Consumer power is not to be underestimated in Germany, in both B2B and B2C markets. Payment methods, delivery and return managment are crucial for a successful e-commerce business model in Germany.
Online shopping is typically credit card driven, but Germany also proves to be an exception in this respect. In Germany, just 11 percent prefer to pay by credit card whereas almost 30 percent prefer to be invoiced for their items (i.e. invoice that can be settled from bank current account). The proportion of shoppers preferring this method of payment increases significantly according to age and gender but the price of the item and the likelihood of a return also plays a role. Online payment systems (e.g. PayPal, SOFORT Überweisung and giropay) are as a consolidation directly behind payment on account (28.2 percent).
Payment method as crucial
Method of payment in online shopping has become an increasingly important component of e-commerce. A majority of online shoppers cancel their online order because their favorite payment method is not offered - meaning future businesses who utilize multiple payment methods will most probably enjoy a competitive advantage.
In B2B e-commerce, payment by invoice and PayPal are the preferred online payment methods.
New logistic complexity
With a highly developed logistics infrastructure of 3,500 courier companies and 60,000 logistics service providers, Germany remains an ideal location for companies looking to provide online and multi-channel services. This concentrated network also makes services such as same-day delivery more calculable.
Parcel service providers are facing new challenges as a result of the e-commerce boom and accompanying developments. Increased B2C traffic has resulted in higher total shipping costs as deliveries become more decentralized with smaller quantities per stop.
Return champion Germany
Another important factor affecting these rising shipping costs is the rate of returns experienced by many online shops. Germans are returns champions: 15 percent of items sold online are returned (corresponds to one in seven orders). According to the German Federal Association of E-Commerce and Mail-Order Trade bevh, 75 percent of online companies offer free return to their customers for competitive reasons.
Customers expect free delivery and free returns which explains partly why customers in Germany make use of this possibility. In comparison, the return rate in the UK, France, the US and other countries is half or less of the return rate in Germany. A recent study shows that an increasing number of consumers in Germany do not plan to return purchased items for environmental reasons but that certain items (e.g. fashion items) are more prone to returns than other products (e.g. electronics). The payment method selected is another factor of a potentially planned return, with Rechnungskauf (purchase on account) often indicating higher likelihood of a return.
Returns management challenges
Return management represents a significant e-commerce challenge. Some 44 percent of retailers have admitted that returns have increased to such an extent that they put pressure on their business.
Despite increasing e-commerce turnover, many online shops record low profits due to the high costs of returns. According to Bitkom, one in seven orders is returned. Even though the return rate is 10 percent or lower for certain retailers, specific product groups – including fashion, textiles and shoes – experience higher return rates of up to 80 percent.
As a result, companies that are able to provide accurate product descriptions and visual representations with the help of AI, big data and virtual reality tools will most likely experience a significant comparative advantage in the online market place due to reduced return costs.
E-commerce business opportunities in Germany
Because of these increasing customer demands, innovative delivery methods and digital technologies could prove vital for online companies seeking to stay ahead of the competition, especially solutions that take sustainability and the environment into account. Businesses who provide innovative solutions to these emerging issues will find themselves with a distinct advantage in the German marketplace.
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