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For E-Commerce Brands in Latin America, Trusting Means Growing

By Andres Felipe Archila - Melonn


Andres Felipe Archila By Andres Felipe Archila | Co-Founder - Fri, 03/10/2023 - 09:00

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It may sound obvious, but perhaps the most important ingredient for a successful e-commerce business is trust. As buyers, we only buy on websites or apps that we believe are not a scam. As businesses, we choose our 3PLs, our checkout platforms, our ad-marketing agencies from trustworthy companies. Paraphrasing Francis Fukuyama, a high degree of social trust is the underlying principle that fosters the economic prosperity of nations … and the same may apply to e-commerce businesses. If buyers’ trust is lost, they won’t repurchase, and our e-commerce channel is certainly dead. If suppliers’ trust is lost, we won’t be able to serve our customers, and, again, our e-commerce channel is certainly dead.

How then, can we build trust in the e-commerce ecosystem in Latin America?

First of all, building trust in e-commerce is far more challenging in Latin America than it is in the US, simply put, because we start from a cultural position of mistrust rather than a position of trust. Whereas in Anglo-Saxon countries, a shipping company may leave a package unattended at the buyer’s front door, it is unthinkable or risky to do so in almost any Latin American neighborhood. Whereas in the US it is fairly simple to claim a fraud on your credit card in a few minutes, in Latin America it may take some time and bureaucratic complexities with our bank to prove that we, as buyers, are the victims rather than the perpetrators. Since there is a limited share of the population with access to credit or debit cards, we need trust systems for cash payments or payment upon delivery. Thus, we not only start from a position of mistrust, but we also face greater barriers to e-commerce access. And it is only through a reputation-building and risk management strategy that we can earn the trust of our buyers and suppliers. In Latin America, trust is deliberately earned, rather than taken for granted. It is ours to win, not ours to lose.

Second, although buyer’s trust is straightforward but expensive to earn during the first sale, it is mandatory and riskier to maintain in subsequent sales. Why is that so? Typically, on e-commerce channels, brands spend on customer acquisition costs (CAC) an amount comparable to the margin of the products in the first sale. If the latter were higher than the former, brands could easily recover their ad investment on the first sale, and would intelligently spend as much as they could on marketing to become infinitely profitable. However, since acquiring customers is expensive, e-commerce brands rely on customer cohort retention (the second and subsequent sales, or customer capitalization) to increase customer lifetime value (LTV) and reach long-term profitability.

In this context, trust during the first sale mainly depends on attributes that we may label as “what we promise,” namely, the product and the price make sense, the sales channel is attractive and easy to navigate, the checkout experience is manageable, there is a good range of delivery methods and promises, and the delivery fees are reasonable. Moreover, in industries like fashion, a reasonable return or quality assurance policy is the catalyst to conversion rates. A cautious buyer may read reviews of the product and the brand on social networks or marketplaces. If there are no huge red flags on any of these aspects and we are up to the benchmark, we are good to go on our first sale.

However, for the second and subsequent sales, the fulfillment of “what we promised” is the deal maker or breaker. “Was the product up to expectations?” is a question that mainly depends on the network of suppliers, and an issue with similar challenges to those of offline sales channels. Instead, “was the fulfillment up to expectations?” is a question that heavily relies on having the appropriate downstream fulfillment chain. And here the concept of “fulfillment” is not an end state, but a process that starts from the moment the buyer clicks “pay” and lasts until the buyer either returns the merchandise or, hopefully, repurchases. 

Anybody who has bought anything online can relate to the extreme anxiety that uncertainty brings, especially in a context of mistrust. And perhaps the most widely available anxiety deterrent is a tracking link or notification that buyers can check at will during the fulfillment window. Relaxed buyers mean happy, trusting, recurring buyers. Upon delivery, buyers will remember how they were treated and how their unpacking experience was. Thus, the packaging of our box, the face of our delivery partner, and the voice of our customer service agent will be the package, face and voice of our brand. Finally, the buyers will make the decision of repurchasing the moment they receive their merchandise according to “what we promised.” That is why a sale doesn’t just end when the products are delivered, but rather when the buyer repurchases. 

Then, the question we should ask ourselves is “how can we live up to the expectations of our buyers?” In today’s e-commerce world, it is difficult to fulfill the growing expectations of buyers as a single player because it requires multidisciplinary expertise and capabilities in marketing, technology, logistics, finance and so on. To be successful, we need partners and suppliers. If our payments platform doesn’t have a good fraud prevention add-on, we are risking our financial well-being. If our fulfillment partners have poor on-time and quality performance, we are likely losing all the customers that were poorly served, and risking not only our reputation, but our trustworthiness and profitability. Instead, if our partners are trustworthy, we are in a reinforcing cycle of profitability and growth. Therefore, having trustworthy e-commerce partners is a risk management strategy to capitalize on our customer cohorts. As a business, we should put an equal effort into product and brand development as in choosing the best possible partners, ranging from website to ad, checkout, and fulfillment services, because that is the deal breaker or maker for our e-commerce sales channel in the long term.

Trust, besides being the necessary condition for the first e-commerce sale, is the key ingredient in making an e-commerce business profitable. In Latin America, e-commerce brands usually have to earn the buyers’ trust, but starting from a position of mistrust, or at least of anonymity. Setting the sales channel and ad strategy correctly is only the first step in earning the buyers’ trust. Managing buyers’ expectations and anxieties, and serving them through the appropriate fulfillment partners is what allows e-commerce brands to reduce the risk of losing customers and messing up their business. That being said, would we risk working with untrustworthy partners in Latin America?

Photo by:   Andres Felipe Archila

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