How to Establish a Successful E-Commerce Strategy in Turkey

PERSPECTIVE J ULY 2015

TURKISH E-DELIGHTS: THE NEXT BIG THING? HOW TO ESTABLISH A SUCCESSFUL E-COMMERCE STRATEGY IN TURKEY

Alberto Calvo, Gülben Solakoglu, Anil Kaya, Semih Kilicgedik Turkish e-delights: the next big thing? Our insights on how to establish a successful e-commerce strategy in Turkey

Published by Value Partners Management Consulting Via Vespri Siciliani, 9 20146 Milano, Italy

July 2015

Written and edited by: Alberto Calvo, Gülben Solakoglu, Anil Kaya, Semih Kilicgedik

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INTRODUCTION 5

GROWING UP FAST. WHY AND HOW TURKEY’S 7 E-COMMERCE SECTOR IS ON THE RISE

JUST THE USUAL SUSPECTS? 15 WHICH BUSINESSES ARE DRIVING THE E-COMMERCE BOOM?

THE WAY WE SEE IT. 21 THE KEY PILLARS FOR SUCCESSFUL E-COMMERCE IN TURKEY

OUR EXPERIENCE IN E-COMMERCE STRATEGY 28

AUTHORS 30

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? In the past years, the main focus of online ventures has been that of getting the customer to buy today, with online platforms and marketing strategies being designed to capture online traffic and convert it to sales before the competition had a chance to. However, the days of easy and cheap customer acquisition (even in Turkey) are ending and the focus is consequently shifting towards getting customers, especially high-value ones, to buy today, come back tomorrow and advocate the company in the process.

4 – 5 INTRODUCTION

TURKEY IS ONE OF THE SEVEN LARGEST EMERGING ECONOMIES AND IS HOME TO A YOUNG AND VIBRANT POPULATION OF AROUND 75 MILLION PEOPLE. INTERNET IS WIDELY ACCESSED AND THE NUMBER OF INTERNET USERS IS RAPIDLY GROWING, EVEN THOUGH ONLINE ACTIVITY IS, FOR NOW, MAINLY FOCUSED ON SOCIAL NETWORKS AND INSTANT MESSAGING. HOWEVER, THERE ARE PLENTY OF INTRIGUING SUCCESS STORIES IN THE DOMESTIC E-COMMERCE LANDSCAPE, MAKING IT WORTHWHILE TO BETTER UNDERSTAND THE PHENOMENON.

THIS PAPER GIVES A BRIEF OVERVIEW OF THE SURGE OF LARGE-SCALE E-COMMERCE PLATFORMS THAT THE COUNTRY IS WITNESSING AND PROVIDES GUIDELINES TO MAKE THE MOST OF THIS OPPORTUNITY.

TURKEY’S STRONGLY GROWING ONLINE LANDSCAPE DEFINITELY PROVIDES PLENTY OF ROOM FOR NEW ENTRANTS, WHICH WILL HOWEVER HAVE TO SET-UP EFFECTIVE BUSINESS MODELS AND COMPELLING VALUE PROPOSITIONS TO STRIVE IN A COMPETITIVE ARENA THAT IS QUICKLY ADAPTING TO CUTTING-EDGE STANDARDS.

THE KEY SUCCESS FACTORS TO THRIVE IN ANY ADVANCED E-COMMERCE ARENA ARE COMPLEX AND CONTINUOUSLY EVOLVING. DRAWING ON LESSONS FROM MORE MATURE ONLINE MARKETS, WE HAVE PINPOINTED THE FOUR CORNERSTONES THAT ONLINE VENTURES SHOULD TAKE INTO ACCOUNT WHEN CONSIDERING A FORAY INTO TURKEY’S YET UNTAPPED POTENTIAL CUSTOMERS.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 1 Estimated share of online retail goods sales by country, 2013

16%

7% 6%

UK USA FRANCE

4% 3% 3%

BRAZIL SPAIN POLAND

2% 1% 1%

TURKEY ITALY MEXICO

Source: Ecommerce Europe

6 – 7 GROWING UP FAST. WHY AND HOW TURKEY’S E-COMMERCE SECTOR IS ON THE RISE

1 Other uncommon / emerging Connecting Europe and Asia through Depending on who is buying and ecommerce models include: the Bosphorus Strait, Turkey is home to selling, it is possible to identify many C2B (Consumer to Business), G2G (Government to a young and vibrant population of ~75 different business models in the e- Government), G2C (Government mln people. Turkey is the 17th largest commerce universe1, most of which are to Consumer), C2G (Consumer to Government), G2B economy in the world and one of the also present in the emerging Turkish (Government to Business), B2G 7 largest emerging economies. Endur- e-commerce landscape: (Business to Government) ing political and economic stability in 2 Turkish Interbank Card Center (BKM) the last decade, along with favourable • B2B (Business to Business): 3 Is Bank macro fundamentals are expected to online platforms that bring corporate 4 Tusiad further nurture the economic growth of buyers and sellers together for the the country. exchange of goods and services. Transaction value per order is much Turkey is experiencing a bubbling surge higher than in B2C and C2C transac- of authentic, large-scale e-commerce tions. Typically, the large business platforms, even if it is still under-pen- marketplaces fall into this category etrated compared to other emerging (i.e.: Alibaba) countries (Exhibit 1). • B2C (Business to Consumer): Internet usage remains focused on where businesses directly sell their social networks and instant messag- products and services to consumers ing. However, many success stories in through catalogs and shopping carts. the domestic e-commerce market have The large retail platforms belong to been hitting the spotlight over the last this group. Examples include Ama- 10 years (among these, Hepsiburada, zon, Yoox and Hepsiburada in Turkey Yemeksepeti, Sahibinden, Gittigidiyor, Markafoni). • C2C (Consumer to Consumer): this category includes various types EXHIBIT 2 of peer-to-peer transactions, some- E-commerce market times based on auctions. Typical size in Turkey, Try Bln examples include Ebay and Gittigidi- yor in Turkey

