Lazada knows you! How the largest Southeast Asia e-commence platform is using AI to enhance the online shopping experience.
Lazada commands the lead in Southeast Asia e-commence platform. A Germany’s rocket internet founded Lazada in 2012, and in 2016 Alibaba invested US $1 billion to control a majority interest, followed by an additional US$2 billion, bringing the ownership to more than 90 percent. As a result, Lazada became one of the Alibaba’s biggest overseas investment, especially, in the Southeast Asian region.
Many considers Southeast Asian region a lucrative market comprises of new growth opportunities, where its internet economy fueled by the growth of e-commence is expected to rise to US$200 billon by 2025. The main driving force centers on the sheer population size in the region which is home to millions of first internet users that have adopted online shopping. Due to the internet and mobile phone penetration, Lazada positions itself to lead in the on-line shopping within the region, where 90% of Lazada shoppers use cellphones to transact their purchases.
In such a competitive market, leveraging data analytics and AI to innovate and improve its millions of users’ experiences becomes critical, in order to attract and maintain the users on the on-line platform. Recognizing the importance this concept, Lazada focuses its core business model in value creation through the deployment of AI.
Value Creation leveraging AI
Lazada core principles involve providing conveniences to users, selling the cheapest products, and offering endless product assortment. With 65 million users across 6 countries including Singapore, Malaysia, Thailand, Vietnam, Indonesian, and Philippines, they have at their disposal, large data sets with geographic and demographic variations which Lazada has capitalize to understand how best to utilize data to meet the needs of its users.
Opportunities, challenges, and recommendations
There are tremendous opportunities for a leading e-commence player like Lazada to utilize AI to expand their business and strengthen its operation and management, as described below:
Personalization and Search recommendation
Lazada currently leverages personalization and search recommendation to the users’ shopping experience. This presents itself as a tremendous opportunity space since the more Lazada knows about their customers the more they can target the market. However, Lazada also faces current challenges, namely, the existing data is limited to the past buying patterns of the customers which can create a lag in meeting the customers’ need and remain competitive in the wide spectrum of on-line market.
To improve the experience, Lazada can explore utilizing social network and generating recommendations by leverage data of friends, which may help improve the buying experience. However, Lazada may face data privacy push backs, nonetheless it may be worth explore this avenue, in order to understand the users’ preferences and as an important mechanism to improve its recommendations.
(Credit: TechTouch)
Image recognition
Lazada introduced AI images-based search in 2019, with an initial 500,000 users who retrieved 30 million products per day. Lazada currently has a feature on its app where users can take photos or upload an image to have the product appear. This leads to a greater convenience for the buying experience. In addition, the image search poses as a channel to assist Lazada’s demand forecasting and better serve its users.
However, having a function that the users can find and view visually the product immediately limits the online browsing effects where users are presented with a myriad of products which can lead to increasing sales and buying more than what they originally intended. Not being able to respond to the demand if what the customer wants is not in the market, can also create a negative buying experience. To manage expectations, Lazada can build in a chat function to communicate with its users, in order to build a personalized customer relationship and make special offers with similar products with price discounts, thereby creating a positive customer experience while expanding the variety of product adoptions.
Value Capture
While having access to Lazada’s 65 million customers, brands listed on Lazada pay 5% of their sales and potentially save marketing costs for their products. Currently Lazada has 2,000 brands, which has grown 7X from last year with promising sales growth for each brand. Lazada’s revenue is estimated at US $1 billion. This equates to each brand making US $10 million of sales.
AI powered search recommendations account for half of the total user transactions on Lazada’s platform, which is a significant contribution to the overall revenue generated by the company. Lazada also uses AI translation to scale geographically and interactions between buyers and merchants on the platform.
Despite its competitors, Lazada remains the market leader—driving strong growth and innovation, and leveraging AI capabilities to pierce into the purchasing lens of its customers.
References
Interview with Dr. Werapong Goo, Lazada Head of Retail
https://www.techinasia.com/lazada-southeast-asia-ecommerce-leader-50-million-buyers
https://liveatpc.com/lazada-introduces-ai-powered-image-search-feature/
https://techtouchasia.blogspot.com/2019/06/lazada-leverages-cloud-and-ai-to-boost.htmlstores-2018/
Thanks for the article Viria! Reading your article, I couldn’t help but wonder what Lazada’s sustainable competitive advantage is with regards to their use of AI. Its major competitors in the region (Tokopedia, Shopee, Zilingo etc) probably all use similar technology. Although the e-commerce market in SEA is still growing, it has low margins and is highly competitive, so it will be critical for them to offer value-added services that are actually differentiated using AI.
Unlike in the West, most consumers in SE Asia purchase using their mobile phones. I think this is a huge opportunity. It would be interesting if Lazada partners with mobile phone apps like LINE to both gather more data which will help them sell more effectively.