If you're considering competing in a red ocean, modern business strategy has very clear advice for you:
Red oceans are zero-sum, closed games where everyone is competing along the same dimensions. They're brutal. You have to be prepared to deploy a stunning amount of capital. Customers view you as a commodity and have no loyalty.
If you enter the market too late, you'll go up against competitors with more momentum, more brand awareness, and a desire to end you before you become a real threat.
This was the challenge Sea Group was staring down when they launched Shopee in one of the reddest oceans in the world – ecommerce in Southeast Asia.
But thanks to a well-executed red ocean strategy, Shopee has grown to become the leader across multiple markets.
How To Build a Red Ocean Strategy
To have a chance at winning in a competitive industry, you'll need:
- Insights about the industry (that incumbents have overlooked)
- Lots of capital to withstand a war of attrition
- Better and faster execution than your competitors
- The boldness to strike when the leader makes unforced errors
Simple, but not easy. Let's see how Shopee did it.
First, Develop a Unique Thesis
If you're going to enter a competitive industry that already has several players, the only way you even have a chance is if you have insights that other competitors have overlooked.
Think of red oceans like sports. The best players are always finding ways to eke out any competitive advantage.
Their "insights" might be offseason training routines, immaculately monitored diets or ice baths to speed up their recovery time. Or it might be a completely new way to do things, like the Fosbury flop.
The winners in a red oceans are the ones who've figured out something about their industry that everyone else missed. You could earn those insights by having domain experts on your team, or in Shopee's case, leveraging their late-mover advantage:
"...there was a lot of (potential) growth and many areas that weren’t being addressed well by existing players ... That’s one of the advantages of being late (to the industry), because you can see what’s out there, what the trends are and see what you can do differently or better," (Zhou Junjie, Shopee CCO)
Your insights should lead you to create a model of the dynamics of your industry, revealing what your path to victory would need to look like.
When we look at some of Shopee's moves, it's likely that they derived a model that resembles this one:
This is the drawing that Jeff Bezos used to guide the Amazon ecommerce business for decades. I'm not sure what's more impressive: that he drew this on a napkin over coffee, or that this model is relevant whether it's being used in America or Southeast Asia.
When you have a blueprint like this, one that illustrates your industry's mechanics and helps you understand your competitor's actions, you can better identify the untapped opportunities in your red ocean.
This helps you direct the significant resources you're about to deploy.
Second, Build a Stockpile of Capital – Then Know Where to Use It
With venture funding, access to Garena's cash flow, and their parent company doing an IPO in 2017, Shopee has always had lots of ready capital to deploy.
But so do their competitors.
That's why red oceans demand you to develop your own unique thesis and sketch out your own model of the industry, so you know exactly how your capital should be spent.
Using the Bezos industry model as a guide, we can look at a few examples and understand why Shopee continues to invest in them:
Zero Commissions for Sellers
Sellers and merchants are platform-agnostic: if they have any loyalty, it's usually to whoever provides the most benefits and takes the least commission.
And it's really hard to beat zero commission.
From this perspective – and when you look at the industry using the Bezos model – this is a no-brainer move in a red ocean. To keep up, Lazada was forced to remove their marketplace commission fee in 2018.
Free Shipping Subsidies
Reducing the cost of shipping adds positive momentum to two points on the model: it improves the Customer Experience while attracting new Sellers to your platform because they know they can make more sales.
Everyone was losing money, but Shopee spent their dollars on the right spot: free shipping. Consumers obviously love it, but sellers love it too because it increases their sales.
That's a former Lazada employee talking about how Shopee was ready to deploy their capital to get (and keep) sellers on the platform. This was a critical advantage when Alibaba experimented with stopping free shipping altogether to try to improve Lazada's economics.
Third, Out-Execute The Competition
Red oceans are defined by constant battle and hand to hand combat. Sure, you need to have unique insights and the right model, but consistent, high-quality frontline execution on that model is just as important.
In some cases, this means coming up with a different approach and following through on it, like the Fosbury flop. In others, it means cloning what your competitors are doing, then taking it to the next level.
There are examples of both from Shopee's history:
Leaning Into Mobile as the Primary Shopping Device
Shopee, blessed with the timing of their late entry, launched right in the middle of the smartphone adoption wave in Southeast Asia.
The platform’s bet on a mobile-first approach has paid off: more than 90 per cent of its transactions are on the app. (Yahoo, 2019)
This differentiated them from Lazada, who launched in 2012 as a web-first shopping experience.
Shopee's mobile-first approach meant more than just starting off as an app. Designing the customer experience primarily for a mobile context gave them a headstart on things like in-app games and social features, tactics that kept shoppers coming back.
Here's how a Shopee alumni described one such feature:
Shopee went heavy on gamification to get people to open the app, especially around monthly campaigns. You saw this with Shopee Shake. You would see people everywhere shaking their phones at dedicated times to get the most coins.
Being first on features like these got shoppers to think about Shopee a little more often than the competition, ingraining a very useful habit that they could leverage over time.
Going Hyperlocal Before The Competition
The mobile-first context also led to launching a separate app for each country, which gave Shopee country teams the freedom to create more relevant customer experiences depending on the market:
In Indonesia, for example, Shopee launched a dedicated section of Islamic products and services to cater to the majority Muslim market. In countries like Thailand and Vietnam, where celebrity endorsements hold sway over consumers’ buying habits, Shopee features online stores that sell items curated by top celebrities. (Today)
As I've written about before, going hyperlocal unlocks parts of the TAM that competitors can't access. It turns parts of your red ocean a little bit bluer.
