Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.
Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?
A new threshold for "digital services" from 1 January 2019
Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.
The "one-stop shop" will gradually be extended
In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.
Distance selling of goods also to be covered from 2021
Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.
The other priority: the fight against fraud
This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival.
E-commerce and m-commerce: a smoother system ahead
Even though there is significant interest in e-commerce and m-commerce, making payments is often perceived as cumbersome or as insecure.
E-commerce considerably increases ease of use. You can calmly consult information about services (training, holiday camp for children, etc.) and then pay for them straight away. The trend shows no signs of stopping, yet Belgium is not leading the way here. In our country, for example, only 2-3% of the total retail turnover is made with electronic sales. The figure in our neighbouring countries is already 8-9%. Gunter Uytterhoeven (Head of Marketing BNP Paribas Fortis):
“One of the reasons for lagging behind is that Belgium still does not have a good payment solution for electronic transactions. Many people perceive online payments to be complex, cumbersome and not adequately secure. Almost one-quarter of all transactions are interrupted at the time payment must be made.”
The most common way of online payment is the credit card, which is being used increasingly with the card reader and PIN. The payment requires several actions. A system that is making considerable progress is the virtual wallet or e-wallet. The customer opens a wallet on a website to which an amount can be transferred or on which payment is made by credit card. The advantage is that you do not have to release any personal details on the internet. The disadvantage is that you can only use this system in affiliated web shops. A well-known example is PayPal. The customer only needs to provide his bank account or credit card details once and can pay after that with an e-mail address and password. This also requires a number of actions that can form an obstacle for many e-shoppers.
M-commerce (buying and paying via mobile devices such as smartphones and tablets) is still in its infancy. Apps are very popular, but they are not yet used very frequently for mobile trade. Paying in the app often does not work, merchants have problems identifying customers, and there are still doubts about security and privacy.
However, there is a solution in sight to make both e-commerce and m-commerce work more smoothly and securely. BNP Paribas Fortis is currently working on a new system together with other Belgian banks and major telecom players: Sixdots.
Sixdots: smooth and secure online and mobile payments
Sixdots is a system designed to make both payment cards and card readers superfluous. These are to be replaced by a secret code that is typed into the smartphone. Online mobile payments will be smooth and secure. The system is aimed at the Belgian market and will be launched in 2015.
- Sixdots refers to the six-figure PIN, which together with several other elements is designed to ensure the security of the system. Sixdots will be an open platform that is accessible for all organisations/companies and their customers/consumers: the app can be used by anyone with a smartphone, a payment card at a Belgian bank and a mobile data subscription with a Belgian telecom operator.
- Sixdots offers attractive benefits to vendors, both for e-commerce and ‘in-app’ commerce. Sixdots can be seamlessly integrated into the organisation's own app. You pay a small fee for each transaction.
- Using Sixdots is free and convenient for the payer. Payers no longer have to leave behind their card details during the payment process and the card reader also becomes superfluous. All that they need to pay for goods or services is a smartphone.
Gunter Uytterhoeven: “For commercial organisations, more is possible than just shopping and paying. The entire retail process can be combined in Sixdots, including loyalty cards and discount vouchers. Discount vouchers would then automatically appear on customers' smartphones, for example, when they are at the shop rack height of the relevant product. The till will also recognise the customer's smartphone and automatically deduct the discount vouchers from the bill. The current buzz word for this in the retail world is ‘fidgetal’, the combination of finger and digital. The aim of this is the convergence of the physical and e-commerce world, using the smartphone as the ideal binding agent. These types of applications will also prove their usefulness in the public and social profit sectors.”
Do not miss the e-commerce boat!
Belgium is rarely ever first in embracing new technologies and their commercial possibilities. The country is not exactly a pioneer in e-commerce either. Unfortunate? It is!
First of all, it is a missed commercial opportunity. What is more, Belgian businesses are at risk of falling so far behind that it will become difficult to catch up. Compared to foreign web stores, the Belgian players are small: the large online stores are usually in foreign hands. The web store names may end in ".be", but behind the scenes you will find companies based in Belgium's neighbouring countries, the UK or the US.
According to the retail federation Comeos, this is partly because Belgian e-commerce is battling foreign dominance with unequal arms. Labour costs and VAT rates are higher here, for example.
Comeos also predicts that sales in e-shops are about to grow considerably further still, but that this growth will occur mostly outside Belgium. Some figures: in 2018 online trading will be about 10% of total turnover, compared to 5.6% today. From that online turnover, foreign e-shops currently account for 37%. In 2018 this will rise to almost 69%.
Shopping without borders
Until now it has mainly been the European and US web shops doing well. If the Chinese web shops become equally popular, Comeos fears the trend will become unstoppable. The market will be flooded with extremely cheap gadgets and electronics at bargain prices. Fakes? Perhaps. With a guarantee? Who knows. The fact is that Belgian and European web shops are already becoming nervous.
