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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.