coupang-business-model

How Does Coupang Make Money? The Coupang Business Model In A Nutshell

Coupang is a South Korean eCommerce company. Coupang makes money by selling consumer items through its desktop and mobile eCommerce platform. The company also collects various fees from its food delivery, video streaming, and advertising services.

History of Coupang

Coupang is a South Korean eCommerce company founded by Bom Kim in 2010. Due to its size and market position, Coupang is often referred to as the “Amazon of South Korea”.

The company began as a Groupon-style daily deals business after Kim dropped out of Harvard Business School. However, he quickly pivoted to an auction-based marketplace after noticing the growing influence of eCommerce. Despite crossing $1 billion in sales just three years later, Kim was not convinced that customers loved his business

He decided to pivot once more, this time reinventing Coupang as an end-to-end shopping platform where the full customer journey was managed from desktop to door. This necessitated that a new logistics business be constructed to delight customers and improve South Korea’s inefficient postal service. Coupang now delivers 99.3% of all orders within 24 hours, with customers able to receive their goods by 7 a.m. if they purchase before midnight the day before.

In recent years, Coupang has expanded into other services. Rocket Wow is a paid subscription service similar to Amazon Prime, with perks such as free or one-day delivery and discounts on certain products. Rocket Fresh is a fresh food delivery service promising similarly rapid delivery, while the restaurant delivery service Coupang Eats and video streaming service Coupang Play are also recent additions.

In March 2021, the company held an IPO on the New York Stock Exchange which valued it at approximately $84.5 billion. One month after entering Japan in June, Coupang launched in Taiwan where established players Uber Eats and Foodpanda are already operating. At the time of writing, Coupang has not divulged further expansion plans. However, the company has been observed hiring for lead operations, retail, and logistics roles in Singapore.

Coupang mission

Coupang’s mission is to “create a world where customers wonder: ‘How did I ever live without Coupang?'”

Coupang revenue generation

coupang-revenues
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As an eCommerce retailer, Coupang primarily makes money by selling consumer items online. This includes the sale of third-party goods and private-label items, with the latter resulting in higher margins.

Having said that, Coupang does make money in several other ways. Let’s take a look at them in the following paragraphs.

Rocket Jikgu 

Rocket Jikgu is a delivery service for South Korean citizens who want to receive overseas orders in less than three days. The service claims to offer 80,000 items from 3,500 global brands.

Most of these brands are those not officially imported into the country and typically include vitamins, cosmetics, and detergent from the United States.

To shorten delivery times, Coupang sources products directly from the manufacturer without involving a third party.

Delivery is free if the total order amount exceeds 29,800 won, equivalent to approximately $25.

Coupang Eats

Coupang Eats is a food delivery service offering a wide range of products including meal kits, salads, meat, and ice cream.

The company charges a delivery fee of around 2,000 South Korean won ($1.70) for each order, with no minimum order amount.

Rocket Wow

As noted earlier, Rocket Wow is an Amazon Prime-like service offering fast delivery and other perks. 

Here, the company charges 2,900 South Korean won ($2.50) each month after a 30-day free trial.

Coupang Play

Coupang Play is an on-demand video streaming service. 

The company also charges 2,900 South Korean won per month, but Rocket Wow subscribers can access Coupang Play for free.

Advertising

Coupang also sells advertising to interested parties. Advertising spots are based on the pay-per-click (PPC) system, so merchants are only charged when the ads are clicked on by a consumer.

Advertising is seen on almost every page of the Coupang website, allowing businesses to access their target audience across various touchpoints. Available formats include category page listings, banners, and even order completion page ads.

How it works

To order goods online, Coupang users must visit the company website on either desktop or mobile. The latter is the preferred method for most, with mobile applications accounting for 75% of total sales.

Margins on most third-party products are thin, a problem common to many eCommerce retailers. To counteract these thin margins, Coupang is following the lead of Amazon by developing private-label product ranges in high-value segments such as apparel, beauty, and electronics.

In terms of order fulfillment, Coupang can deliver rapidly because it fulfills orders itself. By operating its own distribution and logistics network, it avoids the relatively inefficient practice of sending couriers to third-party stores and restaurants.

The size and reach of this logistics network is impressive, with the company noting that 70% of its customers live within ten minutes of one of its more than 100 distribution centers. What’s more, Coupang’s established logistics network has allowed it to expand into food delivery with relative ease.

Who owns Coupang?

Coupang is majority-owned by venture capital and private equity funds with a 54% stake. Institutions comprise 16.3%, while the general public holds 12.4%. Individual insiders, or those that sit on the board or hold other senior management positions, have a 10.3% stake in the company.

In 2018, the company received a $2 billion investment from SoftBank Investment Advisers (UK) Limited, with the venture capital group subsequently taking a 33.1% shareholding

Some of the other major shareholders include:

  • Greenoaks Capital Partners LLC (16%).
  • Bom Suk Kim (10%).
  • Maverick Holdings (6.4%).

Key takeaways:

  • Coupang is a South Korean eCommerce company founded by Bom Kim in 2010. The company began as a Groupon-style daily deals business after Kim dropped out of Harvard Business School.
  • Coupang makes money by selling consumer items through its desktop and mobile eCommerce platform. The company also collects various fees from its food delivery, video streaming, and advertising services.
  • Coupang can deliver orders rapidly thanks to a logistics network where no South Korean citizen is more than 10 minutes from a fulfillment center. The company is majority-owned by venture capital and private equity funds, with Softbank the largest shareholder at 33%.  

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