• Thu. Sep 22nd, 2022

The Big Read: Consumers Feel the Pressure as Industry Disruptors Pressure to Generate Profits

ByStephanie M. Akbar

Jul 24, 2022

The spokesperson added: “We recognize that the external situation remains fluid, and we will continue to review our support measures and our prices according to market conditions, in order to ensure that our driver-partners are properly compensated for their work. time and hard work.”

ARE USERS AT THE THANK YOU OF COMPANIES?

Although reducing costs and increasing revenue generated by customers and merchants may seem like the most obvious ways to expand the profit margin, it is actually a delicate balancing act, have said industry experts.

“Given increasing levels of competition and choice, consumers can be relatively price-sensitive and switch platforms easily if they don’t like the price of services,” said Mr. Bates of KPMG Singapore.

SMU’s Assistant Professor Fan added, “Delivery services that charge high fees can also face challenges, as customers may choose to save on delivery costs by personally visiting stores.”

He noted that these services earn by taking a discount from the order bill, not the riders’ delivery charges.

“As a result, their profitability would be more dependent on people’s continued reliance on the delivery service,” he said.

Services that are now considered discretionary or “nice to have” may also face bigger problems, experts said.

Mr Ku pointed out how content streaming services, which gained popularity when people largely stayed at home during the pandemic, can be seen as less essential now that people are on the go for work and are concerned about rising costs of basic needs.

“It’s a consumer demand pricing game,” he said. “When (these companies) start raising prices, the danger is actually (they) start losing market share.”

Netflix is ​​a good example, he said. The streaming platform raised its prices several times before losing its subscribers.

On the other hand, companies trying to find solutions to problems that have arisen since the pandemic, such as supply chain or logistical problems, could thrive in the near future, he added.

As a result, investors’ funds could instead be directed to these companies.

Mr Bates said: “Private equity and venture capital firms are refocusing their 2022 investments towards technology that will fuel industry transformation over the next decade and beyond.

“Fintech in the areas of climate change, supply chain, financial and crypto market infrastructure, artificial intelligence and agritech are attracting particularly high interest.”

With investments potentially harder to find, platforms could seek to improve their profit margins without necessarily increasing prices or fees.

Professor Assoc Theseira said: “For example, minimum order sizes, reduced delivery or order priority, selectivity in merchant onboarding – these are all ways platforms can potentially improve profitability. .”

Businesses may also seek new sources of revenue, either in the form of a new business segment or a new market. Mr. Ku said diversification can make sense if the company has sufficient resources and finds a high-margin business to acquire.

Given the current economic climate, he said “the new division must be a fast track.” “You can’t say ‘Oh, I’m going to try to build things from scratch’,” he added.

Mr. Quek pointed out how the big unicorns – start-ups with a valuation of more than $1 billion each – used to look for new markets to increase their revenues.

“In the past, these unicorns could afford more budget and time to explore new markets, but now it seems trials are smaller and cut faster. An example is Shopee’s expansion into India, in Spain and France in 2021, but only to quickly shut them down in less than 12 months,” he said.

WHAT THE FUTURE RESERVES

When announcing its first quarter results in May, Sea Ltd said it expects its e-commerce arm Shopee to post positive adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in Southeast Asia and Taiwan by this year, before allocation of headquarters expenses.

Its digital finance unit, SeaMoney, is “on track” to achieve cash flow positive by next year.


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