Analyzing Shopee's Aggressive Expansion

In the following articles, we look into recent developments with Shopee, a Singaporean-based e-commerce platform with gamified features as one of its unique selling propositions. Similar to TikTok, Shopee earns mostly through ad revenue and commission fees. Founded in 2015, the online marketplace has dominated Southeast Asia as the largest e-commerce platform with over 343 million visitors per month, followed by Tokopedia and Lazada (Geldman, 2021). According to the first article (Mulia, 2021), the company is planning to expand its operations to the European and Latin American markets, with a successful launch in Brazil and being the top shopping app in Poland and Spain among Android users as of October 19, 2021.

That being said, despite facing amazing revenue and market share growth figures, Shopee’s aggressive marketing strategies, including attractive coupons, flash deals, and free shipping options as well as costly marketing campaigns such as ‘11.11’ and ‘12.12’ retail sales, have taken a huge chunk out of their profits. As noted in Shah’s article, Sea Ltd., Shopee’s parent company, has faced continuous net losses since 2017 despite growth in market cap. Scalability issues may arise as their tight liquidity may be disincentivizing for stricter investors. As Shopee plans to raise about $6.2 billion in new shares and note offerings to help fund its global expansion, their financial health may pose a problem.

As of 2021, the e-commerce market in the Southeast Asian (SEA) region can be classified as an oligopolistic competition wherein few firms with high market shares compete, with Shopee and Lazada being the most dominant in the region (Raj, 2021). Like their competitors, Shopee employs second-degree price discrimination by offering collectable coins and coupons for consumers willing to buy in bulk while also attracting repeat purchases. Shopee’s aggressive marketing strategies and undercutting tactics can also be considered as a predatory pricing strategy to retain high market share. They also recently offered more app features such as ‘shopperteinmant’ (i.e., Shopee Live, an in-app live streaming feature to increase foot traffic) to differentiate their app. On the other hand, the company’s pricing tactics may not be sustainable given their plans for expansion. As Itaú BBA, a Brazilian corporate investment bank, analysts note in a report (Shah, 2021): “...the funding from its parent company is limited; the amazing growth figures, also driven by very appealing commercial conditions, might start to decelerate in the coming months.”

On the whole, it is crucial for Sea’s Shopee to maintain their leading brand position and block out rising local SEA e-commerce players to attract investors with their high growth figures. They can either 1) retain their attractive low-cost positioning and bank on investors willing to wager on their illiquidity, or 2) take a more conservative approach and cut back on their price tactics to alleviate the cash burn eating at their profits, albeit sacrificing a bit of their market share. The choice seems clear as Shopee recently increased their commission rate in Brazil, from 5% in 2020 to 12% this year.


Articles on Shopee:
Shopee enters France, Spain, and Poland in aggressive European expansion
By Khamila Mulia

Singapore’s Shopee eyes global expansion with a gamified approach to e-commerce
By Saqib Shah