34.7% 34.5 The worth of retail goods transacted 29.9 on-line exceeded TRY 34.5 billion in 2013, up from TRY 14.1 bln in 2010 with 22.1 an annual CAGR of 34.7%2 (Exhibit 2). 14.1 The Turkish e-commerce market is estimated to count ~12k e-commerce sites3, supporting the online purchases of over 10 mln users4 (~15% of the population). 2010 2011 2012 2013

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 3 Prominent deals in Turkish e-commerce sector since 2011

YEAR ACUIRER ORIGIN SECTOR TARGET STAKE DEAL VALUE (US$ MLN)

Delivery Hero Germany Food Yemeksepeti 100% 589

2015 Abraaj UAE Electronic Hepsiburada 25% n/a

EBRD USA Apparel Trendyol n/a n/a

Naspers South Africa Apparel Markafoni n/a n/a 2014

Aslanoba Turkey Gift Buldumbuldum n/a 2.5

Bancroft UK Hotels & tours Tatilsepeti n/a n/a

Hubert Burda Media Germany Apparel Lidyana 22% 5.9

2013 Aslanoba Turkey Gift Buldumbuldum 20% 2.5

Aslanoba Turkey Taxi services Bitaksi n/a 2

Ru-Net Holdings Russia Apparel Lidyana 25% 3.3

Perform Group UK Sports Maçkolik 51% 22.5

2012 Kleiner PC&B, Tiger USA Apparel Trendyol 5.53% 15.7 Global management

General Atlantic USA Food Yemeksepeti 36.69% 44

Kleiner PC&B, Tiger USA Apparel Trendyol 12.07% 26 Global management

Amazon USA Flower Çiçeksepeti n/a n/a

eBay USA Marketplace Gittigidiyor 72% 182.1 2011

Intel Capital USA Group discount Grupanya 13.48% n/a

NASPERS South Africa Apparel Markafoni n/a n/a

Source: EY, Deloitte Turkish M&A reports, desktop research

8 – 9 5 Turkish Interbank Card Center In Turkey, travelling and plane ticket The market is still extremely fragment- (BKM) purchases represent roughly 30%5 of ed; many companies and individual total online spending, followed by insur- entrepreneurs are rushing into the ance products and consumer products. arena, often without clear strategies As in any other comparable market, the and a solid background. In this context, main consumer product categories sold a “Darwinian” natural selection is ongo- on-line are clothing and sports equip- ing: ment, followed by electronic devices and furniture. • Germany’s Rocket Internet only stayed in Turkey one year, shutting The dynamism of the e-commerce down all operations and laying-off sector is also proven by the numerous hundreds of employees in 2012 M&A transactions (Exhibit 3), mostly triggered by institutional investors (PE, • Online apparel site Limango exited VC,…). The disclosed deal size varies Turkey in 2015, after being acquired from USD 1 mln to as much as USD ~600 by Dogan Online in 2013 mln. • Turkey’s first mobile real estate e-commerce app Metrekare was disposed in 2014 despite the support by VC firm Earlybird and local angel EXHIBIT 4 investor Aslanoba The drivers of e-commerce penetration As in any other country with similar characteristics, the key drivers of the 1 4 e-commerce industry in Turkey are INTERNET LOGISTICS / DELIVERY (Exhibit 4): PENETRATION STRUCTURE • Internet penetration

• The average spending power of the population

• Access to modern payment systems

• Mature and competitive logistics market E-COMMERCE

2 3 DISPOSABLE ACCESS TO MODERN INCOME PAYMENT SYSTEMS

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 5 Internet access by country, 2013 (% of total households)

87% 80% 72%

UK FRANCE USA

70% 68% 63%

POLAND SPAIN ITALY

47% 45% 26%

TURKEY BRAZIL MEXICO

Source: OECD, Internet World Stat, VP analysis

10 – 11 Internet penetration Over USD 3.3 bln were invested in telecommunications in 20138, mainly on 6 Euromonitor Turkey had 32.2 million Internet users in 3G upgrades, expansion of the fixed- 7 Techcrunch.com 2013, an increase by ~45% since 2008, broadband infrastructure and fiber- 8 Euromonitor making it the fifth largest online popula- optic networks. With affordable devices 9 TurkStat tion in Europe (Exhibit 5). The number and ubiquitous access, internet adop- 10 Euromonitor of internet users is expected to increase tion is expected to improve, paving the by 53.9%, reaching 52.2 million by 2030. way for e-commerce growth. Total mobile internet subscriptions stood at 24.2 mln users, corresponding to a 35% penetration in 2013, compared Disposable income to merely 1.2% in 20086. Turkish GDP increased with a CAGR of Turkey has an active, young online user ~10% from 2008 to 2013, reaching 1.56 base, with 70% of online users being bln TRY by 20139, keeping Turkey in the younger than 34. Moreover, this popula- club of the top-20 economies, as one tion is highly engaged in social media, of the largest middle-income countries bringing the country to rank No. 7 on in the World. During the same period, Facebook, No. 10 on Twitter and No. 14 Turkish GDP per capita expanded with on Youtube in terms of activity7. an annual CAGR of 8.8% and reached 20.4k TRY per capita (USD 10.7k)10 (Exhibit 6).

