VZCZCXRO8488
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHWR #1493/01 1791440
ZNR UUUUU ZZH
R 281440Z JUN 07
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC 4698
INFO RUEHKW/AMCONSUL KRAKOW 1761
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 WARSAW 001493 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/NCE, EUR/ERA, EEB/CIP 
EUR/NCE FOR DKOSTELANCIK, BPUTNEY 
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MROGERS 
TREASURY FOR MGAERTNER 
 
E.O. 12958: N/A 
TAGS: ECPS ECON EINT EINV PL
SUBJECT: Polish consumer e-commerce: Considerations for new 
entrants. 
 
REF:  A) Warsaw 00735, B) Warsaw 01117 
 
WARSAW 00001493  001.2 OF 002 
 
 
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Summary 
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¶1.  Leading Polish internet players have a recipe for success in the 
Polish and other central European internet markets.  New entrants 
following the lead of these players should consider online 
infrastructure, logistics, consumer market characteristics and 
online consumer behavior when making the decision to invest.  End 
Summary. 
 
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Who Are the Market Leaders? 
--------------------------- 
 
¶2.  As mentioned in ref A, the Polish online consumer market is 
expected to grow to 16 billion zloty ($5.4 billion) by 2010. 
Stepping up to serve Polish online consumers are internet auction 
houses and regular online stores.  The most successful auction house 
is Allegro.pl, with 2.5 billion ($950,000) zloty in sales for 2006, 
7 million monthly users, and almost 2 million active auctions at any 
time.  With one eighth the active auctions, rival Swistak comes in 
at second place, followed closely by ebay.pl.  Among online stores, 
Merlin leads with a little more than 60 million Zloty ($19 million) 
in sales and 1.65 million monthly users, followed by wysylkowa.pl 
and empik.com.  American giant Amazon.com comes in fourth with 
615,000 monthly users. 
 
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What Are their Recipes for Success? 
----------------------------------- 
 
¶3.  The recipe for success of Allegro, Merlin, and other Polish 
internet players includes being the first to market and having an 
understanding of the Polish marketplace.  These factors perhaps 
explain why American giants ebay and Amazon are still far behind in 
monthly customer visits.  Polish internet players are now using this 
recipe to expand into other central and eastern European markets 
where competitors are few and market preferences similar.  Allegro 
already has a majority share in Hungarian and Czech markets, and 
instant messenger player Gadu-Gadu has successfully established a 
presence in the Baltic States.  For many, the next target is 
Ukraine, which has been described as "Poland circa 2000". 
 
¶4.  It is clear that being the first major player to market is a key 
advantage over subsequent rivals.  Both Allegro and Gadu-Gadu 
established a strong domestic presence before the arrival of eBay 
and Skype and maintain number-one positions in their respective 
markets. 
 
¶5.  While it may be a matter of time and additional experience 
before newer entrants can overcome the first-to-market advantage of 
the current leaders, an understanding of the Polish market is also 
important to success.  Specifically, what challenges and market 
peculiarities should new entrants be aware of.  Our discussions with 
a public relationship specialist for Merlin identified the 
following: online infrastructure, logistics, consumer price 
sensitivity, and internet behavior. 
 
------------------------ 
What are the Challenges? 
------------------------ 
 
¶6.  One major challenge is the volume of Polish business 
interactions that are still conducted on paper, which means that new 
entrants may face supply chains that are not yet "internet ready" 
when setting up their businesses.  In Merlin's case, there was no 
comprehensive electronic registry of Polish publications, a critical 
component for an online bookstore.  In the end, Merlin created its 
own registry - an intensive and painstaking process.  There has been 
one advantage - Merlin created a competitive advantage for itself 
and is now able to sell access rights to its publications database 
to other interested partiesinthe Polish publishing industry. 
 
¶7.  Another challenge is fulfilling customer orders.  The lower 
volume of orders and relatively poorer transport infrastructure in 
Poland made timely, cost effective deliveries to rural areas 
difficult.  Merlin experienced standard delivery times of three to 
four weeks, and damaged deliveries are a consistent problem. 
Package tracking availability and reliability is inconsistent. 
Although such delivery services are technically outside of Merlin's 
control, they are an important consideration and will become more so 
 
WARSAW 00001493  002.2 OF 002 
 
 
as Polish consumer demands for delivery reliability and information 
mature. 
 
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Consumer Behavior 
----------------- 
 
¶8.  Besides some challenges associated with setting up an online 
business, Polish online consumer characteristics are important to 
product mix, website design, and payment type.  Merlin's continued 
focus on lowest price offerings indicates that even with the growth 
and diversification of the Polish consumer market, the Polish 
consumer continues to be price sensitive.  As mentioned in ref B, 
this sensitivity to price is reflected by the popularity of price 
comparison websites such as ceneo.pl, and by the relatively low 
market share of more expensive "lifestyle" products such as apple's 
iPod, which comprises only 3% of the Polish mp3 player market. 
 
¶9.  Additionally, the Polish online consumer spends more time per 
online session than others, and is not yet comfortable with finding 
online solutions to questions - an overwhelming majority of 
consumers still prefer to call the helpdesk.  Only 2% of Merlin 
customers use online tools to determine the status of their order. 
This suggests that user-friendly websites can generate additional 
purchases while reducing customer support expenses. 
 
¶10.  Another interesting characteristic is that Polish online 
consumers avoid credit card payments.  Cash on delivery and 
electronic funds transfers each account for 35% of purchases; 
pre-payments into Merlin customer accounts at the post office, a 
further 5%.  Credit cards account for only 25%, making other payment 
methods vital to the success of any new entrant in the Polish 
marketplace. 
 
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Comment 
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¶11.  The Polish internet market, while potentially lucrative, still 
encounters infrastructure and logistical challenges.  In addition, 
Polish consumers' online behavior and payment preferences suggest 
that while the average online user can browse the internet, there is 
a lower level of expertise and comfort when it comes to locating, 
ordering, requesting help, and paying for products and services 
online.  Despite this, Polish market leaders have been successful in 
Poland and are using their experience to expand into surrounding 
countries. 
 
¶12.  In order to maximize the chance of success, there are two 
strategies new entrants to the Polish market may wish to consider. 
One strategy is partnering with a local firm that can help new 
entrants understand the local market, its peculiarities, set up 
considerations, and any supply chain and infrastructure challenges. 
A second strategy is focusing on a product or service that is 
appropriate for the current level of online market development, 
delivery capability, and online consumer price sensitivity, 
behavior, and maturity. 
 
ASHE