Running a Relentless Drumbeat of Campaigns
Taking a page from Chinese ecommerce, Lazada brought the 11/11 shopping festival to Southeast Asia. Qoo10 did the same thing but claimed October 10th. When Shopee entered the picture, they decided to own September 9th.
These flagship shopping festival campaigns are massive, whole-company efforts. They're worth it: they drive enormous amounts of traffic and app downloads, and crucially, consistently spike the all-important metric of ecommerce: GMV.
A former leader at Shopee revealed that the typical GMV spike they expected from 9/9 was "5-10x a normal shopping day", but this is likely a conservative estimate. Some ecommerce enablers plan for a surge of 30x, indicating that these campaigns have a significant effect not just for Shopee, but for the entire ecosystem.
With those numbers, it's no surprise that Shopee soon went after 11/11 and 10/10, eventually executing shopping festivals every single month (except 1/1, presumably to give their team a chance to breathe.)
The Shopee team realized that these monthly campaigns were painful to execute, but amongst all of their marketing efforts, they were the most effective ways to rise above the cacophony of their red ocean and get noticed.
Finally, Pounce When The Leader Stumbles
Red oceans are industries with thin margins and an even thinner margin of error. Customers are price sensitive, fickle, and distracted.
So when the leader in a red ocean inevitably makes a mistake, or gets complacent, you need to have the agility and boldness to make big moves to gobble up market share.
In 2018, a window of opportunity opened for Shopee:
Lazada’s actual operations ground to a halt ... the company did “almost nothing” in the first six months after (newly-installed CEO) Peng Lei’s arrival ... Lazada even suspended some of its key promotions during this period. (Kr-Asia)
Going Big With Brand Ambassadors
Alibaba took control of Lazada in 2016, quickly putting their homegrown leadership in charge. After decades of fine-tuning Taobao's monopoly economics in China, one can imagine the difficulty they must've faced when adapting to the red ocean of Southeast Asia.
This had direct implications on Lazada's marketing, specifically with the risks they were willing to take.
When Lazada execs proposed growth ideas to Hangzhou, they were pitching to an infrastructure that was built around optimizing quantifiable performance:
Lazada ... eventually resorted to its old playbook of paid ads on Facebook and Google ... because ad-driven traffic in Southeast Asia is cheaper than in China, the return on investment for this action is high, which translates to better performance reviews in Alibaba’s internal evaluation system. (Kr-Asia)
The conditions were set for Shopee to make a big move.
In 2018, Shopee hired k-pop megagroup Blackpink as their regional brand ambassador to help promote their 12/12 campaign.
This was the first regional brand ambassador campaign by any ecommerce platform in Southeast Asia, and marked the beginning of Shopee's repeated use of branding as a competitive advantage.
Viewed from the Alibaba/Lazada optimization perspective, spending big on celebrity brand ambassadors is a wasteful, unnecessary risk of resources.
But viewed through the lens of Bezos' ecommerce marketplace model, it's completely rational, even obvious: traffic is a key part of your growth flywheel. High-profile celebrity ambassadors increase brand awareness, leading to higher mental availability, leading to more traffic not just during the campaign period but also over the long term.
Shopee's brand ambassador campaigns, with their earworm jingles, would go on to make waves all across Southeast Asia.
The other ecommerce platforms eventually caught on. 2019 saw Tokopedia hiring their first regional brand ambassador. Lazada finally followed in 2020.
Epilogue: The Paradox of Red Ocean Strategies
When Dick Fosbury debuted his new high jump technique in the 1968 Olympics, he was the only person doing it. Few expected it to work. He proved its efficacy by winning the gold medal.
In the 1972 olympics, 28 high jumpers used his technique.
There's a kernel of irony within every red ocean strategy that leads its authors to victory: once revealed, the strategy can then be used on you.
Therefore, the only way to create a sustained advantage in a red ocean is through something that can't easily be copied: your company culture.
Monoculture as an advantage in a red ocean
I was going through Sea Group and Shopee's Glassdoor reviews, and I noticed one theme kept coming up: they're terrible at diversity.
Meetings held in Chinese. Product documentation written in Chinese. Getting promoted faster and getting more responsibility if you're Chinese.
This is going to sound weird, but I think this is a huge advantage.
Red oceans are wartime. In wartime, normal rules don't apply.
In wartime, monoculture gives you an edge. With reduced cultural and communication overhead, you can execute faster, giving you the learnings needed to iterate your strategy faster than your competitors.
Don't get me wrong, I feel for unhappy employees and alumni who were collateral damage. But Shopee is a company fighting battles in one of the reddest oceans in the world.
With Alibaba and Lazada starting to regain its footing after being "asleep for two years" (alumni's words, not mine) and with Gojek/Tokopedia putting the finishing touches on their merger, they'll need all the advantages they can get.
Thanks to Alin Dobrea, Huiqi Low, Vinita Penna, Nathaniel Yim, Huey Yun Teo, Zishuang Cheng, Li Zhiliang and many more friends from the SEA ecommerce ecosystem for reading earlier drafts of this post.
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