The challenges of e-commerce businesses in Nigeria

A while back I wrote a piece about e-commerce as a whole in Nigeria. As part of the article I touched a bit on the challenges of running an e-commerce business in Nigeria. That article got a bit of attention online so I decided to do a follow up and focus on the challenges of running an e-commerce business in Nigeria.

If you are thinking of getting into this space in Nigeria then you really should consider reading this first to prepare your “mind” 🙂

I am writing based on my knowledge of the industry and also speaking to various stakeholders. I once tried my hands out on a small e-commerce platform myself but had to close shop pretty quickly due to all of these challenges.

The core of the challenges faced by e-commerce businesses in Nigeria are pretty standard. I won’t mention funding as that is a standard challenge for any business.

The Challenges:

  1. Logistics
  2. Marketing
  3. Business Model
  4. Technology
  5. Payment
  6. Product Sourcing
  7. Users

Let me attempt to break them down in more details

  1. Logistics is probably the number one challenge. You hear the word “Logistics” used to stand for just about every imaginable problem here in Nigeria. When a platform owner talks about logistics challenges, he’s talking about how difficult it is to get products from the sellers/distributors/warehouse to the buyers in an efficient way. He’s talking about infrastructural limitations that are taken for granted in more developed markets. Bad road networks makes it extremely difficult to get products delivered to buyers. Lack of warehouse space or an efficient warehouse management system makes it difficult to stock more items and deliver them in a timely manner to buyers. When you talk about logistics you are talking about everything that makes it efficient for you to move goods to buyers. Anything that gets in your way of achieving this is a problem. E-commerce players are taking logistics into their own hands. We are seeing players launching their own logistics companies, launching fulfilment centres and appointing on-ground sales reps all in the bid to end their logistic woes. The infrastructure to power e-commerce just isn’t there right now. Government and private players should see this as an opportunity waiting to be tapped.
  2. Marketing – Most of the players in the space are relatively newcomers, they are unknown.To create awareness in a new market, you need to market your brand and your offering to consumers. The cost to do this for small players can be very prohibitive. Building a reputable brand will require working closely with a reputable brand / Advertising agency. Brand building takes time. A brand helps people trust your communication and proposition. E-commerce players need to be ready to be in it for the long haul as the market isn’t mature enough for them. One big mistake many of the players make is thinking online advertising is that’s needed. Online advertising only reaches people who are online. Having an integrated campaign helps plan communication across a potential customer’s journey – From print to radio, TV and online.
  3. Business Model – The business model of many of the players makes competitiveness with the price and quantity obtainable in the open market impossible. The open market is almost always guaranteed to be less expensive than prices found online(Except you are shopping on a classified ads site like Jiji and OLX). Notice how top players have switched to a marketplace model? This helps them address a number of the logistic issues while also being plagued with new problems like quality and experience. A marketplace model helps increase your offerings and also reduces your warehousing requirements. As a marketplace, you become an aggregator of products and this significantly increases your inventory without burdening your warehouse.
  4. Technology – Probably not as big an issue these days but thought to mention it nonetheless. Everyone uses the same underlying technology. While not a problem, every site looks just like the other and user experience is simply not top notch. You will know what I am talking about if you have shopped on international sites. Building an e-commerce site on wordpress and installing plugins is great for a start but several of the biggest players in the world develop their own proprietary platforms and continue to tweak it based on user feedback. For a stable hosting requirement your best bet is a scalable host like AWS and Azure.
  5. Payment – This one na die. We probably invented “pay on delivery” here in Nigeria. We had to. Nigerians don’t trust online sites with their cards.This model is extremely tough to sustain. It’s very expensive to maintain but we can make it work. With only 200,000 ATM cards reported to be active in Nigeria, it only makes sense to try to include those without the cards in the mix. Payment on delivery is not going anywhere anytime soon so we just need to get creative with how we use it. I hear some players are planning to stop using it, would be nice to hear how that is working out for them.  Asides the payment on delivery challenge, the experience of paying online can also be very frustrating, sometimes it works sometimes it doesn’t. Sometimes your money is deducted and you still get an error from the platform. The online payment space is improving I must confess with several new players getting involved. The “local champion” in this market is obviously Interswitch (They like to call themselves a startup but really, who are they kidding?). Other notable online payment players are Unified Payment, Paga, Eyowo, PayStack, SimplePay, CashEnvoy and VoguePay. SMS and USSD are the norm in several African countries, it would be great to see brands using this to drive e-commerce payment on the continent.
  6. Product Sourcing – How do e-commerce players get their products? Do they get them directly from the manufacturers, a major distributor or in most cases do they just rely on a seller in computer village for example? Many players don’t have a reliable source of getting the right products at a good rate and on time. If your business model is a marketplace sourcing products might not be your concern. When you run a marketplace it’s also difficult to totally control quality of the same product being offered by several merchants.
  7. Users –  Read my piece on the number of internet users in Nigeria. With less than 200,000 registered debit cards in Nigeria the number of people who can shop and pay online is limited. We simply don’t have enough people online yet. We need to bring new users “online” to shop. I personally think the real numbers of Nigerians online is at most 35 million. Compare that number to the number of active shoppers on Konga you know something is wrong. We need to find ways to make it easier to convert more users to buyers. We need to also focus on how to make it easy to bring more people online and also make it easy for them to pay for what they want.

What do you think of my list? Would love to hear your views.

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