Sunday, April 24, 2011

Tapping the Buying Power of Indonesia’s Young Professionals

December 22, 2010
As with other developing countries, Indonesia’s economy is strong, and that development has propelled a growing middle class eager to spend.  In Indonesia, retailers and manufacturers should focus their attention on the nation’s young, married, urban-dwelling professionals, according to Yudi Suryanata, Executive Director, Consumer Research, Nielsen Indonesia, who spoke at the company’s Marketing & Media Presentation in Jakarta earlier this month.

“Yuppie couples are educated, well-employed and represent the next generation of Indonesia’s affluent consumers,” said Suryanata.  “But retailers and consumer products manufacturers need to know how to specifically appeal to them if they want a greater share of their Rupiah.”

So what exactly makes a “yuppie couple?” They are young – below 30 – and have university or higher education.  
They reside in an apartment or a middle-up housing complex located in the city or suburbs.  They work as professionals, typically at the managerial level, in fields such as banking and finance, energy, consulting or marketing, and are focused on their careers.

They live by the motto “work hard, play hard,” and like to socialize with colleagues in cafes, restaurants, bars or at mall.  They also like to reward themselves with expensive fashion brands or with trendy electronic gadgets as a way to compensate themselves for their hard work, their career achievement and their busy life.

In short, yuppie couples believe hard work to be personally meaningful, emotionally satisfying, and a vehicle for self-expression. Nicknamed “DINKs” (Dual Incomes, No Kids) in the West, yuppie couples have postponed having children for the sake of their careers, and have discretionary income which they can use for future investment.

The role of women is important within yuppie couples: the female spouse has the right to express her opinion and her own preferences. In the long run each spouse will develop a mutual taste since they influence each other.

The following facts illustrate the economic power of the yuppie couple:
  • 19 percent read newspapers and 67 percent access news online.
  • 15 percent traveled overseas in the past two years and most go to Bali at least once every two years for vacation.
  • Visit a mall twice a week and spend an average of Rp. 120,000 for food during their visit.
  • 88 percent own microwaves.
  • 100 percent own refrigerators, air conditioners and washing machines.
  • 63 percent own cars, with penetration even higher among those living in suburbia.
  • 100 percent cellular phone penetration, with 50 percent using more than one handset; monthly spending for each phone averages Rp. 127,000.
  • 84 percent own a PC.
“When deciding what to buy, yuppie couples place the greatest importance on the quality of the product, recommendations of friends, online reviews, as well as influencing each other,” noted Suryanata.
Various Nielsen studies have yielded critical insight in how to market to this segment:
  1. Quality is paramount
    Yuppie consumers appreciate hard-work and they have a high expectation on quality of a product or a service. However, the real challenge is their sensitivity to the image of a product or a service. If a product or service fails to deliver or perform well, the yuppie couple will never use those products or services again – and they do not hesitate to let their friends, colleagues and family know about their disappointing experiences.
  2. Willing to pay a bit extra for convenience
    Yuppie couples tend to value their time since they have a busy lifestyle.  As a result, they are willing to pay a bit extra for conveniences such as valet parking services, online reservations and special VIP counters at a service center, to name a few examples.
  3. Are modern and liberal
    Yuppie Couples are not conservative. They like the concept of a modern family where each spouse still has privacy for “Me Time” where he or she can do his or her hobbies, activities or vacation with friends or colleagues without the presence of their spouse. However, they are expected to conduct their “Me Time” responsibly.
  4. Like brands with “his & her” designs
    They love to be seen as a perfect couple and sometimes have a need to convey this message to the world.  One way they can do this is by wearing a matching fashion items.  Or they use gadgets from one brand only with a different color and design (his & her design).
  5. Online marketing is effective in reaching them
    They have such a desire to succeed, hence spend much of their life at work which often requires a lot of time online and exposure to advertising there.
  6. They are business savvy, and require credible, convincing communications
    Communicate your product or service message with realistic explanations. Do not over promise and under deliver.  Establish a professional customer service center that is tactful and focused on problem solving. Give consumers the freedom to decide and choose. Listen and understand them, but don’t teach them.
  7. They stay atop contemporary trends
    Stay tuned to the latest trends such as healthy living, organic food, generosity, dynamic discounts, exotic destinations, smartphones, and the concept of sharing and staying connected.
“The yuppie couple is in many ways the consumer product industry’s ideal customer.  They have discretionary income to spend, and they are eager to do so.  But they are discerning consumers, and marketers need to know precisely how to reach them.  These seven principles provide a solid framework around which marketing campaigns towards yuppie couples can succeed,” concluded Suryanata.