Even if Turkey is forecasted to experience a slower growth in the coming years (~5%), with increasing disposable incomes and individual surpluses, more EXHIBIT 6 and more leisure money is expected to GDP per capita by country, 2013 (000s US$) be spent on-line.

58.0

44.1 41.9

35.8

29.8

13.5 11.9 10.9 10.7

USA FRANCE UK ITALY SPAIN POLAND BRAZIL TURKEY MEXICO

Source: Euromonitor

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 7 Share of debit card and credit card on total consumer spending by country, 2013

47% 34% 34%

UK TURKEY USA

28% 25% 14%

FRANCE BRAZIL POLAND

11% 10% 9%

SPAIN MEXICO ITALY

Source: Euromonitor, World Bank

12 – 13 Access to modern payment systems Turkey’s transportation infrastructures have been undergoing substantial 11 Turkish Interbank Card Center With its advanced banking industry, transformation in the last decade. Many (BKM) Turkey is home to ~57.3 million credit investment projects are still ongoing: 12 Worldbank cards and ~100 million debit cards as of 13 Invest.gov.tr June ‘1411, which positions the country • The country is building interna- among the largest in Europe in terms of tional highway and rail coastal freight card volumes (Exhibit 7). However, con- corridors to become an efficient, cerns over online payments still remain attractive logistic hub, especially for across various layers of the population, nearby countries with no coast and alternative payment methods (e.g. Paypal) are considered risky in Turkey. • Furthermore, the State Railways are Although the high credit card penetra- building logistics villages/centers (in- tion is an e-commerce facilitator, a more tegrating railway and highway links solid consumer trust has to be built by across Turkey) to lower the costs of properly informing people about online transportation security systems and fraud prevention. • Major projects include the 3rd Bosphorus Bridge, North Marmara Logistics / delivery infrastructure Highway, Canakkale Bridge and Istanbul-Izmir Highway13. Constituting 10-15% of the Turkish GDP, the logistics industry is of paramount Many players are vying in the B2C importance for the country. Turkey has logistic industry, increasing the level of moved up from 39th place in 2010 to internal competition and bringing the 30th in 201412 in the World Bank Logis- overall service level to higher standards. tics Performance Index, above India, The 48-hour delivery to anywhere in Brazil, Russia, Mexico, Poland, Indonesia Turkey has already become the rule and South Africa. of the game. Few local on-line giants such as Markafoni and Hepsiburada are even promising same-day deliveries, especially in major Western cities where EXHIBIT 8 large warehouses are typically located Major Warehouses in Turkey (Exhibit 8).

Specialized logistics / distribution networks have also entered the market. Chilled and frozen distribution service providers have been partnering with logistics players, producers and retailers for delivery of low-temperature, perishable products (+4°). Polarxp, Turkey’s leading chilled and frozen distribution service provider even provides both warehousing and delivery services.

CUSTOMS BOUNDED WAREHOUSES COLD STORAGE OPEN AIR WAREHOUSE

Source: Invest.gov.tr

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 9 Online buying intentions in the next 6 months, Europe* 2014

GROCERIES

CLOTHING, ACCESSORIES AND SHOES

SPORTING GOODS HIGH CAR, MOTORCYCLE AND ACCESSORIES COSMETICS

PERSONAL CARE

BABY SUPPLIES

PET-RELATED PRODUCTS

TOYS AND DOLLS

MEDIUM ELECTRONIC EQUIPMENT

PRODUCT / SERVICE COMPLEXITY SERVICE / PRODUCT FLOWERS

COMPUTER HARDWARE

AIRLINE TICKETS AND RESERVATIONS DVD, GAMES & MUSIC HARDCOPY BOOKS

TOURS AND HOTEL RESERVATIONS

LOW COMPUTER SOFTWARE EVENT TICKETS E-BOOKS

0 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Source: Nielsen, VP analysis *) European countries include EU members, Turkey, Serbia, Ukraine and Israel

14 – 15 JUST THE USUAL SUSPECTS? WHICH BUSINESSES ARE DRIVING THE E-COMMERCE BOOM?

Typically, the speed of adoption of One notable exception in this group is e-tailing in a given sector is very much represented by the apparel industry. dependent on the complexity of the Apparel has showed a great on-line product/service it provides (Exhibit 9). success, although many factors might discourage people from buying clothes Naturally, the first businesses to exploit with a “click”; for example, most buyers the e-commerce channel were the ones would like to try on clothes in order with simpler product/service range like to be sure about size, color and fabric DVDs, books, games & music, airline before finalizing their purchasing-de- tickets and hotel reservations; today in cisions. On-line sales started to quickly most developed markets, e-commerce pick-up once the industry introduced sales in these sectors have almost well-designed return policies. reached “saturation” levels. There is no “one size fits all” strategy in the e-commerce world, as testified by In Turkey, the integration of physical and tons of different cases. In this respect, online channels within sectors with low let’s give a closer look at a few sectors products/services complexity is still an in Turkey where e-commerce strategies ongoing process. In most of these verti- have been successfully applied. cals, where e-commerce offers a natural advantage, on-line purchases are still midway along the growth pattern expe- Apparel rienced in more advanced countries. As an example: Apparel is one of the leading on-line sectors in Turkey, reaching sales of over • D&R acquired the major online book TRY 1 bln in 2014 by growing at 16.2% seller Idefix in 2013 and expanded its YoY. The prominent factors behind this product range from books to con- success can be identified in easy return sumer electronics on dr.com.tr. policies, affordable pricing and larger availability of products offered to cus- • Teknosa differentiated itself by tomers. Moreover, retailers tend to use launching two different websites to e-commerce for destocking. sell electronics: Kliksa and Teknosa. • Return Policies: As mentioned, one On the other hand, more complex sup- of the main challenges of clothing plies often lack the convenience factor e-commerce was to convince people that appeals to on-line customers (e.g.: to buy clothes without trying them. insurance policies), making the suit- Industry players solved this problem ability of the e-commerce channel less by providing an easy return policy evident. Thus, companies planning to to reassure customers during the move online should be fully aware of process, offering them a “way out” in these realities, and adjust their proposi- case of unsatisfactory purchases. tions accordingly.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 10 Emerging business models in apparel e-commerce

