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Porter’s Five Forces Analysis of Daraz Pakistan E-commerce industry in Pakistan has been growing rapidly. In 2017 there were over 5 million online shoppers in Pakistan and this number has increased to 47.6 million in 2020 and revenue that this market will generate by the end of 2020 is projected to be US$3,904 million. These stats shows how rapidly the e-commerce market is evolving and still has potential to grow. Daraz, an online marketplace and logistic company, is one of the well-known retailers offering products from electronics, home appliances, grocery shopping, apparel products (for kids and adults), to booking services for travelling. Following the Porter’s Five Forces Analysis of E-Commerce Industry.

Bargaining Power of Buyers The bargaining power of buyers in this industry is moderately high essentially because     

Customers now are well informed about products and additional information which they might need is just one click away. They have plenty of choices from which they can shop and hence, face no switching cost. A lot of physical retailers (small and big) have started their own online stores because already existing e-commerce stores have increased pressure on them to retain customers. The products offered by these local stores (iShopping.pk, Buyon.pk, Home Shopping) are generally undifferentiated. But global stores like Amazon and Ali Express give competition to these local stores as customers assume their quality to be better than these.

The factors that can moderate bargaining power of buyers are strong customer relations, brand image, prices and quality of products & services. Daraz has been providing variety of products in each of its segment to its customer which reduces the customer’s bargaining power to some extent.

Bargaining Power of Suppliers Bargaining power of suppliers in this industry is generally moderate.  

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The online stores have set the criteria for products that suppliers have to follow to get their products on their platform. But on the other hand these e-commerce business who do not have stocking inventory system such as Daraz majorly depends on their suppliers to cater the demands of their customers. For some products there are readily available substitutes at other stores or at physical stores.

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Supplier who have differentiated products based on variety, quality, and size (specifically apparel products) get somewhat more bargaining power.

Daraz is rapidly growing platform in Pakistan as it is introducing new platforms and innovating rapidly, hence due to its high reach and high engagement ratio, it limits the bargaining power of suppliers.

Threat of New Entrants The threat of new entrants is relatively low to moderate in this industry because   

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Large investment in technology, marketing and human resource is required to compete with already existing competitors. Already existing businesses have gained consumer’s trust and most of the market share has been already acquired by one or two major players (Daraz, AliExpress). Existing online businesses such as Daraz have advantages like brand salience, brand loyalty, strong distribution channels, permanent suppliers and access to raw materials that new entrant cannot have as it enters into this market. Achieving economies of scale would be difficult in this industry for a new comer because it they cannot invest much and hence, cannot enjoy cost advantage like big businesses. Larger businesses like Daraz and AliExpress who act aggressively in market achieve scale economies by adapting different strategies (which obviously require huge investment initially), for example, Daraz has recently introduced its own delivery system which has made its distribution channel more stronger and effective. New entrants also have credible threat of retaliation from existing big players. And might not be able to withstand the competition given by the existing players.

Threat of Substitutes Threat of Substitutes is very high in this industry because Consumers can shift from one online store to other online store without having faced any switching cost.  Or if there is no online store that can fulfil the need of consumers then, they can switch to the physical stores (which is their indirect competition) with low or no switching cost. E-commerce businesses are trying offer higher value propositions by improving customer care in addition to offering lower prices and better quality. The threat of substitute is low for the online businesses who offer differentiated products such as AliExpress have some products that no other local e-retailer has in Pakistan. 

Rivalry among Existing Competitors Rivalry among existing competitors is high in this industry 

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There are large number of online stores (global and local), some stores offer only apparel products (Buyon.pk), some stores offers only electronics and some offer various kind of products ranging from electronics, home appliances, and fashion products such as iShopping.pk & Daraz.pk, which creates a perfect competition in this industry. Due to the fierce competition, all these stores compete on their pricing strategies, product quality and product varieties offered to the customers. The number of online customers are increasing day by day and each business in this industry is trying to get more and more customers by offering new products, and by running more promotional campaigns such as 11 November (11.11 sale) in which Daraz, AliExpress and other businesses in this industry gave huge discounts on products, which makes competition fierce for small online stores because not all of them can afford to invest this much in marketing campaigns and give discounts.

References

“ECommerce - Pakistan: Statista Market Forecast.” Statista, www.statista.com/outlook/243/294/ecommerce/pakistan....