This article first appeared in Forum, The Edge Malaysia Weekly on April 18, 2022 - April 24, 2022
The digital economy is booming in Southeast Asia. With 350 million digital consumers, the region is set to leapfrog China, having outpaced the country at a growth rate of 1.6 times and becoming the fastest growing digital economy in Asia-Pacific. According to research conducted by Bain & Co and Meta, 78% of consumers in Southeast Asia are now digital consumers, that is, those who have performed a commercial transaction online.
At the same time, brands are facing obstacles as a result of commodity price increases, raw material shortages and shipping/port capacity chokes that are beginning to impact their top line and margins. A poll conducted by Bain among consumer product leaders in Asia-Pacific revealed that their top three issues for 2022 are supply chain, inflation and post-Covid consumer road maps. While solving for the here and now, savvy brands are building strategies around post-pandemic readiness. To reach these 350 million consumers in Southeast Asia, we see six crucial strategies. These “Six Rs” can help maximise your brand success.
Most consumers are set in their online buying and browsing habits. Digital channels are increasingly playing a role in how consumers hear about products, evaluate products against the competition and make purchases. Combined, these behaviours develop brand loyalty for consumers.
Digital is now the foundation for how the internal engine functions: core themes are supply chain, customers, consumer connection, employees and workplace. Savvy brands are setting their digital ambitions for the coming three to five years, including a bold and realistic ambition for the digital domain. They assess “digital maturity” across different digital domains; review and benchmark ongoing efforts and outcomes; evaluate data, applications and technology architecture upgrades; assess investment requirements — both domain specific and transversal; determine organisational gaps to fill to run digitalisation at scale (including changes in culture and capability); and establish objectives and key results.
Consumer product companies are experiencing inflation and supply chain challenges that are expected to increase or continue. The top two issues are inflation and supply chain resilience. Savvy companies are addressing these issues pragmatically.
Regarding inflation, brands are exploring immediate opportunities to realise more net revenue per unit through a combination of revenue growth management levers, including price pack architecture, strategic pricing, trade terms, promo optimisation, channel mix and so on. Brands are also exploring more structural and transformational change through design to value.
Regarding supply chain, brands are solving the immediate problem of freight and logistics by creating innovative mobility solutions and prioritising hero stock-keeping units (SKUs) while establishing greater transparency through control towers. Brands are also thinking about breaking the value chain by exploring local contract manufacturing operations by shipping in bulk, if that is more feasible than container freight.
For the longer term, they are using a “future back” approach to look at supply chain resilience, taking into account geopolitics, consumer intimacy, response time, tax regimes and cost considerations.
E-commerce platforms are increasingly used for searches while social channels are increasingly used as points of sale. For digital consumers, end sales are still split between offline and online, and we see digital channels far outpacing offline channels for brand discovery and consideration.
Given this phenomenon, common pitfalls for brands around commercial spends include the following:
(i) A lack of visibility on how much is spent and a “last-year-plus” mindset about allocating commercial spending;
(ii) Not return on investment-driven;
(iii) Democratically allocating commercial spending across different sub-functions; and
(iv) A siloed approach that does not understand which touchpoints most influence the consumer’s path to purchase and how those touchpoints influence one another.
Brands must independently reevaluate their commercial activities and reorient their marketing and trade spends to mirror this multichannel, multi-platform path to purchase. They must also create brand loyalty and differentiation with a unique, consistent and engaging experience across their offline presence, social channels, website and app.
Finally, brands must identify differences between offline channels versus e-commerce, and determine how they should guide internal processes such as sales and operational planning, dashboards and key performance indicators, decision rights and organisational structure.
On average, digital consumers shop across 7.9 online websites or platforms — a 52% increase from 2020. Fifty-one per cent of consumers say they switched from their most purchased brands in the past three months. Price wasn’t the only reason they switched: Better product quality, better availability and faster delivery times all contributed to switching brands.
Consumers increasingly demand “right for me, right now” products, services and experiences. But this contrasts with how the pandemic has driven the need for affordability. Brands need to manage the growing gulf between consumer price inflation and product cost inflation simultaneously. Brands must manage this contrast while keeping their range simple with easy-to-understand propositions and price points, including carrying out “revenue growth management” initiatives.
Listen to your customers’ desire for sustainability. Right now, 80% of consumers in Southeast Asia will pay up to a 10% premium for eco-friendly and socially conscious products, according to the research conducted by Bain & Co and Meta. A sustainable approach can guide all aspects of the business, from product design to supply chain and operations.
Ensure that your brand has adequate environmental, social and corporate governance-focused (ESG) options in your product range and proposition. It is possible to make the supply chain more sustainable without compromising on cost efficiencies. And since many of your consumers are willing to bankroll your environmentally and socially friendly practices, promote your sustainable initiatives.
Some pandemic-era trends are here to stay, including flexible working arrangements. Consumers want shopping options that are closer to home, especially in Southeast Asian countries with challenging transport issues.
Your product offerings, marketing and delivery options should cater for this new wave of homebodies. Redesign and customise a subset of your offerings especially for at-home consumption.
In conclusion, the Southeast Asian market has jumped to the top of the digital-first priority list. Demand is pulsing through the region and growing. Existing digital consumer trends are ready for immediate action, along with new trends created during the pandemic. In addition, brands need to combat supply chain-related headwinds. The time is right to implement the “Six Rs” to gain traction with these Southeast Asian consumers — now and in the future.
Praneeth Yendamuri is a partner at Bain & Co in Singapore. Zara Lightowler is an associate partner based in Kuala Lumpur.
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