EXCLUSIVE / LUXURY OFFERINGS Premium multi-brand retailers

Flash sales

Niche / single brand retailers FULL PRICE OFFPRICE / DISCOUNT / OFFPRICE

Standard / multi- brand Standard / single retailers brand retailers

STANDARD OFFERINGS

16 – 17 14 Markafoni web site To deploy such a compelling strat- • Pricing: Affordability has been a key egy at operational level, partnering boost-factor for on-line retail. with large, well-established logistic To some extent, this is also due to providers was a must. One of the the implicit risk associated with major online apparel companies, on-line transactions, where prod- Trendyol cooperates with two leading ucts cannot be touched or verified. courier companies, Yurtiçi and MNG Many different business models can Kargo, and allows its customers to be observed here (Exhibit 10), and return a product within 15 days from companies need to carefully manage delivery. The return delivery service is potential channel conflicts, the risk free of charge and most importantly of pricing arbitrage across channels, the pick-up point is chosen by the overall lower margins triggered by an customer. This smooth return process increased competition. increases customers’ willingness to shop on-line without any fear of hav- • Destocking: On-line business models ing to pay for or being left with any also help reduce store retail opera- unwanted products. tion costs by using the online channel for destocking, just as outlets do in • Extended product range: Physical the physical world. Traditional outlet retail stores have clear constraints stores, typically located outside the in terms of inventory size and mix, city centers, are being replaced by sometimes incurring on lost-sales when on-line sales through specific dis- customers cannot find what they are counts/campaigns, or flash-sales. looking for on the shelf. On flash sales To accomplish this goal, companies websites like Markafoni and Trendyol, are both pushing products through multiple categories are offered to their own websites and partnering customers (e.g. from shoes to un- with other online platforms to deliver derwear). This product variety helps daily/weekly sell-off campaigns. boosting cross-selling and increases 1V1Y represents a good example of overall revenues. Markafoni, the first an innovative strategy. The website and leading player, established in was founded by 16 investors (mainly 2008 with 6% market share in the total well-known local apparel brands) domestic e-commerce sales, offers ~10 with the intention of using the different categories with an average platform to sell their on/off-season of 20 apparel brands and manages 50 products and timely manage their in- thousands transactions daily14. ventories. At the same time, it turned out that online apparel websites with a substantial subscriber base like 1V1Y could serve as an advertising platform, to increase the visibility of new brands with low recognition. This simple yet powerful intuition dramatically increased 1V1Y’s appeal to brands and users.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? Grocery e-tailing The delivery chain of Tazedirekt con- sists of 250 fully air-conditioned trucks. 15 Deloitte Retail sector update Food retailing in Turkey grew by 4% in The company, additionally, uses an 16 Parekende.org 2014, reaching TRY 265 mln15, with an advanced software infrastructure to 17 Eurostat online share estimated at only 1%16. manage inventory and closely align it to 18 CIA World Factbook Even though belonging to the “complex- order intakes, in order to never exceed 19 Webrazzi to-sell-online” group of goods/services, products’ expiring dates19. 20 Groupe Auchan online grocery is silently taking-off, 21 RR Kantar Worldpanel despite consumer skepticism and reluc- Choosing the right delivery model tance by some main players to embrace makes the difference. To meet rapidly- new customers’ needs. changing customer needs, companies can play with click-and-collect, home- Solid societal drivers are pushing this delivery services, or mixed solutions. phenomenon towards significant growth Whereas “home delivery” typically in the near future. Firstly, compared targets those customers who consider to past years, more females are join- the purchasing experience annoying ing the working population in Turkey. per se, “click & collect” models serve The traditional house-wife role, where those customers who instead enjoy it to women are the only responsible for some extent, and by doing so also try to providing grocery supplies to families, increase traffic within the retail shops. is progressively losing ground, as the economically active female population A best-in-class example of click & col- is expected to increase by almost 40% lect strategies is provided by Auchan between 2013 and 202017. Secondly, the Drive, introduced in France at the rising urbanization (~73% in Turkey as of beginning of 2000s20. Drive is a simple 201418), with the burden of increasing click & collect service that allows shop- complexity it brings along (e.g.: traffic pers to order spontaneously or in ad- congestion, longer supermarket queues, vance. The customer drives to a pick-up etc.) will make it harder and harder for point and products are delivered to his women to balance their roles of workers vehicle in less than five minutes. Auchan and family care-takers. has 81 drive stores; a typical establish- ment sells 12,000 products and serves Here, the complex logistic structure 350 customers daily. needed to manage perishable products The click-and collect business reached a requires substantial investments. Online 25% penetration and took 4.2% share of grocery retailing requires advanced the French grocery market in February logistics to keep products fresh. In order 201421. 68% of French consumers claim to ensure high-quality food delivery they use Drive because it saves time, operations, companies tend to establish while 34% say it helps them to control their own logistic infrastructure instead their budget. Furthermore, Auchan has of using existing truck fleets (especially extended the click & collect model also in the case of organic / fresh food pro- to other formats including Auchan’s viders). Leading angel investor Aslanoba general merchandise store GrosBill and recently announced its new start-up Arcimbo, a new fresh foods store. Tazedirekt to offer organic vegetables, fruits and meat grown out of strictly controlled farms and plantations.

