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What factors have made Lazada's success in Vietnam's e-commerce market?

What factors have made Lazada's success in Vietnam's e-commerce market?

Tuesday 06, 10 2020
Established in 2012 by Rocket Internet Singapore, Lazada has been available in most Southeast Asian countries and they have become the leading online retailer in South East Asia which has attracted more than 100 million visits.

 I.Company profile

1.     Mission

As a subsidiary of one of the world’s largest e-commerce companies and one of the most popular e-commerce sites in the southeast Asia area, Lazada’s mission aimed to shapes itself to become the number-one online trading website in its market. Over the last 6 years, Lazada has been continuously spreading its influence over six countries in the area, which include Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam with over 100 thousand sellers, 3 thousand brands available, and serve over 500 million customers within the region. As revealed in one of the earlier interviews last year with the Vietnamese press. The company’s target is to more available to the Vietnam market, creating a satisfying shopping experience for every Vietnamese and open further to other markets in the Southeast Asian region.

2.     Primary objectives

When the company first started in Vietnam in 2014, there are a number of challenges that needed to be addressed. To solve these challenges, Lazada’s COO had set up a number of objectives. Firstly, Lazada has to build up customer trust in a market that is still rather new to E-commerce. Secondly, the company aims to establish a delivery infrastructure seeing it is such an important aspect of the business. Finally, Lazada must attract the right talents in order for the company to run at its full potential.

3.     Products/Services

Similar to many other E-commerce platforms, Lazada Vietnam’s website is a place for individuals and companies to trade products and sometimes services. These products may range from daily convenience products like food and beverages to more specialized products like luxurious brands products like Gucci or Prada fashion products. Services could also be found on these platforms, though they are not as diverse as product offers, with car maintenance being the primary service to be offered. In addition to products that are offered directly by its brands through Lazada, this platform also creates another site called LazMall in 2018 to show products that are claimed to be examined and selected by Lazada itself as reported by Lazada 2019. As stated by Lazada, these sites offer their commitment to the quality of the products that are shown. This helps the customers to be more assured when shopping at Lazada as the responsibility for the products they purchase is now shared between both the brand that produces it and Lazada. 
The purchasing process, delivery, and post-purchase services provided by Lazada are also quite well organized. Firstly, the purchasing process is quite simple and user-friendly with a clear image and description of the product and easy steps for a customer to finalize their purchases. Secondly, Lazada employed delivering and shipping policies that guarantee the arrival of the product as soon as possible after the purchase was made. Finally, buyers can receive full refunds of a product should it be unqualified on arrival. This final policy would further enhance the trust of customers toward purchasing on an online platform. 

4.     Main market target / Customer

The number of internet users in Vietnam in 2020 took up 54% of the population with the majority are those who live in urban areas with age ranging from 15 to 54. In which, those who are in the age range of 18 to 25 tend to purchase goods via E-commerce websites more and often are from two cities, Hanoi and Ho Chi Minh city. Additionally, the research also pointed out that people who purchase products often search for information using online searching engines. Therefore, Lazada should focus more on selling and promoting its products to people within the age range of 18 to 25 who live in urban areas. 

5.     Competition environment

In general, the Vietnam market is an emerging market with a lot of potentials. The current population of Vietnam is over 90 million which densely compacted in urban areas where infrastructure is much more developed. Not only that, the most crowded group has the age range of 25 to 54, which takes up over 45% of the country’s population. This does not only provide an abundance potential workforce for any company, for e-commerce companies like Lazada with the main target customer as mentioned above, but it is also a huge opportunity for increasing sales. However, with such an advantage provided by the market, Lazada has to compete with many competitors with quite similar company models like Tiki, Sendo, and Shopee. 

6.     Competitors

The direct competitors to Lazada include the e-commerce companies as named above Tiki, Sendo, and Shoppe. In regards to how they operate, the ideas and models share a high similarity with that of Lazada. Nonetheless, it is a monopolistic competitive market, thus there is some differentiation. Tiki for example lets customers pay by installment which allows customers to have more freedom with their payment. Another great threat to Lazada is Adayroi, an eCommerce platform funded by Vingroup, a well-established corporation in Vietnam with significant financial potential. 
In addition, indirect competitors also exist in the market, traditional retailers. These retailers have existed for a long time and Vietnamese customers are much more familiar and confidence with their purchases in the traditional way, especially in the case of middle age and elderly people or those who live in rural areas.

 II. Factors that create success

1.     Marketing strategy

➢   Products

Lazada provides a platform for online trading and services for customers to fulfill their transactions such as delivering the products they purchased and online payment. As of 2020, Lazada’s services are in their growth stage with a continuous increase in trade being made through their website, newly introduced feature (LazMall) and has to compete with many other e-commerce platforms in Vietnam. 

➢   Prices

The website for trading could be entered for free. However, those who wish to sell their products on the site have to pay a fixed fee until they wished to withdraw their products from the site, services fee to make sure their products are easy to find and are properly displayed. In the case of the products that do not meet the quality standard, those who are responsible for the products also have to pay a penalty fee to Lazada and/or to the customer who had purchased. On the other hand, customers who purchase products from the site have to pay for the products themselves, the delivery fee, and commission to Lazada. 

➢   Place

Transaction made between Lazada and the customers happened online on their site. Nonetheless, they do stock their products, in the case of Lazada Vietnam, they stock their products in a warehouse in Ho Chi Minh city, and delivery and shipping activities are made by either Lazada or other shipping intermediaries.

