{"id":20989,"date":"2017-11-11T17:52:20","date_gmt":"2017-11-11T22:52:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/david-vs-prescient-goliath-can-lazada-compete-with-amazons-anticipatory-shipping\/"},"modified":"2017-11-26T15:16:59","modified_gmt":"2017-11-26T20:16:59","slug":"david-vs-prescient-goliath-can-lazada-compete-with-amazons-anticipatory-shipping","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/david-vs-prescient-goliath-can-lazada-compete-with-amazons-anticipatory-shipping\/","title":{"rendered":"David vs. \u2018prescient\u2019 Goliath: Can Lazada compete with Amazon\u2019s \u201canticipatory shipping\u201d?"},"content":{"rendered":"
Lazada, also known as the \u201cAmazon of Southeast Asia\u201d1<\/sup>, is the region\u2019s largest e-commerce operator, and was founded in Singapore in 2011 by Rocket Internet. Currently, it is owned by Alibaba, Temasek, and a small group of insiders2<\/sup>. Over the past couple of years, Lazada beat out domestic competitors3<\/sup> such as Tokopedia, Elevenia, and Bukalapak, with their easy \u201ccash-on-delivery\u201d4<\/sup> model, extensive delivery partnerships5<\/sup>, and seamless mobile commerce interface.<\/p>\n Exhibit 1<\/em><\/strong>3<\/sup>: Lazada is the top e-commerce operator in its largest market, Indonesia<\/em><\/p>\n Although Lazada has had relative success in Southeast Asia thus far, it is still unprofitable, and now must face the ultimate competitive threat: Amazon. Amazon plans to break into Southeast Asia starting with Singapore this year6<\/sup>, where it is launching its most aggressive service, Prime Now two-hour delivery. For the first time ever, Lazada has to face the megatrend of digitalization against Amazon, the perennial supply-chain leader7<\/sup> that has successfully utilized advanced data analytics to improve inventory management and delivery processes. To prevent loss of market share to Amazon in Singapore and other Southeast Asian regions, Lazada will need to embrace digitalization and build a more advanced logistics system to offer customers quicker and cheaper delivery options. In addition, as management aims to reduce delivery costs to drive Lazada towards profitability, a digitalized supply chain will also help to reduce costly usage of their delivery partners.<\/p>\n Exhibit 2<\/em><\/strong>8<\/sup><\/em>: Amazon enters Singapore in July 2017, launching 2-hour Prime Now delivery service<\/em><\/p>\n First of all, how does Amazon achieve two-hour delivery? To understand Amazon\u2019s powerful digitalized supply chain, we need to go back to their 2013 patent for \u201canticipatory package shipping\u201d9<\/sup>. By analyzing customers\u2019 browsing, buying and replenishing behavior, Amazon is able to estimate the probability that a customer will buy a certain product within a specific period. By collating these predictions by location, Amazon is able to ship products early from its fulfilment center to a shipping hub, in anticipation of eventual purchases10<\/sup>. This anticipatory shipping not only adds value to the customer experience by allowing two-hour deliveries, but also allows Amazon to transport more items per shipment to the shipping hubs and hence save on shipping frequency and costs.<\/p>\n Exhibit 3<\/em><\/strong>9<\/sup><\/em>: Amazon\u2019s 2013 U.S. patent filing illustrates how anticipatory shipping works<\/em><\/p>\n Historically, Lazada has offered free delivery11<\/sup> in certain cities like Metro Manila in the Philippines, but typically charges a fee for non-urban locations, or for orders below a certain basket size. In the recent past, it is evident that Lazada\u2019s management is taking Amazon\u2019s competition seriously. Last year, Lazada rolled out \u201cExpress Delivery\u201d12<\/sup>, with the option for same-day or one-day delivery in selected cities such as Metro Manila and Laguna in the Philippines. However, it is not clear that the faster delivery option is a result of \u201canticipatory shipping\u201d, since the delivery fees are noticeably higher than the free-shipping options, and most locations with shipping hubs still do not have \u201cExpress Delivery\u201d. One can imagine that this move is management\u2019s short-term reflexive response to the Amazon Prime Now threat. It is not clear if management has a medium-term plan in place to match Amazon\u2019s efficient inventory management and delivery system.<\/p>\n Exhibit 4<\/em><\/strong>12<\/sup><\/em>: Lazada offers same-day shipping in select (populous) areas<\/em><\/p>\n Looking ahead, there are a few things that Lazada\u2019s management team should be working on in anticipation of more widespread competition from Amazon in Southeast Asia. First of all, given that Amazon only filed the \u201canticipatory shipping\u201d patent in the U.S.9<\/sup>, Lazada can technically hire ex-Amazon engineers to help recreate a similar system to be used in Southeast Asia \u2013 this should be their medium-term solution to match Amazon\u2019s same-day deliveries in a cost-efficient way. In the long-term, management should aim to hire top machine learning talent that will improve the accuracy of their anticipatory algorithms to be superior to Amazon\u2019s own system.