18 – 19 22 Freshdirect FreshDirect (USA) established a suc- Food delivery 23 UKessays cessful business model in the home- 24 Fortune delivery grocery segment. Founded in Food delivery business in Turkey is one 25 Yemeksepeti 1999, FreshDirect, is an online grocer of the most consolidated e-commerce 26 Deliveryhero offering next-day delivery, sells fresh sectors. It has become an attractive op- food, offers popular grocery brands tion for those who don’t want to spend for up to 25% less than supermarket their time on cooking and who find prices and delivers right to customer’s eating at home more comfortable than door from its warehouses. The target going out. New platforms connecting a customers of FreshDirect are well large number of restaurants and menu described as urbanized people, typi- types through a single web-tool have cally busy, short on time and annoyed emerged. by daily pressures22. The CEO Richard Braddock underlines that the success of The player that first entered this arena, the company is based on well-designed Yemeksepeti (literal translation: Food customer-oriented IT systems, since “a Basket), still holds the market leader- loyal customer in online grocery is more ship, ensured by an extensive cover- important than a new one”23. Fresh- age of urban areas. The company was Direct provides discounts to its loyal founded in 2001, as internet just started customers and identifies the shopping to emerge in Turkey, and dominates the patterns of customers to understand on-line food delivery market with over consumer-specific habits and tap cross- 90% market share. Yemeksepeti gives selling opportunities. In addition to this, small restaurants access to potential FreshDirect was successful in solv- customers beyond their facilities’ ing some typical online grocery “pain neighborhood. Early partnering with points” (e.g. food solutions & perishable large restaurant chains, offering “at the products). For the hectic, single urban- door” payment solutions and providing ized customers who lack the time for high service quality have been the key cooking the company started offering success factors behind Yemeksepeti’s 50 heat-and-eat meals; similarly, for cus- expansion. tomers who are obsessed with product freshness and want to “touch” before Today, the company provides services buying, FreshDirect introduced a rating in 62 cities with over 10 thousand res- service carried out by a team of profes- taurants and acquires 3 million orders sional inspectors in order to increase monthly. Apart from Turkey, Yemek- trust over products. The innovative and sepeti operates in 9 other countries in customer-oriented approach made the Middle East and Eastern Europe: UAE, company the 1st player in the New York Qatar, Oman, Lebanon, Jordan, Saudi area and granted it a 7% market share in Arabia, Greece, Serbia and Romania25. the whole USA on-line grocery market, Transaction volumes of Yemeksepeti even if the company only operates in 3 in 2014 reached USD 137 mln. Delivery states24. Hero, the large German food network with more than 100k restaurants and operations in 25 countries, acquired full stakes of Yemeksepeti for USD 589 mln in the first quarter of 201526.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? 27 Pandodaily The business model is based on pro- Hepsiburada, a leading marketplace 28 Euromonitor viding a platform to connect all sorts with ~ 15% market share in the Turkey e- 29 Euromonitor of customers and restaurant types. commerce industry29, conducted a suc- 30 Hepsiburada The customer’s order taken on-line is cessful campaign to improve customer 31 Akaçe annual evaluation forwarded to the restaurant for prepara- feedback, promoting a bonus system by report tion and the delivery is provided by the which customers can earn vouchers to 32 CEO statements restaurant itself. Customers can monitor spend on next purchases30 as they give delivery status and then rate their full feedbacks about the products. experience on the website. Payment can be completed on-line or at the door by Price comparison-engines are also cash or credit card. Yemeksepeti gets a getting popular. Akakçe stands out as 10% commission for each transaction. it gets over 5 million customer clicks monthly31. The web portal shows price The other reason behind Yemeksepeti’s offers from both vertical and other on- success is the decision to continu- line retailers and builds comprehensive ously invest in customer satisfaction. overviews for the most price-sensitive A dedicated call center employing 80 customers. out of Yemeksepeti’s 400 employees is responsible for communicating with E-commerce platforms have demon- customers and solving their issues. strated how this channel can “enlarge” Yemeksepeti also maintains high-service the traditional value pool of a sector, quality by monitoring restaurants and if consistently integrated with exist- removing low-performing ones from its ing off-line options. Teknosa, the local network. Thanks to these efforts, the leading electronic retailer, found that company has a customer base with an the highest traffic and volume of on-line over 60% loyalty rate27. transactions was coming from the relatively underdeveloped eastern regions in Turkey (e.g. Sırnak, Hakkari, Mardin Consumer electronics and Tunceli)32, characterized by a limited number of stores, typically offering Consumer electronics and appliances limited assortments. By acknowledging are by far the largest e-commerce mar- this fact, the company responded with ket in Turkey. The sector accounted for tailored offers and drove sales in south- almost TRY 2.9 bln in 2014 and grew by east regions up by 50% in 2014. 31.7% annually from 2009 to 201428.

Customer feedbacks are a strong enabler of e-commerce as most users nowadays start their journeys on-line to check prices, better understand product features and “listen” to other users’ opinions about brands and their propositions.

This has been a key success factor also in Turkey, as it represents a great opportunity to establish a direct relationship with consumers, strengthen brand loyalty and reinforce the customer experience.

