We asked in-market experts for their take on the prospects for local versus global brands in Indonesia.
How much growth opportunity is there still for global brands in Indonesia?
In a word, plenty! With a population of 260 million people — 60 per cent of whom are under 30 years old — expanding at a rate of 2.9 million a year, Indonesia is rapidly urbanizing, fuelling a rise in incomes and the ability for consumers to spend on discretionary items. The very large population guarantees volumes, while the very young population-skew offers the opportunity to ride the sentiments of a generation imbibing a new lifestyle, and thus becoming more open to change, exploration and experiments.
Add to this the fact that household consumption accounts for over half the country’s GDP, providing a huge market for most manufacturers.
Veronica Utami, head of marketing at Google Indonesia (which gained two spots in 2017 last year to take the 13th position) says: “Indonesia is a uniquely valuable market for all brands. At this time, we are seeing the country in an unprecedented phase of growth: it is one of the fastest growing internet markets in the world—19 per cent YoY versus the global average, which presents the opportunity for brands to achieve more touch points both to influence and to convert consumers. Add to this the burgeoning middle class that just in the last decade has been set to grow 200 percent, giving marketers a larger customer base with a higher purchasing power.”
Many a global brand has been able to cash in on a society that is embracing change by selling a lifestyle that can loosely be termed ‘western’, or perhaps even ‘modern’. Beyond functional fulfillment, as long as global brands can address the shift in values the society is in the process of experiencing, there will always be a role for them.
According to V.P. Sharma, group CEO, Pt Mitra Adiperkasa (MAP), a leading lifestyle retailer in Indonesia, “From MAP's perspective, Indonesia has a great passion for global brands, as is evident in the growth of our Starbucks brand to nearly 300 stores today. Among others, sales of brands such as Reebok, Adidas and Nike in our Sports Station and Planet Sports stores, as well as Hasbro, Lego, Mattel, etc. in our Kidz Station stores validate this.”
How are local brands trying to take on big brands in this country and what are the key rules / best practices for those trying to do so?
Simply put, ‘competitive pricing.’ According to Pradeep Harikrishnan, technical advisor, IPG Mediabrands Indonesia, “Local brands have a simple yet powerful strategy of making products that are on par or better in terms of quality and selling them at lower price.”
That said, local names are now seeing the benefits of building their brand and creating meaningful communications and engagements with the people. This is evident in media spend, too: the top 20 spenders now comprise many more local companies than before.
Says Dhiren Amin, head of marketing, Southeast Asia, KraftHeinz ABC: “To take on big brands, the local marketers need to realize that heritage is not a substitute for differentiation, except relegation to being ‘my parent’s brand’. It does not drive loyalty or switching. Local brands need to work that much harder to create a marketing mix where the product is superior to the global brands and the proposition is distinct and of value to the consumers. For this they must leverage the deep, almost ‘second nature’ knowledge that they have about Indonesian consumers, which is their competitive advantage over global giants.”
What can global brands learn from local brand marketing?
According to Google’s Utami, to resonate with Indonesians you must be locally relevant. Every half-year Google runs a “YouTube ads leaderboard”, a list of the top 10 YouTube ads in Indonesia based on various quantitative parameters. The majority of ads that make the list are from local advertisers. Of the 40 percent that are foreign advertisers, three-quarters are those that have been localized. Ads made for a global or regional audience rarely make the list. “Strong long-format storytelling, humour, cultural relevance, a strong influencer and local language are parameters that resonate well locally,” says Utami.
The Indonesian market is highly dynamic and foreign brands need to be agile and adaptive in order to remain ahead of the curve. “The local brands play a clever game and have mastered the art of guerrilla marketing warfare. Being too rigid in marketing and communications may take away the excitement from the brand,” says Anne Ridwan, CEO, O&M Indonesia.
Given the vast geography of Indonesia, distribution is another key factor that foreign brands need to invest in if they are looking at a nation-wide spread. “Ecommerce has emerged as an important platform in Indonesia that not only builds equity but also delivers sales. For a brand looking to target urban consumers, it is a perfect vehicle. But if you want to penetrate into the belly of the market, your distribution network has to be rock solid.”
Indonesians are tolerant and receptive and willing to bend in terms of preferences, but the foreign brands must be as well. It eventually boils down to “respect’, a fundamental belief that drives this society.