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Korea is the fourth largest economy in Asia and the twelfth largest globally as of 2022, with a gross domestic product (“GDP”) of $1.8 trillion and GDP per capita of $32,730. Total spending in Korea’s retail, grocery, consumer food service, and travel was $470 billion in 2019 and is expected to increase to $534 billion in 2024.
Korea is home to one of the largest and fastest-growing e-commerce opportunities anywhere in the world. Total e-commerce spending was $128 billion in 2019, which is expected to grow to $206 billion by 2024, implying a CAGR of approximately 10%.48 Total e-commerce spend for all Internet buyers in Korea.
In addition to the size of the opportunity, key attributes have contributed to Korea’s high online growth and made it poised for technology-led retail innovation. These attributes include High Mobile Penetration, the rise of homegrown technology companies that are driving a bigger and deeper selection of merchandise at highly competitive prices for consumers, and embracing convenient online shopping.
While there are attractive tailwinds for commerce in Korea, it is also one of the world’s most competitive and fastest-moving retail markets. To be successful, existing and new entrants must appreciate Korea’s demanding consumer preferences. For online offerings, this extends to building and tailoring an e-commerce solution surpassing innovation in other mature retail markets, such as the United States.
Coupang is on a mission and has built a business model to create a world where customers wonder: “How did I ever live without Coupang? In this strategy story, we will see what does Coupang do? How does Coupang work? What is the business model of Coupang? Who are the major competitors of Coupang?
What does Coupang do? How doesCoupang work?
Coupang is a South Korean e-commerce company based in Seoul, South Korea, and incorporated in Delaware, United States. Founded in 2010 by Bom Kim, the company expanded to become the largest online marketplace in South Korea. Its expansion led the company to video streaming distribution after the launch of the Coupang Play service. Coupang is often called the “Amazon of South Korea” due to its position and corporate size in the South Korean online market.
Coupang believes that historically, online shopping has forced customers to accept various compromises. E-commerce is convenient, but shipping times can be long and inconsistent. Services promising faster shipping often ask to choose from a fraction of the selection, order before early cut-off times, pay higher fees or prices, or all of the above.
Coupang has built a business model to address these tradeoffs and transform the customer experience. Coupang is centered on building an end-to-end integrated technology and infrastructure system to deliver a superior customer experience, launch new offerings, and offer effective merchant solutions.
In 2019, Coupang launched its Rocket WOW membership program for a flat monthly fee. It began by offering unlimited free shipping for millions of products with no minimum spend. Today, millions of members also enjoy Dawn Delivery and Same-Day Delivery shipping options, free unlimited returns for 30 days, and Rocket Fresh groceries.
Since its launch, Rocket Fresh has grown to become the leading nationwide online grocer. Coupang also launched Coupang Eats, the largest online food delivery service in Korea, which delivers food to customers using only delivery partners directly contracted by us.
Integrated Technology and Infrastructure
Coupang has built an end-to-end integrated network of technology and infrastructure capabilities, enabling it to address tradeoffs that customers have reluctantly come to accept in e-commerce.
Complete integration enables Coupang to control and improve the entire experience, from the customer app to the delivery of the order at the customer’s door, while increasing efficiency and lowering prices for customers. Coupang reimagined the e-commerce experience with its Rocket Delivery service that promises faster deliveries, a vast selection, low prices, and easy returns.
Technology: Coupang utilizes the latest in machine learning, artificial intelligence, cloud-based technologies, and other modern tools to power its offerings and services for customers and merchants. Coupang’s distribution network and last-mile delivery logistics are orchestrated by technology that enables full supply chain visibility and control.
Coupang operates the only major payment experience in its home market, supporting a “one-tap” experience without additional verification. Coupang’s fully integrated payments service offers a seamless app purchase experience, enabling customers to shop and pay without needing a fingerprint, facial scan, or password verification.
Infrastructure: Coupang has built an infrastructure network to provide its customers with a superior e-commerce experience. Key components of this technology-enabled infrastructure include a robust distribution network, last-Mile Delivery Infrastructure, and a diversified and sustainable supply chain.
What is the business model of Coupang?
- Convenience: All customers are able to receive free Next-Day Delivery for items sold through Rocket Delivery, even if ordered seconds before midnight. Rocket WOW members can also take advantage of Dawn Delivery, Same-Day Delivery, and free 30-day returns.