20 – 21 THE WAY WE SEE IT. THE KEY PILLARS FOR SUCCESSFUL E-COMMERCE IN TURKEY

33 RJMetrics Whichever the industry, developing a In the past years, the main focus of 34 RJMetric successful online business is far from online ventures has been that of getting being a straightforward and mechanic the customer to buy today, with online task, especially in today’s highly dy- platforms and marketing strategies namic online environment. Key success being designed to capture online traf- factors are rapidly changing, driven by fic and convert it to sales before the the evolution in consumers’ behaviours competition had a chance to. However, and expectations, along with an increas- the days of easy and cheap customer ingly competitive online landscape acquisition are ending and the focus is distinguished by high market entrance consequently shifting towards getting rates, also from adjacent industries, customers, especially high-value ones, emerging business models and overall to buy today, come back tomorrow and high pressures on margins. advocate the company in the process.

Since the e-commerce landscape is to Research indicates that, on average, many extents still to be discovered in only ~30% of customers actually place full, companies need to be very cautious a second order over the course of and thoughtful before embarking on the the first year, and even those who do online journey. Without the right strat- typically spend ~70% of the year’s total egy, this would put at risk significant within the first 30 days from the original financial resources, their current brand order33, often for complementary items image and the clarity of their position- (Exhibit 11). Companies therefore have a ing in their customers’ eyes. very limited window of opportunity for transforming “hit and run” customers The good news for companies aiming at into loyal ones, with which to establish increasing their presence in the on-line long-term profitable relationships. world is that successful e-commerce players don’t fall into a single, standard Moreover, in the online environment category. Their product strategy can value is far less evenly distributed than be niche or more horizontal while their in the physical world, and the familiar prices can be set between affordable “80/20” rule under which, no mat- and premium. To enjoy a strong posi- ter what the business, about 80% of tioning and a sustainable growth in the the value typically comes from about online arena, companies must however 20% of the customers, is brought to an excel at turning one-time buyers into extreme. It is in fact estimated that, on loyal customers. average, the top one percent of online customers are worth 1834 times the average one, often driving nearly all of a company’s revenues.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? EXHIBIT 11 Percentage of customers placing at least n orders in their first year

100% 100

In the case of repeated purchases, 70% of the first 75 year’s expenditure is observed within one month from the original purchase

32%

% OF CUSTOMERS 25 17% 11% 8% 6% 0 1 2 3 4 5 6

NUMBER OF ORDERS

EXHIBIT 12 Key pillars in e-commerce strategies - Omnichannel integration - Delivery everywhere - Wide product range 1

CONVENIENCE

ONLINE CUSTOMER LOYALTY

Lean cost structures - AFFORDABILITY TRANSPARENCY - Feedbacks Integrated pricing - - Comparisons Management of promotions - - Research 2 3

Source: RJMetrics

22 – 23 35 Forrester research web- The success of an online business can The shift in customer expectations influenced retail sales therefore no longer be measured by Customer journeys are no longer 36 Telegraph.co.uk acquisition rates alone but rather by confined to a single channel today. They successful customer engagement and might start in one channel (e.g. web) loyalty, especially of high-value custom- and proceed through numerous others ers, enabled by effective and consistent (e.g. social media, email and phone). In on-line propositions built around 3 stra- advanced retail markets like the USA, tegic pillars: convenience, affordability even though 4 out of 5 purchases occur and transparency (Exhibit 12). in stores, half of them are influenced by the online activities & online brand equity of the retailer35. Customers no Convenience longer accept not having instant information and control over the whole pro- Convenience to on-line customers usu- cess. Uber, seamlessly connecting riders ally takes the form of an easy access to drivers, provides data to its users in to on-line platforms, the simplicity of real-time. The app enables customers to hassle-free purchasing processes and track / cancel cars at any moment, and a large availability of products and delivers “live” information to custom- services. With reference to the first one, ers, from distances and waiting times to in any sector there is a strong evidence car types. Likewise, Apple Genius Bar’s that customers are building more seamless and convenient customer and more solid expectations about a service responds to the need for full seamless shopping experience across control over the process. Customers multiple channels. make an appointment on-line and then meet at a given store with a specialist, However, although multichannel ap- who can investigate the problem by ac- proaches help companies to tap new cessing the device history beforehand. customers, they often lack a coherent, holistic view. In this perspective, compa- Physical / digital retail integration nies need to ask the following questions: Shoppers want to walk across different channels with no troubles. The luxury • How to address and meet new cus- fashion retailer Burberry36 has a flag- tomers’ expectations when designing ship store equipped with multimedia e-commerce propositions? technologies providing customers a seamless in-store shopping experience. • How to seamlessly integrate the cus- By entering the store, customers can tomer management across different see audio-visual contents on full-length channels? screens, mirrors and banners located on section walls. When a customer ap- • What is the most suited delivery proaches a product, RFID tags attached model to our customers? to the items activate and display the article of clothing. Customers can place • How to ride the surging mobile products on RFID platforms and can revolution? see how those products look like in the projected images. Also, sales reps have portable PoS machines for faster check- out processes.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? 37 vibrantgfx Augmented reality is becoming popular Taking advantage of the mobile 38 Arcadian group as well. With these technologies, USPS, revolution 39 Google traffic data the American postal office, allows users Connected mobile devices are taking 40 Aberdeen group to choose online which box size is ap- over the planet and mobile traffic is omnichannel customer care research propriate to ship their parcels. When the expected to surpass desktop traffic in 39 41 Nielsen object is located in front of the webcam, 2015 . The upcoming mobile revolution the augmented reality program provides requires all businesses to increase their 3D image of the best-fitted box37. focus on the mobility of customers.

