by Prof. Srinivas Reddy, Dr. Sandeep R Chandukala and Sarita Mathur | 25th May, 2018
It was December 2015 when Tito Costa, Managing Director of Zalora, a leading online fashion retailer in Asia-Pacific, rushed in for a meeting with Mervyn Chua, Zalora’s Head of Mobile Marketing, and his marketing team. Today’s discussion would require answers to some hard-hitting questions regarding the future of Zalora’s multi-channel business model.
Zalora was first launched in Australia in September 2011, and six months later in eight other countries in Southeast Asia. By end 2015, it had become the fastest growing online fashion retailer in Asia with three million unique customers, selling over 30,000 products under approximately 500 international and local brands.
Zalora’s product offering, which included clothes, shoes, accessories and beauty products, expanded to include major international brands as well as local brands unique to each market. Zalora’s 100,000 plus styles across approximately 500 brands included the company’s own private label brands, which represented a third of total sales by end 2015.
The company prided itself on bringing global fashion to local customers. Its websites and customer service call centres were in local languages, and allowed for cash-on-delivery and other local payment methods. Zalora had established an efficient and scalable business model, including its own last mile delivery fleet of over 300 riders and seven warehouses across Southeast Asia, allowing for faster and more cost-effective logistics.
Desktop Vs App
In March 2013, Zalora had expanded it sales channels by launching the Zalora mobile app on the Android platform, which was then extended to the iOS platform in September 2013. In the first 12 months of the launch, the number of active users grew over five-fold to over 104,000 while the number of active web users dropped from 2.66 million to 2.18 million. By March 2014, app sales stood at S$170,836 (US$134,960), accounting for 8 percent of total sales, while the balance 92 percent (with revenues of S$1.89 million or US$ 1.49 million) still came from web sales. However, when it came to resource allocation, 12 percent of Zalora’s total advertisement spend went towards the mobile app. Costa commented,
"The numbers seemed to suggest two contradictory trends. On the one hand, mobile adoption was on the rise and the number of active mobile users was rapidly expanding compared to active web users. The company was also spending more on mobile ads. However, conversion rates on the web continued to be higher than that for the app. So we asked: Does the app bring in higher value customers? Are we attracting the same quality of customers on the app as on the web?"
Costa was in two minds whether the company should invest further in the app. He agreed that, while apps played an important role in overall customer engagement, the app and web browser were channels which served different purposes for customers, Costa was also aware that customers were often weary of downloading yet another app on their smartphone – they would do so if there is a monetary incentive, but chances were that the app would quickly fall into disuse or even be deleted at a later stage. Meanwhile, for purchases that required research – and fashion fell in this category –customers seemed to prefer the convenience and functionality of web browsers on their computers compared to mobile apps. The internal debate continued.
Revisiting the Business Model
By end 2015, the Zalora app had over 4.45 million installations and 2.7 million active customers across all its markets; and its mobile app sales stood at S$2.31 million (US$1.64 million) compared to desktop sales of S$3.23 million (US$2.29 million).
Impressed with Zalora’s app performance, Chua mooted the idea of gradually moving toward a pure app model. But Costa was hesitant. He argued that it might be premature to make such a bold decision. Zalora’s web offering had been successful in developing a loyal customer base that was growing in size and spending well. Costa did not want to alienate this segment by shutting down the website and moving to the app-only offering.
Evaluating the value proposition of the mobile app
The real challenge in the mobile strategy was to incentivise customers to download the app – which was done through a discount voucher – and to use the app to make purchases. Experience showed that customers were unwilling to go through with the full transaction on their mobile phones, making continues usage, engagement and retention a significant challenge.
Choosing the right channels and channel partners also proved to be rather challenging. Zalora adopted a proactive strategy of partnering with a range of channel partners, each with access to a unique demographic or customer segment. The number of channel partners varied greatly by market – for instance, Zalora contracted with 46 channel partners in Vietnam and 83 in Indonesia. The performance of channel partners also varied by country and by unit of measurement. While Singapore’s conversion rate (install to order) of 32.6 percent proved to be most successful, those in Thailand, Indonesia and the Philippines hovered around 16 percent.
There were examples of other online retailers that were successfully engaging customers through their mobile app. Interactive platforms based on augmented reality such as that used by the cosmetics company Sephora seemed to attract customers to “test and buy” on their mobile phone.
Today was decision time. The question was not whether to have a mobile app or not, it was about getting the best value from the app. What investments and incentives were needed to create a large and growing set of loyal customers who would see the Zalora as their go-to app for all their fashion needs? Could Zalora develop creative talent and a selling culture required to make the investments worthwhile?
The case was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This case was developed with the support of Centre for Marketing Excellence's (CME) LVMH-SMU Asian Luxury Brand Initiative and Retail Centre of Excellence (RCoE).