How to do business online in Mexico — Part two: Appealing to Mexican consumers
Welcome back to “How to do business online in Mexico”. In part one we took and in-depth look at online fraud, what to look out for, and how to avoid getting hustled by low life fraudsters.
In part two, I will guide you through the intricate cultural dynamics of Mexican consumers. We will be covering:
- Payments — How to provide the payment options, what your customers want.
- Subscription billing — How to deal with the micro chaos of customers coming and going.
- Deals and promotions — How to appeal to Mexican consumers and generate more sales.
- Legal stuff — A few notes on what to look out for to avoid breaking consumer business related laws.
Understanding Mexican consumer socioeconomics
Before I moved to Mexico to build Simplii, I had studied a few statistics about the Mexican population and knew a lot about the current state of the telco market. I did not grasp the dynamics of the Mexican consumer behavior as a product of the underlying socioeconomics. Let’s see if I can give you a head start.
From an average household net-adjusted disposable income per capita point of view Mexico is about a third of the U.S. Although a number from OECD does not paint a complete picture, you will find that the difference in income, cash flow, and wealth are more of less directly reflected in your market. Furthermore, Mexico has a large, and often very visible wealth gap, and while the middle class is growing, the contrast can be startling, especially if you, like me, grew up in equal opportunity country like Denmark.
From an online business point of you, the consumer economics and behavior in Mexico is based around basically wanting the same material possessions as our northern neighbors in the U.S. and Canada, but with generally less purchasing power. If you are selling luxury items, this mainly just means that your market is smaller. If you are selling food and clothing, you will have to sell at significantly lower prices to match the market.
For a wide range of products, the prices are not lower in Mexico than in other countries and the markets are still huge. Excluding taxes, iPhones, cars, makeup and many other nice things cost pretty much the same worldwide, and Mexican consumers want the same things as consumers around the globe. So what you need to think about is: “How can I help people get my products easily and affordably?”. With this in mind, let’s dig in.
“Can I pay with cash?”
In part 1, I covered fraud in great details; so, in this post, I will instead focus on the good people and how to get their money. The payment methods you support is a very important part of optimising your conversion rate and maximising your revenue.
First thing you need to know is that accepting cash is a must. Well, you don’t have to, but if you do not accept cash you will be turning away a significant group of customers. In Simplii ~15% of payments are made with cash in Oxxo. In case you have never been to Mexico, Oxxo is the largest chain of convenience stores with more than 17,000 locations. It’s where you go to top-up your prepaid cell phone, pay your bills, and do all your late night shopping for things like beer, Coca-Cola, bread, eggs, burner phones, and cigarettes. Oxxo is such a Mexican institution that 7-Eleven and Circle K are often referred to as “el otro Oxxo” (the other Oxxo).
The reason shopping online, but paying with cash in Oxxo is so popular is for two reasons: one, a lot of people get paid in cash and just run their personal economy in cash and while they may have a debit card, they may not have money in that account; second reason: many people do not trust online stores. In Mexico, fraud is real and that also goes for regular people. Getting a call from a person pretending to be your uncle living in the U.S. that wants a little money for the plane ticket to come visit you is more common that you might think. Criminals are running scams from jail and stealing money from innocent people. And when as discussed in part one, the criminals are much more experts in getting money back by disputing charges than the average consumer.
A lot of people will not trust you enough to use their card online, even though they actually have better protection in case you don’t deliver them the products they ordered. At Simplii, we often have customers who make their first payment with cash in Oxxo and then switch to card payment afterwards, when they see that we treat them well.
All in all, you should very much consider adapting your payment systems to handle cash payments. It might involve switching payments providers or adding a second provider for handling cash payments. Personally, I have very good experience using Conekta to handle Oxxo payments; their Oxxo Pay system gives you real time feedback when customers make payments. Other systems are often delayed, but since Femsa, the parent company of Oxxo is an investor in Conekta, they have a very tight integration.
When a Simplii customer goes to Oxxo, the store clerk scans a barcode on the customer’s phone and the screen at the counter displays the customer’s name and how much they have to pay; easy for everyone and our systems receive a webhook notifying us immediately when the payment is made, so we send an SMS to the customer notifying that we have received the payment and that we will be sending them their SIM card or renewing their plan. It takes a little time to set it up, but Oxxo Pay is easy to use , both for you as a merchant and for your customers.
One thing you need to be aware of when accepting offline or asynchronous payments like cash is that customers might not pay at all. Having an offline payment rate of around 20% is considered okay by most merchants. At Simplii we have spent a lot of time on post sign up procedures to get our Oxxo payment rate up to a whopping 50%. The other 50% just never get around to actually becoming customers.
