In startup communities around the globe, you would hear of a company that has pivoted from doing one product or service to another, in order to shift focus into a more lucrative space. This often happens when one fails to reach traction in a particular industry, or when the business model is simply not sustainable. In other cases, though, pivoting is not necessarily a drastic move to a different realm altogether, but an improvement over what is already a great business model.
CashCashPinoy is a Philippine e-commerce company that has demonstrated that your business does not necessarily need to be on the brink of failure to urge you to shift business strategies. For one, you may already be successful in your enterprise, but would want to aim for more. CashCashPinoy, in this case, wanted a shift from offering third party services as discounted vouchers, into a leading product oriented flash sale site with a full integrated e-commerce solution from the sourcing to the in house logistic.
CashCashPinoy was co-founded by Frederic Levy, who had his start in the Philippines as co-founder of NetBooster Asia (which has since been bought by the international advertising Group WPP, and renamed to Movent). Launched in 2010, the startup was actually first to market in the group buying business, ahead of Groupon, LivingSocial and MetroDeal. According to Frederic, the idea back then was that there was already a “sparkle of e-commerce in the country with the success of the online sales of the Airlines Companies.” CashCashPinoy wanted to experiment whether Filipinos would get attracted to transacting online for something other than plane tickets.
One of Netbooster’s earliest clients was actually a local airline company, which saw a big part of its sales going online a few months after launching its online service. This gave inspiration to CashCashPinoy to start offering discounted deals for services.
Despite the very promising results during almost its first year, and revenues of several million US dollars, some restrains linked to the vouchers group buying business appeared very fast. “We knew that there would be issues in sustaining this kind of business in the Philippines,” advised Frederic. By the time the company shifted into products, they were resource-constrained.
A local market
What’s important to note here is that CashCashPinoy decided to move to products because of a certain trait of the Philippine market, which makes it difficult to gain traction in services. The CashCashPinoy team realized that in the Philippines, there were only two markets: Metro Manila vs. everything else. And it’s not that easy to develop some marketing services outside of Metro Manila, especially with local establishments. “Actually, other competitors tried,” said Frederic. “But we thought that would be a waste of time. Each town/local market would be not enough big to generate the necessary traction. We had to consider Metro Manila as a market, and the whole country outside of Manila a market by itself also.”
Additionally, inventory could potentially be a problem. In the Daily Deals business, food is traditionally the top product, although CashCashPinoy notices that as big as Metro Manila can be, it’s not yet New York or London in terms of aspirational establishments: the number of exciting restaurants that will urge people to buy a voucher is limited. On top of that, negotiations can be tricky. “It’s very complicated to obtain, like Groupon in the US, exclusivity with these merchants. At the end, everyone’s fighting for the same ones.”
A drastic change
Shifting from vouchers to physical goods did not come without some pain points, though. Frederic says the change had a massive impact on CashCashPinoy, which necessitated a company-wide reorganization. “We raised funds, including a Series A round, and we put a lot of effort to reorganize the company to focus on products. It’s a whole new world, because vouchers are much simpler. There was essentially no necessity of a real after-sales support on our end. With physical goods, you have not only to manage the customer’s expectations, but also returns and warranties. Voucher business doesn’t require you to set up your own logistics. All of these had massive impact on the organization of our company.”
To illustrate, when customers contact the company for customer service concerns relating to a spa or restaurant, the query is usually regarding the location of the place or the telephone number. But when it’s about a product, customers expect you to know everything about the product. “When they contact you for a product, they ask for details, like whether this particular camera has this particular function, and if it is compatible with a certain device or system.”
How to ensure quality
Additionally, Frederic says that quality is key in an e-commerce business in a new market like the Philippines. “If you want to succeed in products, you have to be fully independent from the sourcing to the delivery. If you want to focus on quality, this is the only solution: you have to control every step.“
To this end, CashCashPinoy decided to have more control over its processes by handling almost everything themselves. “Each time we tried to outsource something, we experienced problems. Things are getting better, little by little but we still prefer to control the complete flow. So now, we do everything from A to Z. Even our logistics are internal. The only thing outsourced is the courier company. Even then, our contracts with courier companies are our own templates. These stipulate our policies and requirements, instead of the usual agreement with customers. We impose penalties if they are late. We also have a mapping of the country, to determine which particular courier to use for specific cities and locales, because we know the courier companies’ expertise. That’s actually a very good organization, and we’re now working with several trustable players.”
Given that CashCashPinoy is now in the products market, I asked whether the company is worried that Rocket Internet’s various efforts in the e-commerce industry, such as Lazada and Zalora, might become a challenge. Frederic says the company is not worried about these. “We are not in the same market. For example, Lazada is an Amazon clone. Amazon is not fighting for the discount. Actually, even in mature e-commerce countries, like in Europe or the US, product flash sale websites represent a different channel of distribution, targeting a different market,” he says.
Additionally, these e-commerce startups even provide an opportunity to established platforms like CashCashPinoy because they raise awareness for the possibility of e-commerce companies for brands. “It lets brands and consumers know there are opportunities to go online.”
But even if international online brands are keen on entering the market, Frederic says local companies have an edge, which is understanding of the local culture, and adapting their model to the local specificities. In my view, this is quite interesting, coming from an expatriate of seven years who has carved his niche in the Philippine industry. Frederic says there is a learning curve when it comes to local characteristics, as compared to more mature markets. “For example, when you give a 30 day ‘no questions asked’ return policy on clothes, you have to understand that this type of feature can give totally different results than in mature markets. If your company is able to sustain that expensive policy, that’s great, but you have to expect a lot of excess. If you’re not ready to accept that, be careful not to disappoint the e-consumer.”
Frederic says he learned quite a lot when he moved from working in advertising and PR in Europe to launching his own agency in the Philippines. Europeans, he says, are used to expressing their ideas strongly, and sometimes, arguing. In the Philippines, relationships are totally different: the dialogue, and often, compromises are necessary. “This is just an example among others of course, but it’s definitely a world of difference that new entrants into the market will need to understand,” said Frederic.
Find part 2 of this feature here: E-commerce and startups: No such thing as a free lunch