Saudi Arabia is one of the most promising ecommerce markets in the Arab region, despite the challenges that face the sector in the Kingdom.
In 2016, Saudi Arabia and the UAE alone have witnessed three thirds of ecommerce transactions in the region, while the Kingdom registered a growth by 37 percent.
“The importance of the Saudi ecommerce market is also due to its high purchasing power and growth,” said serial entrepreneur Mazen AlDarrab, which shows in the interest Arab and international companies have in this market.
AlDarrab is a renowned actor in the Saudi ecosystem and ecommerce sector. He started Ecommerce Sea which specializes in developing ecommerce projects in the Arab region, and is a board member and a partner in many companies that act in the communication and ecommerce fields.
AlDarrab believes the Saudi consumer has become more aware of ecommerce, which translates in an increase in orders from global websites such as Amazon, Alibaba and others. This initiates major opportunities to kick-off companies in this sector in the Kingdom.
AlDarrab believes that some challenges related to the infrastructure and to the development of the sector might arise. However, these could be turned into opportunities for those who wish to enter and enhance the market not only in ecommerce, but in other related services such as payments, delivery, and outsourcing.
Here is what AlDarrab told Wamda about the state and the future of ecommerce.
People shop online for three reasons. What encourages people most to make online purchases is the low price of online products in comparison to those in physical stores. They also seek the convenience and the ease of e-shopping which allowing them to buy whatever they want from the comfort of their homes or offices. Additionally, some products or services are exclusively offered online. For instance, most transactions in the tourism sector, such as tickets and hotel bookings and payments, have become almost exclusively online.
Bricks and mortar stores can go online. There is a global trend towards an omnichannel experience. Bricks and mortar store owners are opening online stores as an additional sales channel to cater for new customers and expand their market reach.
Saudi Arabia trusts online payments, but there are no easy payment options. There is no need to exaggerate the fear of ecommerce and online payments. The merchant would think twice before cheating since his business will fail if he does: any scammed user is able to report it to the Ministry of Commerce, since companies are registered and can be legally pursued.
ATM card payments are an effective solution to online payment. Cash on delivery makes up for more than 70 percent of online transactions, though the government allows payment through Sadad payment system. To develop the online payment mindset, cash on delivery must be minimized, by providing an easy alternative such as activating ATM cards to e-pay. Allowing payment through these cards will enable 20 million card carriers in the Kingdom to make online purchases. This solution is the easiest for the customer and the online store. However, the government must decide to implement it. An additional solution would be adding fees on cash on delivery.
Ecommerce extends beyond just buying and selling. It also involves supporting services, such as payment, delivery, marketing, storage companies, in addition to suppliers, among others. Each of these fields represent opportunities to entrepreneurs, to launch concepts and new startups.
Supporting services require more time to become established business models. Ecommerce in Saudi Arabia is still in its beginnings, so the online business may take time before making profits. Companies offering supporting services take longer to launch than online stores when it comes to the business model and pricing: if your company provides a SaaS that people do not know about, you must educate your target market about your service. If it doesn’t go well, don’t give up, but change your business model. Service pricing depends on how many interactions your company makes and how recurring are they, so make sure the services you bring are of high quality. Don’t overprice a product you are selling, because you will lose with time.
Ecommerce has a promising future in Saudi Arabia. Youth constitute half of the Saudi population. Internet and smartphone penetration are also high. Soon, we will not need to spend time raising user awareness, as they will be knowledgeable enough about technology and ecommerce. Now, we can see some startups becoming the first choice of youth, such as Hungerstation for food ordering. To start similar successful companies, investors must believe in this type of companies and support them to reach people through marketing and user acquisition.
Feature image via Mazen AlDarrab.