffrey Grau and Karin von Abrams, for an exclusive interview.

Electronic Retailer: To what extent do the UK,
Germany and France dominate the European
e-commerce landscape?

Karin von Abrams: The UK as a single nation accounts for more than 40 percent of European e-commerce. We see that continuing, and it’s borne out by recent research. The UK’s e-commerce sales volume is more than
twice that of France at more than 56 billion Euros. It’s far and away the highest in the region. France and Germany are closing the gap a bit, but it’s going to be a long time before they overtake the UK.

Jeffrey Grau: We’ve estimated total marketshare; the bookends for the forecast period were 2006 and 2011. For 2006, we projected that the UK accounted for 42.1 percent of European e-commerce, with Germany at 20.4 percent and France at 9.4 percent. In 2011, the “Big Three” as a whole will decrease (we estimate the UK at 38.3 percent, Germany at 19.6 percent and France at 10.3 percent). The UK and Germany are giving up a little share, but that has nothing to do with the health of the markets. It’s more to do with other countries–France and the rest of Europe
(particularly the Netherlands, Italy and Spain)–picking up momentum, and to a smaller, but growing extent, Eastern Europe.

ER: What accounts for the Big Three’s dominance?

JG: I think the factors are very similar to those we see in other robust e-commerce economies throughout the world: the countries’ IT infrastructure, PC penetration, broadband usage, financial systems (e.g., how many consumers use credit cards) and even the health of the general economy–whether the middle class is thriving. Business practices are a part of it, too. For instance, in Spain the custom of doing business face to face might be more ingrained than in other parts of Europe, which may slow Spanish e-commerce in certain product categories. It’s a combination of all these
factors.

KVA: The UK has been a very vibrant online market–apart from the e-commerce dimension–for quite a long time. It’s historically led Europe in a number of important areas, such as thenumber of users, broadband penetration, etc. Also, there’s a history of buying through mail-order catalogs, which makes for an easy transition to e-commerce. Also, there’s quite a high credit card penetration, as Jeff has pointed out. So e-commerce retailers have been able to benefit from all these factors for quite a long time: solid infrastructure, comfort with long-distance buying, ease of payment and others.

What is helping the German and French markets to catch up is chiefly size–the overall size of the populations, as well as the extent of broadband penetration. In France in particular, there’s been quite a commitment on the part of the federal government to drive infrastructure development. Their goal is, by 2012, to get 80 percent of all households not only online, but online with broadband. They also plan to put the Internet in 100 percent of schools by the same year, with wifi coverage in higher education institutions–it’s a tremendous push in infrastructure improvement and, of course, France has a very strong technology sector. In Germany, they are lagging a little bit on the broadband side, but the overall population size is driving up the number of online buyers.

JG: The UK enjoys the highest percentage of households with broadband at 54.6 percent, according to a 2007 report. France has 48 percent and Germany 38.6 percent. But in terms of sheer numbers, Germany had 14.8 million broadband households compared to 13.9 in the UK.

ER: What are some of the important differences that distinguish the individual markets that make up the Big Three?

KVA: It might be best to discuss some of the characteristics the markets share, which really throws into relief some of the important differences. In all of the markets, there tend to be items that everyone goes for: books, for example. This is true for most e-commerce economies in the world and it certainly is true in the rest of Europe. Similarly, music is still big; auction sites like eBay (which obviously cover a wide variety of products) are incredibly popular. There’s also been an enormous shift of travel revenue from the traditional travel agency onto the web. Event tickets, clothing, consumer electronics–these are all categories that are strong in each of these markets.

In terms of key differences, the UKhas gone much further with online grocery shopping. It got an earlier start in the UK and a relatively confined market geographically helps encourage this sector, allowing grocers to overcome the significant investment in infrastructure required to support this category.

In France, there’s quite a bit of luxury good buying. Luxury brands and cosmetic brands have done much to encourage online buying and they are enjoying quite a bit of success. However, in France, many of the major retail forces online are department stores, which encompass a wide range of brands. Much of the buying is done on these sites rather than the sites of the brands themselves.

JG: I agree. We see that the French tend to buy luxury items, clothing and cosmetics. Germans, on the other hand, tend to buy items like appliances and consumer electronics in higher percentages than their European counterparts.

ER: At the risk of embracing cultural stereotypes, the French are known for an interest in fashion and Germans are often recognized for engineering expertise. Is it a stretch to cite these cultural characteristics to explain why these product categories have taken off?

JG: I think you could make that argument. For example, perhaps in Germany, an appreciation for engineering drives them to appreciate and buy consumer electronics. I can’t go any deeper than that–it’s just conjecture–but it does seem consistent in this way. What these cultures are historically known for are the same categories in which their consumers buy in greater rates.

