Consumer trends in Indonesia and Thailand: McKinsey

JULY 04, 2018 - 6:39 PM

A survey of consumers in Indonesia and Thailand has yielded insights that consumer goods companies would do well to heed when heading into these major markets, say McKinsey's Kapil Joshi and Ali Potia in their article 'Shaping the future of consumption in ASEAN'. ASEAN BUSINESS gives you the lowdown.

Rising consumption

Across Asean, rapid urbanisation is boosting the 'consuming class', expected to double to 163 million households by 2030. Rising incomes are set to spur demand, with the coming wave of Asean consumers including both a fast-growing elderly segment and pockets of large young populations.

In 2015 and 2016, McKinsey surveyed 1,000 consumers in Thailand and Indonesia, two of the largest markets in the region, to see how slowing economic growth has affected consumer preferences and behaviour.

Cost-conscious consumers

General sentiment about the economy improved marginally from a year before, with 21 per cent of Thai consumers and 43 per cent of Indonesian consumers feeling optimistic about their countries' economies. However, 62 per cent of respondents in both countries were somewhat or very worried about losing their jobs.

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Against this backdrop, consumers are being cautious. McKinsey found four attributes of cost-conscious consumers:

  • Savvy cost-cutting. About half of respondents in both countries are looking for sales and promotions, or delaying purchases.
  • Brand loyalty -- up to a point. More than a third of respondents said they would still buy preferred brands, but would shop around to find retailers carrying those brands at lower prices.
  • Splurging with trade-offs. Consumers spend selectively on premium products or brands in categories such as ice-cream, cosmetics, wine and spirits, trading off by spending less on staples and household cleaning products.
  • When they go cheap, they don't go back. In the last year, 6 per cent of respondents in Indonesia and 13 per cent of those in Thailand had traded down to cheaper brands. Of those who trade down, 78 per cent in Indonesia and 62 per cent in Thailand said they would not return to the more expensive brand. McKinsey's insight: "If a financial crisis were to prompt a wave of reduced spending and trading down in ASEAN, it may take a long time for consumption patterns to recover."

What consumer companies can do

In aiming to tap Asean's growing consumer class, consumer goods companies and retailers should take the current consumer caution into account.

  • Capture both sorts of behaviour: trading up and trading down. This is especially important during economic downturns, when manufacturers can respond by launching "economy" products or brands.
  • Be clear on the value story. Consumers are keen to save, but perception of value is shaped only by low prices. Brands must remind consumers why their purchase was worth it, using emotional and functional narratives that appeal to the target audience.
  • Data-driven decision-making. Companies can tap data analytics to find micro-markets and micro-segments -- pockets that are growing faster than average. They must also find ways to better measure the effectiveness of promotions and amrketing. To develop finer-grained strategies -- divided by category, brand, channel or segment -- advanced data capabilities such as geospatial analytics and revenue-growth-management analytics are key.
  • Continue to optimize costs, investments, and operational efficiency.