<\/p>\n Exhibit 5<\/em><\/strong>13<\/sup><\/em>: Lazada recently opened up job searches for data scientists in Singapore<\/em><\/p>\n In the meantime, Lazada should focus on gathering data. They should be optimizing their mobile and online sites to gather data on customer searches, buying and replenishing frequency, and so on. Since Lazada will be coming from behind, the realistic expectation is that their algorithms will not be 100% accurate in the early days. Lazada will need to formalize contingency plans for when anticipatory shipments don\u2019t end up getting purchased. For instance, will it be more cost-efficient to ship product back to their fulfillment centers, or offer region-specific discounts to offload the inventory? Finally, Lazada should be constantly looking for more areas to add value with digitalization. For example, using the Internet of Things (IoT) for maintenance-predicting sensors14<\/sup> inside machines and electronics, which can allow for just-in-time replacement-parts delivery.<\/p>\n As a final point, it is not easy to compete with an organization with as much resources and brand equity as Amazon. One important question is how Lazada is going to attract top data scientist and machine learning engineers, especially since they are based in Singapore15<\/sup>, and not Silicon Valley. The other question that requires more thought is whether an anticipatory shipping system would even work in some sparsely-populated areas across Indonesia, Vietnam, and other parts of Southeast Asia.<\/p>\n Can Lazada triumph in this \u2018David versus prescient<\/em> Goliath\u2019 story? Only time will tell.<\/p>\n <\/p>\n Word count (excluding exhibits): 799 words<\/em><\/p>\n ___________________________________________________________________________________________________<\/p>\n Endnotes<\/strong><\/p>\n 1<\/sup>Ansuya Harjani, \u201cMeet the man behind the \u2018Amazon of Southeast Asia\u2019\u201d, CNBC, April 11, 2014, https:\/\/www.cnbc.com\/2014\/04\/11\/meet-the-man-behind-the-amazon-of-southeast-asia.html<\/a>, accessed November 2017<\/p>\n 2<\/sup> Lulu Yilu Chen, \u201cAlibaba to Invest $1 Billion in Lazada to Speed Asian Drive\u201d, Bloomberg News, June 28, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-06-28\/alibaba-to-invest-1-billion-more-in-lazada-to-speed-asian-drive<\/a>, accessed November 2017<\/p>\n 3<\/sup> Source: Map of e-Commerce in Indonesia, iPrice Insights, https:\/\/iprice.co.id\/insights\/mapofecommerce\/en\/<\/a>, accessed November 2017<\/p>\n 4<\/sup> Lazada Group, \u201cPayment Methods\u201d, https:\/\/www.lazada.com.ph\/payment-methods\/#cod<\/a>, accessed November 2017<\/p>\n 5<\/sup> Corporate News, \u201cLazada to seek delivery partnerships as demand grows\u201d, The Star Online, September 30, 2017, https:\/\/www.thestar.com.my\/business\/business-news\/2017\/09\/30\/lazada-to-seek-delivery-partnerships-as-demand-grows\/<\/a>, accessed November 2017<\/p>\n 6<\/sup> Yoolim Lee, \u201cAmazon Enters Singapore With Most Aggressive Service Yet\u201d, Bloomberg News, July 26, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-07-27\/amazon-enters-singapore-with-two-hour-prime-now-delivery-service<\/a>, accessed November 2017<\/p>\n 7<\/sup> Source: Gartner Announces Rankings of the 2017 Supply Chain Top 25, Gartner Inc., \u00a0https:\/\/www.gartner.com\/newsroom\/id\/3728919<\/a>, accessed November 2017<\/p>\n 8<\/sup> Sherisse Pham, \u201cAmazon enters Southeast Asia, launching Prime Now service in Singapore\u201d, CNN News, July 26, 2017, http:\/\/money.cnn.com\/2017\/07\/26\/technology\/business\/amazon-singapore-launch\/index.html<\/a>, accessed November 2017<\/p>\n 9<\/sup> Spiegel et al., \u201cMethod and System for Anticipatory Package Shipping\u201d, Patent No. US 8,615,473 B2, December 24, 2013, https:\/\/tinyurl.com\/yb4m9odk<\/a>, accessed November 2017<\/p>\n 10<\/sup> \u201cAmazon files patent for \u201canticipatory\u201d shipping\u201d, CBS News, January 20, 2014, https:\/\/www.cbsnews.com\/news\/amazon-files-patent-for-anticipatory-shipping\/<\/a>, accessed November 2017<\/p>\n 11<\/sup> Lazada Group, \u201cShipping\u201d, http:\/\/www.lazada.com.ph\/shipping\/<\/a>, accessed November 2017<\/p>\n 12<\/sup> Lazada Group, \u201cExpress Delivery\u201d, http:\/\/www.lazada.com.ph\/express-delivery\/<\/a>, accessed November 2017<\/p>\n 13<\/sup> Lazada Group, \u201cCareers\u201d, https:\/\/www.lazada.com\/career-description?id=36026<\/a>, accessed November 2017<\/p>\n 14<\/sup> Bernard Marr, \u201cInternet of Things And Predictive Maintenance Transform The Service Industry\u201d, Forbes, May 5, 2017, https:\/\/www.forbes.com\/sites\/bernardmarr\/2017\/05\/05\/internet-of-things-and-predictive-maintenance-transform-the-service-industry\/<\/a>, accessed November 2017<\/p>\n 15<\/sup> Sachin Chitturu et al., \u201cWhat Southeast Asia needs to become a major player in artificial intelligence\u201d, McKinsey Global Institute, September, 2017, https:\/\/www.mckinsey.com\/global-themes\/artificial-intelligence\/what-southeast-asia-needs-to-become-a-major-player-in-artificial-intelligence<\/a>, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":" Lazada used to be the “Amazon of Southeast Asia”, but as of summer 2017, has to compete directly with Amazon as they enter the Southeast Asian market. Can Lazada embrace digitalization to compete with Amazon’s “anticipatory shipping” model and two-hour Prime Now delivery service?<\/p>\n","protected":false},"author":9798,"featured_media":20991,"comment_status":"open","ping_status":"closed","template":"","categories":[52,3212,298,2123,252,3211,21,346,3213,17],"class_list":["post-20989","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-amazon","category-amazon-prime","category-big-data","category-digitalization","category-distribution","category-lazada","category-logistics","category-machine-learning","category-megatrends","category-supply-chain","hck-taxonomy-organization-lazada","hck-taxonomy-industry-technology","hck-taxonomy-country-singapore"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n
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