"This is not without reason," according to Benny Sintobin, who has been running his own web shop for twelve years. His company Frucon² also designs and manages online sales channels for other companies. “E-commerce is global and super local at the same time. Global, because the competition is becoming worldwide. A young man from a small village in Belgium can see a longboard by a graffiti artist in California and buy it online. Logistics models will further adjust to this globalised trade. The price war is also constantly intensifying. As a brand, you had better be ready to join this worldwide game.
Super local means that you can order a loaf, some milk and some cheese at midnight and have those products ready for you at your front door at half past six in the morning. Just like in the good old days when the milkman made home deliveries, only the note on the door for the milkman has now been replaced with an electronic order. Something like that can only be organised super locally."
Waiting is no longer an option
At the moment people are afraid of worldwide competition, but fear is a poor advisor of course. The market is gradually evolving towards more e-commerce. Nobody can stop this trend. In some sectors almost half the products are now sold online. Tourism is a classic example of a sector that has taken to the internet like a duck to water. Other sectors, like household appliances, have a more modest e-commerce share for now, but this can change quickly. Even products you may not expect to do well on the internet are being sold online more and more. Take the fashion sector, for example. Clothes involve pure emotions, and colour and fit are hugely important, and yet e-shops for clothes are doing extremely well.
Internet giant Google has even predicted that in time, 40% of B2C transactions will be online. An important part of this will involve reservations, where an order is prepared in store for collection by the consumer. Another part will be actual home delivery.
Companies have to keep up with this trend, and by that we do not just mean the multinationals. A sense of size and scale is necessary, though. According to Benny Sintobin, the calculation is a simple one:
"Imagine a company achieves a turnover of 10 million euros in a sector where 5% of sales are achieved in web shops. Let us say that the e-commerce potential of the entire sector is 10%. Then the company primarily has an e-commerce potential of 1 million euros. You also need to take into account that there will be a channel shift during the start-up phase, whether you like it or not: customers who are used to buying in an actual shop will now make some of their purchases online. It is swings and roundabouts... except if you can increase the online margin."
4 reasons why customers buy online
- 40% (!) because of the price
- 20% because of the convenience: choosing, ordering and delivery at home
- 20% because of its uniqueness: much wider choice, opportunity to personalise, etc.
- 20% because of the availability: all models, colours and sizes are (almost) always in stock
E-commerce: the 3 steps to success
Which stages should a company that is venturing into e-commerce go through? And how do you avoid customers and employees getting stressed and frustrated in the process?
Phase 1: managing the channel conflict
When a manufacturer, distributor or importer starts selling the products they previously only sold to shops online themselves, the shops may experience that as a channel conflict. Their supplier has now become a direct competitor benefiting from low start-up costs as well as more customer convenience. But does the supplier have a choice? If the supplier does not sell online, some customers will go to a seller who does. The solution? Benny Sintobin, Manager of e-commerce specialist Frucon²:
"The channel conflict is a perception debate that is more emotional than rational. E-commerce is unavoidable, so you had better adjust. The roughest edges of the channel conflict can be smoothed out by being a ‘friendly’ online store. With that I mean that you have to approach it correctly, with empathy for the party that may be at a disadvantage. You have to be bold enough to tell the customers of your distribution channel in advance what you are planning and which rules you are going to follow. If you start up everything on the quiet, you will cause frustration and negative emotions."
And these are totally unnecessary, because the new situation can be favourable to the distributor or shop as well. The distributor's online sales channel can also refer to his customer's website or shop, for example. Benny Sintobin:
"Take a bicycle manufacturer offering bicycles to customers online, for example. The website could allow consumers to combine certain materials and colours online in order to create a personalised model. The bicycle can be sent by courier, but can also be delivered to a retailer near the customer for the customer's collection. In that case the retailer will have to be satisfied with a smaller margin and the fact that he has gained a new customer, who will come back later to buy a helmet or a bicycle bag or to have his bicycle serviced. The other members of his family will follow his example for their bicycles and accessories. That way everyone wins."
Downward price spiral
When you say channel conflict, people almost automatically think about a price war between shops competing with online sales channels offering the same products at a lower price. According to Benny Sintobin it is therefore important to put a fair, correct price on the products:
"When manufacturers engage in e-commerce themselves, they set the product's retail price. The price is there online in black and white. In that case shops can rarely afford to charge a higher price. That is why the pricing must be correct, so that shops can still earn a living.
In practice a channel conflict often causes the reverse phenomenon: it is usually not the manufacturer, but the shops starting the downward price spiral. That is in fact the biggest threat to e-commerce: the shop trying to hurt the supplier. Major players striving towards market dominance can afford to destroy their profit margins. However, smaller manufacturers and brands cannot compete in such a price war. This proves once again the importance of making good e-commerce arrangements."
Phase 2: geographical expansion
Once the channel conflict has been well and truly digested, it is time for the next phase: tapping into new markets. For larger SMEs e-commerce is often a perfect way to gain more of a market share. For example, take a Belgian brand that achieved a nice market share in Belgium by selling in retail points as well as through its own online sales channel. Perhaps the brand has developed some brand awareness abroad through a couple of shops in the capital, for example. Benny Sintobin:
"In that case it is entirely possible that some consumers abroad know the brand already, but are unable to get to the shop because of the distance. It would be very unfortunate not to take control of that potential channel yourself and to leave it to Amazon, would it not? Online your products are available to all customers. Conclusion: expansion abroad with an e-commerce channel could be the first low-hanging fruit that is therefore easy to pick."