KVA: I think another factor is less worry about returns. With appliances in Germany, for example, so many major brands are located within the country that it has to be reassuring to buyers that should anything go wrong, they will likely get satisfaction if they need to return the product.

Also, I’ve seen that the websites for some of these brands are more elaborate and sophisticated in their home countries, as opposed to versions in the UK and elsewhere. It’s something of a push-pull situation. Retailers see that they can do well in certain categories, so then they put more into the website and the online value proposition and then success becomes self-fulfilling to a degree.

ER: What payment options are preferred in each of these countries?

KVA: In the UK, credit cards are very big, and very widely used (and supported by retailers), even for relatively small purchases. Credit card penetration is also relatively high in France, as is that of debit cards. The German economy has never been much of a payment card culture at all. It’s much more about bank transfers.

ER: What marketing platforms drive e-commerce in these countries?

KVA: The UK is similar to the U.S. in many regards. Search is very important, banner ads less so. Online video is just starting to become a major force. We see good response rates to opt-in e-mail campaigns, but it’s not a strong direct channel to purchase in the UK. Much more is happening in social media, where you’re in a space where commerce is very easy–the advertisers are there and you’re in a rich media environment with audio and video and it’s very easy to click and follow the mood through to purchase. Also, mobile is very big, with penetration at 115 percent.

Advertisers are becoming quite savvy with cross-media buys, with TV ads or mobile campaigns highlighting online opportunities. The online channel is probably taking less of a percentage of the advertising pie, simply because retailers are becoming more clever with cross-channel marketing via TV and mobile.

In France and Germany, mobile is becoming increasingly important, as is social media, especially with national sites, as opposed to the enormous global sites we’re all familiar with. In Germany, for example, national sites are numbers one and two in the social media space, which makes it easier than ever for German e-retail partners to be part of that environment. I would look to see more growth in this area.

ER: Why is there relatively little cross-border e-commerce in Europe?

KVA: Language plays a big role, as does brand awareness–people tend to know their national brands. And most people are pretty well served by their national retailers. It’s hard to think of a kind of product–unless it’s a very specialized niche–where one would need to go outside the borders to make a purchase.

JG: If you’re shopping for a commodity good–take an iPod, for example–there’s really no reason to go to a retailer in another country. However, we see more cross-border buying with unique goods like fashion apparel. These types of goods are really the long tail of e-commerce; it takes place on a very small scale in terms of total revenue, but it does exist. You see it here in the U.S. British site Net-A-Porter has a fairly strong U.S. consumer base, as does Italian fashion apparel site Yoox.

ER: What other nations show potential for growth or already have a robust online economy, but on a smaller scale than the Big Three?

JG: Those are two very separate questions. The Scandinavian countries have high levels of Internet usage and e-commerce is active and quite sophisticated in many regards. However, because of the smaller populations, they don’t make much of a dent in the overall statistics.

The most significant growth in the near term will be seen in countries like Italy, Spain and the Netherlands. On the horizon, we see the development of e-commerce in Russia, Poland and the Czech Republic. Russia, for example, has a thriving consumer population; it’s only a matter of time.

KVA: I agree. Even though rising incomes aren’t equally spread through the population, there’s far more money in Russia than we’ve seen before and more people interested in spending it. There’s also a great awareness of European brands.

We’ll also see some progress in countries like Greece and Portugal. These are countries where the population has not been particularly amenable to the Internet, and where there are some geographical challenges hampering infrastructure development. But e-commerce will be growing rapidly in the urban areas, where the money tends to be concentrated. A rural hinterland, if you will, will exist for quite some time, however.

Italians, young people especially, are keen on the Internet and willing to spend money online. When it comes to big ticket items, however, there’s a cultural resistance–which exists in Spain, too–to buying things you haven’t had the chance to see or touch. In Eastern Europe, I doubt we’ll see this sort of habitual behavior slowing growth; there, it’s more a matter of infrastructure development.

Leverage European Consumer Shopping Payment Preferences

By Carl-Olav Scheible

Unlike the United States–one economy with one language, one currency and similar shopping habits–the “United Europe” remains far from homogeneous. Language and cultural differences remain, and despite the introduction of the Euro, multiple currencies exist, and shopping and payment habits differ.

Online payment preferences aren’t much different from those in the physical world. Online consumers want to choose between familiar payment methods, including bank funding (transfer or debit) or card-based payments (credit or debit). They also want to use their chosen payment method in a safe and convenient manner everywhere they shop.