Saturday, April 23, 2011

Winning the Hearts of Indonesian Consumers

April 7, 2011
Catherine Eddy, Managing Director, Nielsen Indonesia
Indonesian consumers have proven themselves to be optimists. Throughout the economic turbulence that started in 2008, Indonesians remained confident and positive about the country’s economic outlook according to Nielsen’s Consumer Confidence Index. Even among businesses, despite the hard times in 2009, the majority (52%) said that year on year conditions had improved, according to the Nielsen Business Barometer.

Indonesia’s economy is growing, with GDP at 6.1 percent in 2010 with consumption contributing 2.7 percent, according to Indonesia’s Bureau of Statistics. Businesses expect conditions to further improve over the next one to two years, and FMCG companies are even more positive than average. This confidence can be attributed to their experience that Indonesian consumers tend to shop their way out of everything!

In the midst of the global financial crisis in 2008, consumer spending in Indonesia flourished, almost seemingly as if the word “crisis” was not a part of the vocabulary in the country. Sales of FMCG products increased 21 percent in 2008, car sales were up 39 percent and cellphone penetration reached 48 percent in Indonesia’s big cities. 

Consumers spent even more in 2010, with sales of FMCG products rising 12 percent from 2009 levels and car sales blazing a trail with a whopping 58 percent increase. Businesses took a cue from that optimism and spent 29 percent more on advertising in 2010, marking the highest growth in five years.

All is not picture-perfect, however. Even as consumers continued to spend, they are not spending the same way. As the crisis hit and economic conditions deteriorated, they became more budget conscious and showed a high propensity to save on spending related to basic needs so that they could allocate the savings to satisfy their lifestyle purchases.

Businesses were quick to respond, wooing consumers with many new innovative offerings such as downsized products, cheaper and more flexible telecommunication tariffs and low-cost airfares. An example: for just Rp. 10,000 (around US$1), a consumer could purchase fresh coffee from 7-Eleven, buy a ticket to Kuala Lumpur or even do a “top-up” for two-days’ worth of unlimited BlackBerry service.

The new era

With per capita GDP set to hit US$ 3,000, Indonesians’ buying behavior is very likely to change as a result, as consumers adjust to more affluence and spending power and look at options to satisfy their increasingly sophisticated lifestyle needs. There are three emerging trends worth looking at that will help businesses fine-tune the way they engage their consumers.
  • Time poor, cash rich
    With the worsening traffic in Indonesia’s big cities, we saw a defined emergence of “time poor, cash rich” consumers: those who are hard-pressed for time and want to do as many things as possible in the shortest period of time. These consumers are mostly from the middle to upper classes, working in the heart of the big cities but living in the suburbs. They are value conscious: they are willing to pay more for higher quality ingredients – even during downtimes – if they can see the value of the products in their lives. Private label products are unlikely to attract them.
    As a group of consumers with high purchasing power but little time, businesses have a good incentive to make their products and services more convenient and within easy reach of these consumers.
  • Increasingly more connected
    The growth of Internet penetration in the country has been phenomenal. In 2005, Internet penetration in Indonesia’s nine largest cities was only 8 percent; today, penetration has tripled in these big cities, making it the only media that saw growth in the last six years.
    Just two years ago, a tiny three percent of consumers surveyed by Nielsen had made an online purchase in the past six months. Now, 80 percent say they will buy something online in the next six months. Although it is below the average of the Asia Pacific region, Indonesian consumers have a very high propensity toward online shopping – perhaps higher than many would have expected.
    The telecommunications industry in Indonesia is aggressively adding more consumers to their networks, as evidenced by the 58 percent increase in advertising spend in 2010 as measured by Nielsen. Mobile penetration in Indonesia has also tripled over the past five years, aided by the kaleidoscope of offerings.
    The rapid upward trend of Internet and mobile penetration will result in another new phenomenon in the country: real time information will become the “oxygen” for consumers as they interact and share information, via social networking and other sites.
    Consumers increasingly expect to be able to interact with companies in cyberspace or via mobile channels. Companies who offer consumers the ease of “shopping at your finger-tips” or receiving promotional offers via these new communications channels stand to win, and the time for companies to offer these options is “soon,” if not “now.”
  • Family time matters
    Indonesians have strong family values and like to spend time together. One popular way for parents to spend time with their children is by shopping. Increasingly, modern retail formats are adding a recreational solution for families by providing one-stop shopping-and-entertainment centers with restaurants, arcades and cinemas in addition to the usual stores. And with many creative and attractive in-store promotions, consumers are engaging in retail therapy more frequently. One sign of this trend is that sales of consumer goods have doubled since 2006. But don’t count out the traditional retail establishments yet. They continue to play an important role in the retail scene, with 80 percent of Indonesian consumer spending allocated to this channel.
In conclusion, a new era is coming soon, if it’s not already here. It offers FMCG manufacturers and retailers an immense opportunity to engage the “new” Indonesian consumer in new, “fresh” ways. Key to winning the hearts of these consumers is a complete review of how and where consumers want information and offerings presented to them, what unmet needs they have and what digital conversations they are having in the online space. Product and channel innovation will need to start with these key considerations.

