INDONESIA FOCUS: Winning the hearts of consumers in a new era

Indonesian consumers have proven themselves to be optimists. The Nielsen Consumer Confidence Index shows that even through the economic turbulence that started in 2008, consumers remained confident and positive about the country’s economic outlook. According to Nielsen Business Barometer (a study targeted at business), despite the hard times in 2009, even the majority of businesses (52 per cent) said that year-on-year conditions had improved in 2009.

While Indonesia’s economy is looking to positive growth, GDP grew at 6.1 per cent in 2010 with consumption contributing 2.7 per cent according to Indonesia’s Bureau of Statistics, businesses expect conditions to improve further over the next one to two years, with FMCG companies even more positive than the average. The confidence from business players has resulted from past experience that Indonesian consumers shop their way out of everything.

In the midst of the global financial crisis in 2008, consumer spending in Indonesia flourished, almost as if the word 'crisis' is not a part of the vocabulary in the country. Sales of FMCG products increased 21 per cent in 2008, car sales were up 39 per cent, and cellphone penetration reached 48 per cent in Indonesia’s big cities. Consumers spent even more in 2010, with sales value of FMCG products rising 12 per cent from 2009 and car sales blazing a trail with a whopping 58 per cent increase.  Businesses took a cue from the optimism, and spent 29 per cent more on advertising in 2010, making it the highest growth in five years. 

However, it’s not all picture-perfect.  Even as they continued to spend, consumers are not spending in the same way. As the crisis hit and economic conditions deteriorated, Indonesian consumers 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.   For example, US$1 (Rp 10,000) could buy a consumer fresh coffee from 7 Eleven, a ticket to Kuala Lumpur or even a 'top-up' for two-days worth of unlimited Blackberry service.

The new era: US$3,000 GDP per capita

With Indonesia set to hit US$3,000 in GDP per capita, consumer behaviour 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. Here, we explore emerging trends that will help businesses fine-tune the way they engage their consumers.

Time poor, cash rich

With the worsening traffic in big cities in Indonesia, we saw a more defined emergence of the 'time poor, cash rich' consumers, those hard-pressed for time and looking to do as many things as possible in the shortest period of time. This type of consumer is mostly from the middle to upper classes, working in the heart of the big cities but living in the suburban areas. They are value conscious and are willing to pay more for higher quality ingredients, even during downtimes if they can see the value of the products. Private label products would unlikely 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 within easy reach of these consumers.  

Increasing internet penetration

The growth of internet penetration in the country has been phenomenal. In 2005, internet penetration in Indonesia’s nine big cities was only eight per cent. Today, internet 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 per cent of consumers surveyed by Nielsen had made an online purchase in the past six months. Currently 80 per cent say they will buy something online in the next six months. Although it is below the average for the Asia-Pacific region, Indonesian consumers have a very high propensity toward online shopping and it is 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 per cent increase in advertising spend in 2010, measured by Nielsen. Mobile penetration in Indonesia has also tripled over the past five years, aided by the kaleidoscope of offerings. 

The fast-growing upward trend of internet and mobile penetration will result in another new phenomenon in the country. Real time information will become 'oxygen' for consumers as they interact and share information, via social networking sites or otherwise. 

More than ever, businesses need to brace themselves as consumers increasingly demand to interact with them in cyberspace or via mobile channels. Again, convenience is king, particularly for the time-poor, cash-rich consumers.  Companies who offer them the convenience of 'shopping at your finger-tips' or receiving promotional offers via these new communications channels will help win their hearts. 

Family time still rules

Indonesians have strong family values and like to spend time together.  They also believe that the older generation is accountable for the future of the young generation. Parents will spend quality times with their children to bring them closer. Families spend their time together engaging in shopping as a favourite entertainment activity.

We are seeing more modern retail formats adding a recreational solution for families by providing one-stop-shopping-and-entertainment centers. With many creative and blow-your-mind in-store promotions, consumers are increasingly engaging in retail therapy.  Partly as a result of this, sales of consumer goods have doubled since 2006.

The traditional trades still play an important part in the retail scene, considering 80 per cent of consumers' spending are still allocated at this channel.

In conclusion, the new era is coming soon, if it's not already upon us. This is an immense opportunity for FMCG manufacturers and retailers to engage the 'new' Indonesian consumer in new and 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, what digital conversations they are having in the online space etc.  Product and channel innovation will need to start with these key considerations. 

Click here to access the top 10 brands in Indonesia report, published on 1 April.