In the first blog post in our series about Channel Strategy in Brazil, I discussed how multinationals should think about the decision between direct and indirect distribution models as they enter Brazil for the first time, or as they enter into new geographies or customer segments. In this second blog post, I will focus on the component of channel strategy that tends to receive the most media attention, though not necessarily the attention of multinationals when thinking about ways to support channel performance.
I am talking about e-commerce.
The reasons why companies have yet to make the most of e-commerce in Brazil varies by sector. B2C e-commerce sales are constrained by a lack of user trust (the country’s rate of credit card fraud is among the highest in the world), internet access (only 50% of Brazilian households are in areas with broadband access) and high logistics complexity (the big consumption centers of Sao Paulo, Rio de Janeiro and Belo Horizonte all have regulations that oblige e-commerce companies to make deliveries within one-hour time windows).
In the B2B space, there is a general misconception that companies selling complex solutions are unable to use e-commerce to drive sales because online platforms fail to replicate face-to-face customer experiences. Pharmaceutical companies confront the toughest environment when it comes to e-commerce as the online sale of personal care and pharmaceutical goods is restricted to businesses that have a physical pharmacy and an on-duty pharmacist.
Notwithstanding existing limitations for the growth of e-commerce in Brazil, e-commerce sales are expected to grow at an average of 12.4% per year over the next three years. If we compare Brazil and the U.S. in terms of e-commerce penetration, the room for growth is still tremendous—only 27% of Brazilians made a purchase online in 2014, compared to 60% of Americans. B2C sales in Brazil amounted to R$35.8 billion in 2014, but if we were to apply the U.S. ratio of e-commerce sales to total consumption to Brazil, the size of the Brazilian e-commerce sector for B2C companies would actually amount to R$104 billion. Following a similar rationale with B2B e-commerce, annual sales could reach R$238 billion.
So how can multinationals leverage e-commerce to grow their sales in Brazil? At FSG we have identified the key factors that companies need to get right in order for e-commerce to become a real engine of growth for their business.
- B2C companies: Consumer goods companies should focus on generating user trust and on overcoming Brazil’s logistics burden. When it comes to generating user trust companies should leverage the growing presence of online payment providers such as Pago Seguro or Paypal while generating a track record of consistent on-time deliveries. This second component will require overcoming the logistics burden, which is a bit more complicated. Despite the challenges, some innovative companies have been successful at reducing logistics costs by developing technologies that allow for the automatic selection of the cheapest logistics provider for any given delivery based on size, weight, volume, invoice value, number of shipments, and distance or destination. Other, more creative solutions include using passenger bus lines to move products to smaller municipalities.
- B2B companies: B2B companies should focus on enhancing their online platform to offer greater access to product information to shorten sales cycles and to facilitate re-orders from existing clients. Multinationals that sell complex products or services should see e-commerce as a way to empower their sales teams, not replace them. By enhancing product information provided via their e-catalogues, or by, for instance, including instructional videos, companies can reduce the number of required introductory in-person meetings with new clients and free up their sales representatives to generate new leads. Permitting existing customers to re-order online can not only generate additional efficiency gains but can also open up the possibility of up-selling clients via new product offerings, price discounts or loyalty programs.
- Healthcare companies: With the exception of some medical device companies, healthcare companies are unable sell directly online. However, this does not mean they should not be leveraging e-commerce. Although only 8% of Brazil’s pharmacies are currently selling on the Internet, pharma e-commerce is expected to experience rapid growth during the next few years as a result of modern regulation and rising customer demand for convenience and lower prices, which offers an opportunity for multinationals to drive sales by piggybacking onto pharmacy chains that sell online. A good example of such a pharmacy chain is Drogaria Nova Esperança, which has achieved annual sales growth of 34% since the 2007 inception of its online store.
Finally, multinationals will need to decide how they want to integrate e-commerce with their existing channels. Some companies will choose to allow unrestricted customer access to all channels, while others will only use e-commerce to reach customers who would otherwise be too expensive to serve. Companies that choose an unrestricted channel strategy should make sure that they adjust incentives across channels, maintain integrated logistics operations, and keep a single management team to oversee all channels in order to ensure strong internal alignment, operational efficiency and a similar customer experience.
This is Part 2 of a five-part blog series on Channel Management in Brazil. Stay tuned for my next post, where I will be discussing how to develop a sound process to select, vet, and sign channel partners.
(Read Part 1 here.)