Friday, April 22, 2011

Consumer Buying Habits Change as Indonesia Welcomes a New Era

April 21, 2011
Venu Madhav, Executive Director of Client Leadership, Nielsen Indonesia
It’s a new era in Indonesia: global capital markets have recovered significantly since the financial crisis of 2008, and in 2010 the GDP grew 6.1 percent and GDP per capita hit US$3,000, according to the IMF World Fact Book. If the experiences of China and South Korea are any indication, that income level marks the start of accelerated growth, with strong demand across a range of commercial sectors such as automotive, health, insurance and travel. Manufacturers of fast-moving consumer goods (FMCG) can also expect to experience stronger growth this year; a new retail audit conducted by The Nielsen Company found that industry to be growing at twice the pace of the economy in 2010.

As consumers saw economic conditions improve, they tended to adjust their purchasing habits, increasing their willingness to spend money or becoming more adventurous by buying in categories they had never before considered. Some consumers used products more frequently or “traded up” to more premium versions of products they use.

Upper class consumers seek premium products
Consuming “regular” products is no longer enough for upper-class shoppers, and they are now seeking products that provide them with greater benefit and added value. Nielsen’s home panel reported that household spending for health and lifestyle categories has increased since 2009. As time is also a concern for these consumers, products that provide them with convenience will see growth.

Nielsen observed three categories that experienced growth by answering the needs of the upper class: lifestyle, health and convenience.
  1. Hair conditioners: By offering convenience with their leave-on product, manufacturers of hair conditioners saw value sales grow 68 percent in 2010. The “Leave On” variant offers practicality, though the price is more than twice of regular hair conditioner.
  2. Liquid Milk: Sales grew 18 percent, with brands promoting health-related benefits such as low/non-fat, added calcium, probiotic qualities and kids nutrition.
  3. Toothpaste: Although it is already purchased by nearly all households in Indonesia, the sales value for this category still recorded 10 percent growth, driven mainly by medicated segments which grew 17 percent in 2010. The new variants promise stronger teeth, sensitivity reduction, calcium, anti-bacterial, natural and herbal.
Middle and lower class consumers buy products that are considered premium
As the upper class is seeking more benefits, the middle and lower class consumers are starting to buy products that they used to consider premium. Nielsen observed three categories (Cheese, Frozen Meats and Baby Diapers) that experienced increases in the number of household purchases.
  1. Smaller packages of cheese have opened to the mid-lower income segment. The category experienced 13 percent growth in sales value in 2010, with the annual sales value of smaller pack size doubling in 2010.
  2. Household spending for frozen fish/meat experienced a 23 percent increase in 2010 among the middle class and 32 percent among the lower class.
  3. Diaper single packs posted 93 percent growth in sales in 2010, with the variant providing affordability and convenience to middle-lower consumers.
The growth in these categories was also influenced by other factors, such as driving availability in more outlets and spending more in advertising to increase awareness and drive purchases. Nielsen’s retail audit found that both cheese and baby diapers have increased their availability by expanding the number of outlets in which they could be bought by 17 percent and 9 percent, respectively. Advertising spending in all six of these categories grew at rates higher than 2010 total advertising growth: Hair Conditioner (+22%), Liquid Milk (+52%), Toothpaste (+35%), Cheese (+32%), Frozen Food (+39%) and Diapers (+70%).

To grow in this new era, FMCG manufacturers need to adapt to these changes in consumer behavior by driving:
  1. Innovation, by understanding the need-gaps of upper class consumers, especially in area of convenience, health and lifestyle.
  2. Accessibility, by understanding purchase behavior of middle to lower class consumers and ensure availability of smaller pack sizes at the right price.
  3. Portfolio management, by having the right product portfolio to meet different consumer purchase motivations and providing the right level of support.