Phase 3: reinventing your business model
The third phase in e-commerce is a leap in the dark. Company thinking is traditionally product-, market- and wholesale-oriented. Take a company manufacturing or importing pots and pans, for example. That product is part of the world of cooking and dining, but still the sales strategy traditionally focuses completely on the product. However, the online activities offer opportunities to change tack and create an entire world around the particular product. You can work with other companies in that respect: a publisher to create content about dining, a candle manufacturer, a herbs specialist, a table linens manufacturer, a supermarket offering home delivery, etc. Benny Sintobin:
"Around Valentine's day or other key moments of the year you can create content and an entire world where those pots and pans belong. In that case what you sell online becomes more of an experience than a product. The effect is further strengthened if each of the partner companies present that experience on their sites as well. That way you enter each other's customer base and target groups. And you also immediately make sure that your social media really start to work for you. Consumers will tend to like a Valentine's experience more than just a set of pots and pans. In other words, you become a "love brand" rather than just an everyday product."
3 damaging e-commerce blunders
- You fail to inform the customers of your distribution channel of your e-commerce plans and you do not agree on clear rules. Clear arrangements make good business partners.
- You fail to gain sufficient support from all your company's employees. Non-believers and sceptics are best convinced with figures and orders. And you should make sure that dreamers keep both feet on the ground: Rome was not built in a day.
- You focus on bonus systems rewarding targets in a single sales channel. Commercial employees getting a little extra for the sales figures in actual shops are not happy with rising online sales figures, even though they benefit the entire company.
Social media and e-commerce: opportunities and risks
The huge popularity of social media brings new opportunities, but has resulted in some new stumbling blocks as well. What are the most recent trends? And how should you respond to them?
Social media such as Facebook, YouTube, Twitter, Instagram, etc. seem cutting edge, but the principle is as old as the hills: word of mouth, sometimes abbreviated as WOM in marketing. Even in the heyday of the mass media, positive recommendations from neighbours, family and friends remained important to a company's success. Newspapers, magazines and television advertising were the first channel introducing a new product to consumers, but word-of-mouth turned out to play a decisive role in what matters most: consumer behaviour. Consumers shared experiences and thereby affected the behaviour of their fellow consumers. Today, more than ever, they do so through social media.
Consumers persuading consumers
Social media are the contemporary, more sophisticated and super-fast successor of old-fashioned word-of-mouth advertising. They are a catalyst. Social networks allow people to exchange views, share experiences, express their dissatisfaction, etc. more quickly than ever.
In addition, more and more consumers are opting for a "social search" over search engines such as Google to find information. They consciously do not search the entire internet, but approach their friends on Facebook or contacts on LinkedIn or Twitter. It speeds up the search and makes the result more reliable. The idea is that if X thinks it is good/nice/beautiful, we will probably think it is good/nice/beautiful too. There is also the option to ask questions and really discuss the product or service you need information about.
Consumers talk about all sorts of products (offline and online), from new detergents to new car models. And it is not just young people who are sharing their experiences about products and brands. Young and old, male or female: everyone does it. All these recommendations between consumers are worth gold.
We can illustrate this with an example: computer manufacturer Dell assumes that 25% of its customers choose their brand after it has been recommended by another user. The average purchase value per customer is about 210 dollars. Based on this amount, the value of every recommendation is estimated at 42 dollars. The more consumers Dell can convince to buy its products, the more money it makes.
However, the reverse is equally true: bad word-of-mouth advertising can have devastating effects. Particularly in this age of social media, a bad reputation does not take long to spread.
Social media in 2014
Perhaps Facebook will no longer exist in ten years' time, but it will most certainly have been replaced by something else. Social media are here to stay. It is therefore important for companies to build a good social media strategy. They can start by thinking about which channel they want to use for which content and objective. What do you need to take into account?
- Content (the message to the consumer) is still the key part, but the importance of segmentation is increasing. The audience is varied, so not all content and every channel is suitable for everyone. As a company, it is best to divide your target audience into sub-target groups. You can then choose specific content and a channel per sub-target group.
- Create real-time content: define a number of key moments in the year in advance and use these wisely. The World Cup, back to school, the summer holidays, etc. are all events that happen regularly and companies can respond to in a clever way. The trick is to find a good link between the key moment and your product. Be creative in this respect. If a school bag brand presents its content at the end of August, it will have to use an original approach to avoid coming across as predictable.
- Social media are predominantly a mobile story: most consumers are switching to smartphones and tablets. It is no coincidence that the four best-known social networks are also in the list of most popular mobile apps: Facebook, YouTube, Instagram and Twitter. In any case, your content (both on the website and on social media) will have to be mobile-friendly.
- The importance of customer care is only increasing. Consumers will now use social media more than ever to find information, ask questions and make comments.