Similarly, companies can redefine their Walgreens has created a ‘Scan-to-Refill’ omni-channel approach in line with feature in its pharmacy service and their physical expansion strategies. In observed remarkable adoption rates40. the case of Topshop, flagship stores in With the scanning feature embedded exclusive city locations are designed as into their mobile app, customers can showrooms to display the latest prod- scan drug labels and pick-up their pre- ucts, while pushing for the majority of scription refills in an hour. its sales to take place on-line. The data gathered from online sales enables Another well-known case is represented Topshop to decide where to open new by the virtual shelves introduced by stores or establish synergies with large Tesco in South Korea. Commuters use international retailers. In line with this their smartphones to scan for items on strategy, Topshop opened 2 flagship an interactive billboard using the re- stores in Hong Kong and Australia tailer’s free mobile app41. They can then and partnered with a retailer-chain in choose a delivery time-window, thereby Germany. This move helped increase “making the most” of their commutes. Topshop’s international revenue by 33% in 201338. Reshaping logistics models Myriads of different delivery combinations, together with their back-end logistic set-ups, have been tried in this area. Of course, the optimal solution differs from business to business, and customers have different needs.

Three distribution models are basically observed in the market: free delivery and returns, click-and-collect and charged deliveries.

24 – 25 42 Telegraph.co.uk UK’s Zara and Asos, with relatively Affordability 43 360pi higher prices, offer deliveries for free, absorbing part of their delivery expenses Thanks to the transparency of on- into nominal prices of goods sold. The line transactions, companies are now practice has also spread to emerging able to track each other’s pricing and markets, as Turkey’s Boyner and online- promotion strategies and react very giant Hepsiburada offer free deliveries. quickly. This has led to an increasing Yoox, a high margin e-tailer, is trying adoption of dynamic pricing approach- to differentiate from competitors by es by companies. The average on-line introducing a “butler service”, where the price updating cycle in many sectors is delivery-man waits for 15 minutes while now in the range of 2-5 days, and varies customers try on their clothes42. mainly with the product type and company’s strategy43. This new reality poses However, free of charge delivery serious challenges to traditional pricing and returns are hard to sustain for habits (especially in B2B); in fact, does low price, low margin retailers. H&M it still make sense to work with rigid, for example charges for shipping. quarterly or semiannually updated price Amazon instead has a specific offer lists, if on-line price level change every for loyal customers: Amazon Prime, an day? expedited-shipping offer where deliveries are free for two day-shipping. For Even if these dynamics might push retailers with an established footprint, competitive rivalry and set an industry click-and-collect seems to be a viable, into a commoditization spiral, there albeit less effective option. UK’s Next are many ways to move away from the and Marks&Spencer have introduced swamps of solely-price-based competi- click-and-collect systems to leverage on tion. Consumers do not only search for their wide-spread store network to keep the lowest price and often the hidden costs as low as possible. service components allow companies to distance themselves from a “lowest- price-kills-all” scenario.

Looking at Black Friday sales of the largest global e-commerce players in 2013, Amazon had the lowest price in most of the categories yet it didn’t offer the lowest price in all of them. Similarly, Walmart had the largest product range in low-end products but didn’t have the lowest price in all of them. A closer look at these pricing patterns shows that categories with limited price elasticity (e.g. stationary, home essentials, car care products) do not undergo “inevitable” down-pricing.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? Also, global retailers are not always able Transparency / interested in reducing prices at the lowest levels, especially when the related Together with e-commerce possibilities, products come available to them with internet also made available to consum- limited quantities / assortment, or can ers pervasive tools to compare prices or be easily managed by the companies gain deeper knowledge about sell- or brands they belong to (e.g. luxury ers and products. As a consequence, brands, eyewear, watches…). on-line players are naturally forced to increase their transparency on the mar- A finer segmentation of customer ket since millions of followers, through needs and product characteristics will review websites, blogs and social media often give companies the elements to accounts, are ready to support or de- devise the right pricing strategies. For stroy their businesses. instance, Turkey’s Hizlial (“Get Fast”), was a late comer into mass-market The social media and reviews’ effect e-commerce, but was able to leverage on e-commerce on faster delivery times to appeal to Today, Facebook has 1.44 billion, Twitter customers and differentiate itself. As a 300 million and Instagram over 300 result, Hizlial managed to consistently million active subscribers, which make chip-away market share from the leader, the use of these platforms inevitable for Hepsiburada. marketing, PR and sales activities, even for the smallest enterprises. Similarly, the local on-line home decora- tion portal Evmanya was able to dif- Customers are also stimulated by a ferentiate itself in an industry which flurry of independent influencers like is often subject to commoditization celebrities, bloggers, and “gurus”. These pressures, with an astonishing variety of accounts usually build a more personal products (75k SKUs), offered together relationship with their followers and with suggestions on their combinations. customers are more likely to listen to The leading on-line travel agency in their advice. Consider Nike as an exam- Turkey, Bavul, maintains its customers’ ple: the brand has adapted itself to this attention span by projecting the total new way of subtly supporting its brand cost of a trip for customers on different and products by endorsing popular destinations, for easier comparisons. fitness figures on Instagram which are followed by millions of people.

Besides utilizing social media to adver- tise their products, companies should be responsive to feedbacks and pro- actively engage into the thousands of conversations that constantly take place on the web. Statistically, 61% of people rely on consumer reviews for product information or research before making a buying decision, while customers use different platforms to share their experi- ences with other friends/consumers (e.g. company websites, text messaging, social media and consumer review websites).