➢   Promotion

Lazada uses a wide range of marketing tools. However, since its targeted customers, as established above, do spend a lot of time on the internet, they mostly focus on advertisements on social media sites such as Facebook and Youtube or through Google advertisement. On top of that, Lazada also carries out numerous sale promotions throughout the year in the form of discount codes, membership cards, gift cards, and sale events such as ‘mưa sale băng’ which lower the price of all products on sale in their inventory.

2.     Apply good technology on services

Lazada attacked the Vietnamese market with the goal of becoming the number one online retailer in Vietnam. Based on its tremendous financial potential, Lazada invests heavily in advertising channels and is almost universally available in the media in Vietnam. Lazada invested a huge amount of money to create a brand impression by using extensive advertising channels such as Google Ads, Google Analytics, and Facebook Ads. It can be seen that these tools are some tools to help Lazada move their target from strangers all the way to promoters.
 Apply good technology on services
Lazada uses Facebook Ads not only to build brand names but also to increase online sales. In order to minimize the cost of paying for Facebook, Lazada took advantage of the available Facebook Ads tools. Lazada communicates with customers and attracts new customers by constantly posting new product information, promotions on their fan page. Moreover, Lazada will add a link inside the content of each of their advertisements to help customers in need of more information. In order to attract new leads and increase the number of deals, Lazada covered their ads in all positions of Facebook. By uploading the catalogs, Lazada has helped its customers can see many products in the same ad. After searching for products on the Lazada website, on the Newsfeed of both phones and computers, customers will be able to see ads with links to that product or products with similar features. In addition, for the targeting strategy, Lazada used Facebook's custom object feature to reach back to customers who had purchased the product and encouraged them to purchase more productsOne of Lazada's most successful advertising campaigns through Facebook Ads is Lazada's three-year anniversary campaign. In celebration of its third anniversary, Lazada decided to run a big advertising campaign for three days (24 - 26/3/2015) through Facebook advertising. With a clear goal like finding new leads or increasing sales by more than 3.5 times over the previous year, Lazada ensures that this will be the biggest campaign of them till 2020.

Customers will be able to purchase products at very low prices through Flash sales and receive huge discount incentives in these 3 days. Customers can see the ads of Lazada about the products they are interested in or the equivalent products in both of the Newsfeed on the mobile phone's Facebook application and on the web browser of the computer. After 3 campaign's day, not only did it achieve its initial goal of increasing sales by 3.5 times, this campaign also helped Lazada's profits double, saving 50% cost per visit and per order. Furthermore, efforts to interact with consumers and advertise through Facebook Ads have brought tremendous results for Lazada. Only after 9 months of the Lazada fan page was established, their fan page has nearly 28 million views and their followers. Lazada is one of the leading e-commerce websites in the top five retailers in Vietnam, with approximately 2.5 million hits per day. Lazada has an average of 1800 orders per day, with sales up to $ 2.5 million (equivalent to 50 billion VND). In addition, in the top 10 e-commerce websites in Vietnam, Lazada is leading with about 30% market share. However, Facebook ads still have some issues that make it difficult for businesses. The first is Lazada will be very difficult to control the information appear on their fan page, which costly and waste their time. Facebook is designed as an online forum that helps businesses increase interactivity with customers through video clips, images, or articles. But Facebook limits the control of businesses and can cause them to have a hard time working. Besides the bad feedback about the company, Lazada can get false allegations about their business on the fan page which will have a direct impact on the number of customers and sales. The second issue is cost. Entrepreneurs pay a large sum of money for Facebook to use the Facebook Ads service. With e-commerce, the average cost per click (CPC) for Facebook ads is $ 0.51, and the cost per thousand impressions (CPM) is $ 7.84. So, with companies that have large ad traffic like Lazada, this can be considered a big expense to maintain their ads on Facebook. In addition, if other advertisers pay a higher price, their ad is more likely to be displayed. This may cause Lazada or other small businesses to be disadvantaged in competing with them. It can be seen that these issues as a consequence of the number of Facebook users and the demand for Facebook Ads are increasing.
Aside from using Facebook as an advertising tool, Lazada also uses Google Adwords as a marketing solution that delivers superior business results. With this tool, shoppers on Lazada's eCommerce site can reach more potential customers (about 500 customers) at just a small cost (1.300.000 VND/month) via advertising on the Google Adwords platform. Therefore, Lazada not only attracts more shoppers but also increases the number of visitors. Moreover, this tool helps shop owners control and monitor the advertising campaign as well as the progress of the implementation of other sales services. The number of visitors to Lazada's homepage is 0.87 million per day in Vietnam. This is the number that any e-commerce company coveted. But, like Facebook Ads, Google AdWords also has some limitations that Lazada should take note of if they want to use this tool effectively. It is huge traffic that can cost a huge amount of money and can waste money when the company has to pay for every visit to the site even though the customer does not intend to buy it. Compared to Facebook Ads, if Lazada uses Google Ads, they will have to pay approximately $ 0.8 per click, higher $0.3. In addition, the ads of not only Lazada but also other businesses will be taken down without reasons if they fail to pay Google on time. This has inadvertently created financial pressures for Lazada and other businesses.
Would like to have a closer look at Lazada's business situation in the past few years, please have a look at HERE.

An Nguyen - Vietnam Credit

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