- Low Prices: Coupang’s strategy is to provide the lowest prices available in the Korean market across a wide and diverse assortment of items. Coupang achieves this through its diversified procurement strategy, which involves scaled procurement from local and international suppliers, direct sourcing from manufacturers, and creating a system that rewards merchants for providing competitive prices, enabling it to pass these savings on to customers in the form of lower prices.
- Vast Selection: Coupang offers a broad assortment of hundreds of millions of SKUs, which are available for Same-Day Delivery and Dawn Delivery through Rocket Delivery. Coupang also offers one of the widest selections of grocery SKUs in Korea through Rocket Fresh.
- Customer-to-Product Matching: Coupang’s matching technology ingests millions of new merchant listings daily into a product knowledge graph and, leveraging machine learning, provides product exposure to customers based on relevance and predicted customer experience, among other variables.
This helps high-quality merchants compete holistically on the overall customer experience. This results in lowering barriers to entry for merchants and improving the customer experience, encouraging repeat purchasing and generating higher sales for merchants. Merchants are able to use this listing service for free.
- Fulfillment & Logistics by Coupang Program: Merchants can upgrade to become suppliers through the FLC program, which helps increase their sales and improve their operational efficiency by leveraging Coupang’s technology and infrastructure to provide fulfillment, logistics, delivery, and customer service.
- Marketing Solutions: Coupang offers merchants solutions to reach customers more effectively and efficiently and grow sales. These solutions include advertising tools to create and optimize campaigns and marketing solutions that provide insights and recommendations.
- E-Commerce Storefront: Coupang’s myStore service supports the successful digital transformation of merchants, especially small- and medium-sized businesses, by providing a digital storefront required to build a brand and serve customers across multiple channels on the internet.
Supply chain strategy of Coupang
Distribution Network: Coupang built the largest B2C logistics footprint as compared to other product e-commerce players in Korea. Coupang utilizes optimization technology in its distribution centers to efficiently store and fulfill millions of SKUs across product categories and brands. This enables Coupang to manage a complex supply chain with high inventory turns.
Last-Mile Delivery Infrastructure: Coupang operates the largest directly employed delivery fleet in Korea, utilizing proprietary software and custom-designed trucks that deliver to a neighborhood multiple times a day.
Diversified Supply Chain: Coupang has established an extensive network of suppliers and merchants, which enables it to obtain a wide selection of merchandise while maintaining low prices for customers. Coupang offers millions of SKUs under its owned-inventory selection, which requires significant procurement expertise from local and international suppliers.
Coupang also sources a large proportion of merchandise directly from manufacturers, which can result in better customer pricing. Coupang’s marketplace attracts a large number of merchants, including small- and medium-sized businesses, which enables it to obtain a wide and unique selection of merchandise.
Sustainability: Coupang has also made its packaging more sustainable through box-free delivery and reusable eco-bags. Technology and process innovations across Coupang’s supply chain enabled these changes. Packaging reduction results in environmental benefits, cost-efficiency improvements, and reduction of an inconvenience for customers commonly associated with e-commerce.
Coupang made $18.4 billion 2021. Coupang’s revenue principally consists of retail sales earned from its online product sales to customers, commissions earned on transactions through its online business, consideration from online restaurant ordering and delivery services, third-party advertising, and subscription fees.
The business model of Coupang categorizes its revenue as (1) net retail sales and (2) net other revenue.
|Revenue (in $ billions)||18.4||12||6.3|
|Active Customers (in Millions)||17.9||14.8||11.8|
|Total net revenues per Active Customer (in $)||283||256||161|
Net retail sales represent most (~90%) of the net revenues Coupang earns from online product sales of its owned inventory to customers. Net other revenue includes commissions earned from merchants selling their products through Coupang’s apps or websites. Coupang is not the merchant of record in these transactions, nor does it take possession of the related inventory.
Net other revenue also includes consideration from online restaurant ordering and delivery services performed by Coupang and advertising services provided on its apps or websites.
Coupang also earns subscription revenue from memberships to its Rocket WOW membership program, which provides customers with access to benefits such as access to Rocket Fresh, no minimum spend for Rocket Delivery, free shipping on returns, and access to Coupang Play content streaming, which is also included in net other revenue.