26 – 27 44 Survey data by Harris The limits of customized recommenda- The recommendations are based on Interactive tions and personal data requests past preferences or average ratings of 45 The New York Times Magazine In Turkey, customers are becoming more the movies and presented with short ex- and more sensitive about providing their planations (e.g.: “since you’ve watched personal information on the web due to that movie…”). both restricting governmental policies and increasing number of annoying Thus, the players should pay more commercial ads they are being exposed attention to understanding the impor- to every day. tance of transparency and rising power of social media, and should acknowl- Even though on-line players need their edge the limits and risks embedded in customers’ information in order to learn direct approaches towards customers. about their preferences and manage To this regard, consulting with social their relationships with them, custom- media agencies and market research ers are often reluctant to fulfil these firms would help them develop more requests. The best strategy here is to successful and transparent online clearly explain what the company is strategies. planning to do with the provided information. This may prevent regrettable misunderstandings even though it may not fully solve the problem.

77%44 of on-line buyers state that they have higher trust in those businesses who are fully transparent about why the data is being collected and how they plan to use it.

The same holds true for customized recommendations. On-line retailers tend to track customers’ purchasing patterns and search histories and tailor their product/service recommendations accordingly. Although this may sound like an easy, no-brain practice, players un- fortunately often fail in this process. In the U.S., Target sent promotional emails about specific products to customers identified as pregnant based on their previous searches. As a result, a teen girl’s family was in- formed about their daughter’s pregnan- cy by the company45. On the other hand, Netflix, the world’s largest online movie rental platform, has been successfully offering customized recommendations to its users. Netflix gives personal advice to its customers and builds trust through transparency.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? OUR EXPERIENCE IN E-COMMERCE STRATEGY

Value Partners has developed compe- Selected engagements in market entry tencies with a 360° strategic view in the strategies e-commerce business and completed successful engagements with its clients Automotive from finance, telecom and media industries, located across Asia, Middle East • For a global component manufactur- and Europe. er, we assessed the current European B2C e-commerce market, identified We supported our clients in market en- target customer segments and evalu- try strategies, opportunity assessment ated strategic options for an entry / sizing and platform / portal design & into the e-commerce channel. developments and delivered calibrated projects to address best-fit solutions Telecom and strategies. • For a leading telecom operator in Malaysia, we assessed the opportunity of entering the local e-commerce market, identified market opportunities, developed a market entry strategy for the operator and screened potential partnership targets

• For a leading Mobile operator in Companies need to ask Taiwan, we developed a market entry strategy in the Chinese e-commerce the following questions: how market and concluded the study with a comprehensive market entry to address and meet new business plan, business cases and financial models customers’ expectations when designing e-commerce propositions? How to seamlessly integrate customer management across different channels? What is the most suited delivery model to customers?

28 – 29 Media Finance

• For a global banking and financial • For a leading Asian Media group, services company based in Italy, we we assisted the market entry in the redefined and designed the e-bank- e-commerce business, both home ing system, in order to improve its E- and abroad. We prioritized selected bank usage and customer experience country markets then developed op- erating models and designed a multi- • For the leading Italian bank, we sup- platform integration scheme, overall ported the design of a new retail web business plan and financial model portal, with focus on single-screen user interface and web 2.0 • For a European on-line media company, we produced a market strategy • For a global leading France-based and in-depth financial business plan finance company, we set up a unified to analyze the opportunity in the e-banking system, and enhanced the acquisition of a Russia-based music brand image and customer experi- download site ence delivery

• For a world-renewed news and mul- In line with our previous project ex- timedia company, we forecasted the perience and dedicated knowledge revenues of its new media businesses, from many years of collaboration with including an e-commerce venture clients across different industries, Value and focused on e-commerce market Partners is eager to keep formulating sizing and evolution and developing new synergies for the worlds’ rapidly changing e-commerce • For a major UK cable provider and ecosystem. content creator, we evaluated the viability of launching a multi-platform e-commerce proposition. Following approval of the proposed business and strategic plan, we also successfully supported the implementation phase of the project

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? AUTHORS

ALBERTO CALVO GÜLBEN SOLAKOGLU ANIL KAYA Partner, Istanbul Office Associate, Istanbul Office Business Analyst, Istanbul Office [email protected] [email protected] [email protected]

SEMIH KILICGEDIK Business Analyst, Istanbul Office [email protected]

30 – 31 Whichever the industry, developing a successful online business is far from being a straightforward and mechanic task, especially in today’s highly dynamic online environment. Key success factors are rapidly changing, driven by the evolution in consumers’ behaviours and expectations, along with an increasingly competitive online landscape distinguished by high market entrance rates, also from adjacent industries, emerging business models and overall high pressures on margins.

PERSPECTIVE TURKISH E-DELIGHTS: THE NEXT BIG THING? ABOUT VALUE PARTNERS

Value Partners is a global manage- Value Partners combines meth- For more information on the issues ment consulting firm that works odological approaches, analytical raised in this note please contact with multinational corporations frameworks and professional tools the authors. and high-potential entrepreneurial with a practical hands-on attitude businesses to identify and pursue and a wealth of industry knowledge Find all the contact details on value enhancement initiatives across and executive capacity within many valuepartners.com innovation, international expansion, sectors, such as telecommunica- and operational effectiveness. tions, new media, financial services, Milan energy, manufacturing and hi-tech. London Founded in Milan in 1993, over the Istanbul years, Value Partners has grown to For more information on the issues Dubai over 30 global partners and more raised in this note please contact the São Paulo than 250 professional consultants authors. Find all the contact details Buenos Aires from 23 countries. It has offices in on valuepartners.com. Beijing Milan, London, Istanbul, Dubai, São Shanghai Paulo, Buenos Aires, Beijing, Shang- Hong Kong hai, Hong Kong and Singapore. Value Singapore Partners has built a portfolio of more than 350 international clients – from the original 10 in 1993 – with a worldwide revenue mix, as over 60 percent of the management consulting revenues are generated outside Europe.