Deciphering Social Commerce #1 – What works in rural areas?

This is an article contributed by Sonat Yalcinkaya (Kaya) and Vyani, co-founders of Shox Rumahan, one of the leading rural commerce startups in Indonesia. Kaya has extensive experience running ecommerce across different countries. While he is native to Turkey, he also speaks fluent Mandarin Chinese and Bahasa Indonesia.

On the other hand, Vyani possesses a keen understanding of rural Indonesia, having been heavily involved in Nestle’s activities in the region. A second-time founder, she grew Shipper’s fulfilment initiatives more than 50 times after her start-up, Pakde, was acquired by the company.

Whether we like it or not, there are a lot of parallels between China and Indonesia. Having been in both countries, when I wanted to set up an e-commerce business to cater to the rural Indonesian population, I naturally wanted to see if any of the Chinese group buying business models would work.

However, we found that the gap between rural Chinese and Indonesians was much larger than we had expected. 

Chinese e-commerce business models are usually built for billions of people, most of whom (including people in rural areas) have e-wallets (like WeChat and Alipay) on their phones. However, the economy is much different in Indonesia. More than 80% of Indonesians are underbanked and it’s the second-biggest cash economy in the world.

Another major difference we took note of was the population distribution. In China, there’s a strong population density even in Tier-2 and Tier-3 cities and people live quite close to each other  (90% of the Chinese population currently live near the coastal areas while the central, eastern and northeastern parts are unpopulated). In Indonesia, there are thousands of kecematans (areas or districts in a city) with only 10,000-20,000 households that are scarcely distributed.

Keeping these in mind, we decided to design our go-to-market strategy around the habits of the underbanked and focus on building logistical expertise. 

However, this approach of tailoring our products was not met with much enthusiasm from investors. But we didn’t relent on our beliefs that were the basis of our business model. 

Some of the ideas we strongly believed in and wanted to instil were:

• Chinese group buying models can’t be replicated in rural areas without customization

Tier-1 e-commerce players can’t easily enter rural areas without changing their business model. There is not enough consumption power in rural Indonesia for the model to work. 

These players’ business models are asset-light. They can coax shoppers in Jakarta with free shipping, but the same idea won’t sell in rural areas. The limits of an asset-light business model hinder them from meeting rural consumers’ different needs. 

If you take Amazon Prime, it’s easy to ask one person to spend more in order to get free shipping in urban areas. However, the same idea won’t sell in rural areas – shipping to rural areas is more expensive, thus increasing the higher minimum spend for free shipping. 

We turned this model around. Instead of giving free shipping if a person spends more, we offered to ship products for the whole community. Thus, we bundled logistics at the village level and decreased the shipping costs, which was 4-5x lower than Tier-1 players.

• Rural shoppers prefer installments

Tier-1 players grossly underestimate the importance of installments (with no minimum spend). Most of the 200M underbanked population prefer to shop in installments. If a rural shopper wants to buy a product from Shopee through installment, they have to pay high-interest rates (which is haram for Muslims, the major population in Indonesia). They also have to provide sensitive ID and other information on the application. Lack of access to affordable installments stops this massive user base from buying products on e-commerce platforms.

• Trust > Everything else

 E-commerce is all about trust. Tier-1 players with their asset-light solutions don’t create trust in users, especially rural shoppers. They are very apprehensive about sharing their private information to a digital interface. 

We believe that human touch (an agent) is necessary to guarantee trust. For e-commerce players to successfully cater to the rural audience, they should initially be asset-heavy. Shox Rumahan is built on the foundation of agents and it has proven to be an effective method. This will help players get the escape velocity they need to transition to an asset-light model after trust is earned. 

The best example of rural go-to-market strategy is Gojek. Though Gojek is an urban super app, it is built on top of agents – Gojek drivers. After it successfully established Gojek, GoFood and GoSend, Gojek slowly decoupled its services (such as GoPay) from drivers and started transitioning to an asset-light service.

This will be the playbook for building a rural e-commerce super app.

Are you curious to know if an urban business model will succeed in rural areas? Read the second part here.