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Lazada drops commission to 0%: What does it mean for the merchant and the competition?

The barrier of entry to sell online gets even lower. You will see more merchants and new sellers listing on the marketplace, creating more competition locally, and abroad as well.

Lazada has recently announced that commission rate will be waived (0%) for local merchants, starting from 1st July 2018. However, the 2% Payment Fee will still apply.

The zero commission is only applicable to Malaysian marketplace sellers (which means cross-border sellers from China won't be able to enjoy this scheme) - Official Stores, Certified Stores and Brands are not eligible for zero commision scheme.

Lazada introduces 0% commission for Malaysian sellers
Lazada introduces 0% commission for Malaysian sellers

As Shopee is the only major player in the market offering zero commission since its launch in 2015, is this considered a response by Lazada to counter Shopee?

As a matter of fact, zero commission is not something new by Lazada, in which they have been offering this scheme to Indonesia sellers since 2 years ago.

More importantly, we think this is a move that signal Lazada will become what Taobao is for China - a platform for C2C (Consumers to Consumers), enabling any individual sellers to sell online via Lazada without the need of a business registration (which is allowed by Lazada Malaysia since Q1 2017).

Did you know that individual is allowed to sell via Lazada?
Did you know that individual is allowed to sell via Lazada?

Eventually, we foresee that the revenue model for Lazada will shift towards advertising, just like Taobao in China. In order to stand out from billions of SKUs in Taobao, you will need to use their PPC (Pay-per-Click) product - Taobao Zhi Tong Che (直通车).

Meanwhile, LazMall will become what Tmall is for China, a platform specifically for brands. As of March 31, 2018, there were already over 150,000 brands on Tmall alone!

LazMall is offering extra guarantees like 100% original, 15 days money-back etc to differentiate brand products from other products in Lazada. This will boost customer's trust significantly as fake products is a common challenge faced by all the C2C marketplaces, which deter a number of consumers from buying online.

LazMall - The Tmall version for SEA
LazMall - The Tmall version for SEA

What does it mean for merchants?


The barrier of entry to sell online gets even lower. You will see more merchants and new sellers listing on the marketplace, creating more competition locally, and abroad as well.

Marketplaces will become the first choice for traders, retailers, brands or entrepreneurs to start venturing into e-commerce. Building own branded store can come later.

What does it mean for marketplace competition in Malaysia?


It will be a two-horse race now for the marketplace domination, fueled by a massive amount of capital. Other local marketplace competitors (Lelong.my, 11street, Qoo10 etc) will feel the pressure of keeping up with the duopoly.

What does it mean for marketplace competition in Southeast Asia?


The top 2 marketplace spots in Southeast Asia (Thailand, Vietnam, Malaysia, Philippines, Singapore) are dominated by Lazada and Shopee, with Indonesia being the only exception as there are strong local marketplace players like Tokopedia, Bukalapak, BliBli.com etc.

Heavy presence of China's capital in almost all the dominant marketplace players. Lazada is owned by Alibaba, while Tencent is the biggest shareholder of SEA - the parent company of Shopee.

The marketplace itself will face a new type of competition, a direct, B2C, B2B2C model operated by the likes of JD.com, the fiercest competitor of Alibaba in China.

JD.com is expanding to Southeast Asia too, by first setting up its foothold in Indonesia, followed by investment in Tiki.vn (a Vietnam marketplace), and now extending to Thailand via a $500 Million joint-venture with Central Group (a retail conglomerate).

JD.com is more like the Amazon of China, who invest heavily in warehouse and fulfillment infrastructure to gain a full control of supply chain versus the light assets approach adopted by others.

What does it mean for the consumers?


Better price, better service for the consumers. Consumers are the ultimate winners.

What is the ultimate goal for Lazada, or other marketplace leaders?


Simple, the goal is to become the number 1 destination (be it web, or app) for consumers to search and check out whenever you want to buy something. This is why Lazada subsidizes heavily to shape the consumer purchasing behaviour.

This is already happening in the US when people are buying something online, they wouldn't start with a Google search but instead, they go straight to Amazon. As for China, consumers would skip Baidu and go directly to Taobao, Tmall or JD.com.

Similarly, the holy grail for marketplace front-runners in Southeast Asia is to grab the top-of-mind position. When consumers habit is successfully shaped and the whole ecosystem is stabilized, they will have the market to themselves.

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ecInsider: Lazada drops commission to 0%: What does it mean for the merchant and the competition?
Lazada drops commission to 0%: What does it mean for the merchant and the competition?
The barrier of entry to sell online gets even lower. You will see more merchants and new sellers listing on the marketplace, creating more competition locally, and abroad as well.
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