COMPARING COUNTRIES
Across Europe, local consumer and retailer habits have emerged partly because of the distinct set of payment instruments preferred in each country. In the UK and France, cards dominate both online and offline, although UK cards are credit based, while France’s are predominantly debit cards. The French consumer is also a heavy check user. In Germany, there is a distinct preference for bank-based payment instruments such as direct debit and credit transfers. In Southern European countries including Spain and Italy, a significant portion of e-commerce transactions get settled by cash-on-delivery.

If payment preference is one of the biggest challenges facing European e-commerce, security and convenience are two others. Many consumers understand the need to provide credit card and personal details online. Yet, the process is cumbersome and many are concerned about fraud and misuse of personal information. Bank transfers and checks may be convenient to some, but there can be significant delays before funds are cleared or confirmed. In Germany, direct debits expose the retailer to a high level of risk and while the debit card is a popular electronic payment instrument in Europe, outside of the UK it is not broadly enabled for online usage.

Only by integrating popular and familiar payment methods from the various European countries into one account-based payment system is it possible to overcome this patchwork of European payment preferences. In an account-based e-mail transaction, consumer and retailer choice and preference, both domestic and cross-border, are respected, while at the same time consumer security concerns are addressed since personal and financial information are not shared. Besides security and convenience, the popular two-click payment process of an account-based system also drives higher incremental sales for merchants by reducing the hassle for consumers and speeding them through the purchase. Account-based payments are the only way that a UK website can efficiently and instantly receive a German-initiated bank transfer or a payment from a French debit card holder. It is also the only way for that German or French consumer to buy from that UK website, using their preferred local payment method.

Lastly, an account-based payment provider enables consumers to pay by their preferred payment method without sharing their financial information.

Carl-Olav Scheible is managing director of PayPal UK Ltd. He can be reached at +44 208 605 3190, or via e-mail at cscheible@paypal.com.

Five Tips for Communicating With the Chinese

By Bill Quarless

Lord Macartney, the first British envoy to China, once said, “Nothing can be more deceptive than to judge China by European standards.” Although 214 years have passed, that saying still holds true. Chinese business practices are slowly adapting to the Western style, but they still have 5,000 years of culture behind them.

STRENGTHENING RELATIONS
This is most obvious when it comes to communicating with the Chinese. The quality and quantity of your communication could very well determine the outcome of your entire China experience. With that in mind, here are some tips:

1. Know what you want. Go over every detail with your team and ensure there are no ambiguities. Product design, packaging, sampling, quality control standards, order quantities, lead times and regulatory compliance are just some of the issues that must be made clear internally before they can be clear externally. Uncertainty leads to vagueness, and being vague is a sure path to a communication breakdown.


2. Keep it simple. Be aware of the cultural slang we all use. “Raining cats and dogs” makes about as much sense to the Chinese as “he got fried squid” does to us (translation: “he was fired”). Speak in the simplest terms and don’t assume anything is “common knowledge.” Be explicit and repeat yourself often. Also, be careful of reading too much into body language. Even a vigorous head nod doesn’t mean you’re being understood.


3. Show as well as tell. The old cliché that “a picture speaks a thousand words” rings especially true when you don’t speak Chinese. Here’s an eye-opener: Even the staff at the factories themselves may be speaking different dialects. Your explanation for the engineer could be translated from English to Cantonese to Mandarin. The best way to shortcut this multilingual game of telephone is to show everyone–as much as possible–exactly what you want. The more samples, pictures or drawings you can show, the better.


4. Be aware of the cultural nuances. For example, the Chinese will rarely give you a straight “no” answer. Even if they’ve decided the answer is “definitely no,” you’ll be told, “We’ll see.” The Chinese also tend to overstate their capabilities for cultural reasons. They don’t want to displease you and possibly lose face. I often hear “yes” or “no problem” in response to my requested production and ship dates. Then, when we go step-by-step through the schedule, it becomes apparent the factory cannot meet my schedule. Save yourself some frustration and remember this rule of thumb: “Maybe” means “no,” and “yes” means “maybe.”


5. Document every conversation. This is a wise business practice that’s especially critical when there’s a language barrier. Whether the conversation is in person or by phone, take notes and then recap everything in e-mail. End the e-mail by asking the factory to confirm its understanding. Also, use simple terms rather than long, loquacious paragraphs. Oh, and don’t use uncommon words (like loquacious)!

Bill Quarless is president and CEO of Impact Products Ltd. in Hong Kong. He can be reached at (852) 2139-3961, or via e-mail at bill@impactproducts.com.

Opening the Door to the Latin American Market

By Daniel Gorinstein

How can European marketers venture into the Latin American market? There is basically one answer to this challenging question, even when one may choose several different words for it: with confidence, caution and strategically.

After Brazil, Mexico is the second largest Latin American economy. Argentina has gradually, but steadily, improved its economic landscape and is rapidly becoming a powerful force in consumption.