You need to adapt your systems and your thinking to seeing a cash sign up or order as a lead and not a customer, until the money has been handed over. You might have to do a lot of work and automated messages, or maybe even phone calls to get your customer to do that last part of the journey down to Oxxo.
Besides cash, you should also consider accepting PayPal. Some people will not trust you enough to do a card payment with you, but they may trust PayPal where they already have their card registered; they may also just prefer PayPal for convenience. I use PayPal often just because it’s clicking on a button instead of having to type in card information. PayPal does charge a higher commission than most payment providers, but assuming that the customer actually has money to pay for your goods, you will see low fraud rates and high acceptance rates on PayPal. At Simplii, we also take PayPal and have large group of customers who prefer that.
Last but not least, bank transfers are common, but not as used as cards or cash. At Simplii, we have a group of customer who pays every month using SPEI, which is the national bank transfer system. Using a provider like Conekta, SPEI payments work like Oxxo payments, but customers use their mobile banking apps or ATMs to make the transfers.
All in all, you need to think about payments from customers’ points of view. Yes, it’s a bit of a hassle to deal with three or four different payment methods instead of just having one, but think about your revenue. Think about the customers who are on your website; want to buy and are writing you on your chat, asking if they can pay in Oxxo. Do you really want to turn those customers away? Do you really want to make lack of payment options a major conversion killer? Probably not.
“I will have money in a few days”
If you are running a consumer subscription business, there is a number of new concepts you have to adapt to.
Customers may like your product, but other factors in their lives take precedence in any giving situation. We see this all the time in Simplii. It’s not that they don’t want to renew their cell phone plan, they just don’t have money today, but they probably will in a few days. And here we are talking about cell phone service, a life essential for most people; even so, rent, water, gas, electricity, and food come first. Data from random Wi-Fi networks can feed your phone for a few days, not your children.
If you are selling less essential subscriptions, like music, gaming, food delivery, magazines, etc., be prepared for customers to be coming and going. This doesn’t mean that they don’t like your service, and you will likely see that your NPS-score might be great, but subscribers are not renewing.
Instead of searching for a product-related problem that can be fixed to make customers happy enough to stick around, you should see your payment -and billing- options as part of your product.
- Accept as many forms of payment as you can handle. “I don’t have money in my card until next week, but I can pay cash at Oxxo” is a very common phrase you will hear when talking to customers. In Mexico, Amazon, Netflix, Spotify, Xbox, and Apple all sell scratch cards in Oxxo and other stores; Uber lets you add multiple credit cards, but they also let you pay with cash.
- Don’t consider a renewal failure as churn. Customers might come back in a few days. They could also be on vacation and want to use your service when they return. At Simplii, we count a subscriber as churn when it has been more than 15 days since they last used data on their phone. You probably have your own criteria, but consider that Mexican consumers can be a slightly more chaotic bunch and that you wanna give some slack before considering them as churned.
- Start your “win back” campaign before subscribers actually churn. As soon as their subscription renewal fails, you need to start winning them back. Some might be easy because they are just waiting for payday and still love your service. Others might be on the fence and will need some more motivation to re-join your service. Besides a great message flow with motivation SMS and/or emails, consider designing some special “win back” promotions.
- Your app, or whatever user interface you have for your subscribers, should make it easy to get the subscription started again.
- If your service is pre-paid, be wary of dunning periods. It seems like a great idea to cut some slack when payments fail to “not lose the customer” and just let the service continue to work for a couple of days. You will find out what works best for you but do not be surprised if people start gaming your dunning period. You are potentially doing a 35 day plan instead of 30, “but the good customers should not be cut off, just because a few people are gaming the system”. Those were pretty much my exact words when we designed the first Simplii plans; now I know better. Mexican consumers, including myself, are used to hard cutoffs. That’s okay, as long as you make it easy to get going again.
¿“Tienes promociones”?
Every consumer in the world enjoys getting a good deal, but the amount of popularity of promotions varies. Mexican consumers LOVE promotions: “dos por uno”, “tres por dos”, “plan familiar premium“. Two for one, three for two, family plan, for the non-Spanish speakers.
The feeling of getting a good deal is strong among all the world’s consumers, but much more so in markets where the desire for nice stuff is the same, but money are more scares.
