Peculiar online buying behaviours in the British Isles
Why? Why? Why? Ask it enough times and you’ll either irritate someone or if you’re lucky you might get to the bottom of things. The UK ecommerce consumer is the most valuable in the world and we export more ecommerce than we import. But why do Brits spend so much online? And why do British ecommerce companies appeal so much to overseas consumers? It’s difficult to know for sure but some facts and figures can give us some great insights to Great Britain and the tech-savvy islanders that make for such a healthy market.
At Forward Partners we like to try and understand the market that we operate in as best we can. Nic has written about the propensity of the UK consumer to spend online and I recently wrote a post about how UK ecommerce companies are by far the largest net exporters when compared to other countries’ companies. This is good to know. It provides us with validation that (a) the entrepreneurs who we invest in are in the right market and (b) we are too. However, this information taken on its own is a snapshot of the attractiveness of the UK. It’s a nice looking snap, but we wanted to dig further. Over the last month we’ve been collecting data from places like the ONS, World Bank and eMarketer. There’s been a lot of head scratching but we’ve come up with some data-driven insights as to why Britain performs so well as a market and as an incubator.
We discussed some ideas as to why we observe these things about the UK and we came up with a lot of different potential variables: developed hard and soft infrastructure, smartphone penetration, population densities, urban population, wealth and income, low corruption, propensity to spend/consume, willingness of retailers to discount goods/services, the list goes on. Finding accurate data for all of these things in lots of countries is very difficult so we came up with a proxy: the number of digital buyers / total population. Digital buyers are classified as people (14+) who have made at least one purchase via any digital channel in the past year including online, mobile, tablet.
This was a bit of a revelation for us. Intuitively this ratio comprises references to a lot of variables mentioned above as well as many other demographic and macro-economic ones. Certainly things like how happy consumers are to buy online are at least partially accounted for here, alongside the ability and money to do so. Judging solely on this metric Japan is the world leader with the UK in second. There is a strong message here. Japan exhibits many characteristics that make it a ripe market for ecommerce. Broadly speaking, the Japanese are wealthy, technologically engaged, have strong institutions and excellent infrastructure. In the UK we are less wealthy but we make up for that in our propensity to consume. Looking at a company level, it would seem like the UK is the better business bet. The relative ubiquity of English as a language, the globalisation of Anglo-Saxon culture, the UK’s place within the EU (!) and the availability of venture and growth capital all make for the best possible environment to start and grow an ecommerce business.
We were happy with our observations of this proxy metric but we hadn’t finished asking why. What drives this ratio? In order to answer this question we needed far more data, a lot of regression analysis and a healthy portion of patience. We assessed lots of possible explanatory sets of data but we came up with 4 that explain over half of the ratio.
Data set What? Urban population % Having a lot of people all in one place helps with the logistics requirements for ecommerce companies that sell physical product GNI per capita How wealthy people are The average B2C ecommerce sales per digital buyer Of all the people who buy things online, how much they spend on average in a year The average B2C ecommerce sales per digital buyer divided by GNI per capita What proportion of the digital buyers’ incomes is spent online — basically how strong are they as consumers. You could also see this as a measure of how good ecommerce companies are at getting people to spend online
Here is how our sample ranks against one another:
Aside from the explanatory power of this data, another interesting point to note is that the voracity of the UK ecommerce consumer sets us apart from our Western cousins. Digital buyers in the UK spend 9% of their cash online. Australians are a long way back at 5.4% and the next European country (Spain) comes in at 4.3%.
We now have this ratio of digital buyers : population which serves as an excellent proxy for understanding what makes an ecommerce market great. And we also understand over half of the component parts of the ratio. Much like venture capital, this isn’t a precise science but using analytical tools allows us to develop a better understanding of the realities and the potential of our domestic, regional and global market is crucial for us to properly evaluate opportunities.
I’ve left a lot of the stats out of this blog post but I’ve put up some more information about the regression analysis on Slideshare: http://www.slideshare.net/mattyjam/island-living-data-analysis.
This article was originally published on the Forward Partners blog on December 8th 2014