Mexico has been actively seeking substantial foreign investment in various sectors to help it achieve the economic growth it needs to take its country forward economically. Companies large and small are being sought and even micro-companies that have specialized knowledge in niche markets may find business opportunities in Mexico.

WHERE ARE YOUR PRODUCTS MADE?
Since 2007, the European Free Trade Agreement has enabled companies working in non-restricted product and service areas to sell their goods and services in Mexico with little or no import tariffs. But there is a caveat. European companies wanting to enter the Mexican markets must bear in mind where the products they offer are originally manufactured. Why? Even when there are minor or no tariffs for European-made goods, if the products to be exported from Europe are actually made in China, there will be steep duties applied. Other countries like Brazil have a solid manufacturing infrastructure that may eventually bar products that can otherwise be manufactured locally.

But more specifically, a European company must closely analyze three key elements in choosing a partner in a particular market and country.

Confidence - The Latin American markets are now mature, in the sense that DR marketing has become well established and accepted in almost every country in Latin America. This should give a European or global company enough confidence that there will be not only sufficient exposure for its product, but also that the consumers are there–waiting for the next product to surface.

Caution - There is a drawback, however, in most of the Latin American markets, and that has to do with integrity, culture, idiosyncrasy and solid business ethics. When you put those four factors side-by-side with those of most European countries, they present a stunning contrast. That is why it is paramount to choose a reliable partner with a proven track record, for which some research and a little bit of due diligence will lead the interested party down the right path.

Strategy - The potential entrant must choose the right marketer capable of carrying the ball all the way down the field. This means one with a large degree of specialization–the commitment of a local and experienced company that can focus on the key marketing aspects the potential European executives want to maximize. It is crucial, therefore, to insist on similar philosophical and cultural principles among the top ranking officials of the companies, sharing the same vision and that will work together building a market–a lasting brand and a long-term relationship.

Daniel Gorinstein is president and CEO of Premiere Exclusives in Mexico. He can be reached at +011 525 55 395 4847.

Japan’s Economy and the Prognosis for the DR Industry

By Harry Hill

The recent announcement that Japan’s economy shrank at an annualized 2.4 percent decline in GDP has led the government to warn that the economy is approaching a recession. With consumer confidence dropping to a record low for the month of July and inflation hitting 20-year highs, the Japanese industry cannot expect robust domestic demand in the near future.

Toyota, Honda, Toshiba, Sony and other world-class Japanese manufacturing companies led the charge of the Japanese economy over the last five years, particularly with strong overseas sales. Toyota has already revised down its annual projections to show a decline in sales due to the weakness of the U.S. and European economies. Coupled with shrinking domestic demand, Japanese corporations are facing challenges both internationally and domestically.

After several years of robust growth, 2007 saw a 0.9-percent decline in television. By category, terrestrial and cable television saw a decrease, but broadcast satellite (BS) television advertising saw growth driven particularly by revenue from DRTV. While the terrestrial market at 47 million households and the cable market at approximately 20 million households saw flat growth, the BS penetration continues to grow with penetration nearing 30 million households.

ONLINE ADVERTISING SEES GROWTH
Although television commercial and program sponsorship advertising were down, overall advertising spend in Japan grew by 1.1 percent in 2007. Driven in particular by online advertising, which is now a larger category than magazine advertising, there is a growing focus on online direct response advertising, particularly in mobile advertising.

The top-four companies in the TV shopping industry, Japanet Takada, Jupiter Shop Channel, QVC Japan and Oak Lawn Marketing, had all achieved double-digit growth in revenue from 2004 to 2006. In 2007, however, two of those companies achieved less than 5-percent growth, while another saw revenue decline. Only one out of the top-four companies experienced double-digit growth.

A recent Direct Marketing Newspaper article speculated that the TV shopping industry is facing a head wind, citing the 2007 performance of the top-three companies; the recent debate in the Japanese diet to mandate that television stations and convenience stores stop operations from 2:00 a.m. to 5:00 a.m. to protect the environment; and the recent request by the Ministry of Tele-Communications that BS stations limit their broadcasting of shopping content to less than 18 percent as the main negative factors affecting the industry.

Despite these pressures, the top-four shopping companies all achieved growth during the prolonged period of Japanese economic downturn prior to 2005. Likewise, as traditional television advertising revenue continues to decline, television stations are increasingly dependent upon shopping content and, indeed, all the terrestrial stations have launched their own in-house shopping content in order to create non-advertising streams of revenue. So while there are certainly challenges facing the industry, there appear to be numerous opportunities, as well.

Harry Hill is president of Oak Lawn Marketing in Nagoya, Japan. He can be reached at hhill@oaklawn.co.jp.