The ol’ school two-for-one or three-for-two deals are everywhere in Mexican retail, and customers expect the same from your online business. You might not see your products as something customers would want in multiples, but that should not discourage your from bundle deals. Customers will often use the bundle promotion as a group purchase. Get together with one or two friends, or cousins, and share the offer. Sure you might only get of them on your customer mailing list, but you sold two or three items!
Group deals are also popular among subscription services. I’m both part of a Spotify “family” and have my Danish family members on my Mexican Netflix plan, which is a third of the price of the Danish plan. Score!
Spotify has been trying to crack down on their large amount of fake families, which has essentially turned into group discounts, by enforcing geo-location to expose users, but turned it off again because users revolted against the surveillance by Spotify! In Mexico, a single Spotify Premium plan is $99 MXN ($5 USD), but friends sign up for the $149 MXN five user Family Plan, because why would you pay more than you have to?
If your subscription business can support group plans, you should strongly consider them as attractive offers. Group plans have high loyalty and you only have to deal with one payment to keep multiple users active. If your business does not support groups, then don’t offer that option. People will game your system and exploit any weakness your business plan might have. Remember, Mexican consumers want the same as Swedish consumers, but the median income is ~30% of that in Sweden. Make sure your business supports your deals.
“18 meses sin intereses”
I mentioned a few times before that Mexican consumers want the same thing as consumers in the rest of North American and Western Europe, but that the median income is significantly lower and personal finances can be tight. So, besides deals, you will want to look into offering payment in installments.
Everywhere you go, you will see “18 months without interest” or similar. From 60 months all the way down to three weeks or sometimes even seven days. Seven payments over seven days!
Installments in Mexico are not a low income phenomenon either. Installments are everywhere from highest end department stores like “El Palacio de Hierro” to the discount bins at Wal-Mart.
Offering installments online is easy and most local payment gateways offer installments as a feature. Your processing fees will of course be higher but likely so will your conversion rate.
Referral- and discount codes
Again you have to think like a consumer: “I want your product, but I feel like it’s a little expensive”. If your product has an “At-home good” quality, or your service has a stickiness where customers just love whatever you are pushing, consider starting your referral program. Even if you are not the type of person that normally would “spam” your friends with links to save 10%, you will likely find that Mexican consumers will jump through more hoops to save some cash.
You don’t have to start with a fancy referral program. Start smaller with a set of regular discount codes. Figure out how to reach your target audience, get them interested, and then use discounts to get them over the checkout line. Especially codes for free delivery and a discount for first month’s service have worked well for us at Simplii.
“¿Donde esta mi factura?”
Legally Mexico is not complicated to operate in, but there are a few super boring but important things to be aware off. I’m, by any means, no expert; but I can tell you a little about what to be aware off.
Most importantly, you are obligated to offer a “factura”, which is an official invoice or receipt that is eligible with the Mexican tax authorities. The format is standardised and not something you wanna start developing yourself. Instead, you should just go to a local provider like Facturama, that will make it easy to generate and send these special receipts.
For example, If you offer contests, these have to be registered and approved by Profeco, so they can be monitored and shut down if you are trying to run scams on consumers.
For other legal topics specific to your business, talk to a local consumer business attorney; I’m not an expert in Mexican laws, but you should be aware of rules and guidelines set forth by Profeco, which is the Mexican consumer protection agency. They have the authority to hand out hefty fines, if you fail to comply with the law.
Round up
Mexican consumers can feel like a somewhat chaotic group of people. A large market might find your product or service appealing, but… it’s all those buts you have to focus on:
- Accept as many forms of payment as you can handle.
- Remember that an order is not a purchase until the customer has paid.
- Look into offering payments in installments almost no matter the value of your items.
- Design your billing systems to handle an on-and-off subscribers base.
- Offer some great deals and promotions.
- Make sure you have your legal stuff sorted to avoid getting fined.
Last but not least, do not think that you can run your business in English or any other language than Spanish. “Duh, of course” you might be thinking, but you should know that Spanish is not simply Spanish. Mexico is not the same as Colombia or Peru or Spain; just like Australia and the U.S are not the same. Each country has distinct culturally specific languages, that your marketing-, customer support-, and SoMe teams will need to adhere to. I highly recommend going as local as possible. ALV!
I hope that you find my series on doing business online in Mexico useful. If you made it all the way through but still want to know more, feel free to contact me. I’m “dkjess” on most platforms including Twitter, Facebook, and LinkedIn.
Part three — Providers and B2B
In the third and final part of the series on how to do business online in Mexico, I will guide you through choosing the right providers. We will also look at what to do when no good providers exist and you might have to build your own solutions. Finally, I will touch on B2B and give you some insights to help you sell more in Mexico.
