Primed for growth: Bold strategies for S-E Asian businesses

CONSUMER product companies and brands are beginning to regain their footing following several difficult quarters in which surging inflation, dim economic prospects, and rising interest rates slowed spending on consumer goods in many sectors. For consumer product companies, growth has largely come from pricing rather than volume. In South-east Asia, consumers have cut their spending in the short term. But the good news is that macro forces are ripe for long-term growth.

For brands that are already present in South-east Asia and those that are exploring a meaningful presence here, having a playbook on the rules of the game and the trends that are shaping the region’s consumer categories is key.

With that goal in mind, in Q3 2023, Bain & Company partnered with Meta and DSG Consumer Partners to conduct a survey with consumer product company senior executives and 9,000 consumers from across South-east Asia to gain insights into issues likely to drive the region’s consumer products expansion over the next five years. The results are captured in our recently released Sync South-east Asia report, Bold Moves: Leading Southeast Asia’s Next Wave of Consumer Growth.

The report uncovers several traits defining consumer behaviours – chief among them their current, value-conscious spending habits – while underscoring that the region includes a diverse set of countries and cultures, each with its market preferences that brands must recognise and engage.

Representing the third-most populous region in the world – with more than 700 million residents – and the third-fastest-growing large economy in the world, South-east Asia’s status as a market bloc has long been well-established. In coming years, however, its market influence is expected to grow even more, particularly as private equity and venture capital funding continue flooding the region, and companies look to de-risk their supply chain footprint.

As a whole, the region’s expected typical gross domestic product growth is projected to well exceed the global average of 2 per cent to 3 per cent, with some South-east Asian countries doubling it. This economic upswing and its related boost to the region’s high- and upper-middle-class populations are expected to usher in new levels of consumer spending, particularly for previously untapped markets, including luxury goods.

Already, certain categories, such as beauty products and branded apparel, are shifting in consumers’ minds from “wants” to “needs”. This mindset reflects South-east Asian shoppers’ growing willingness to pay for elevated goods that once might have seemed like extravagances, so long as their value is apparent.

Our report also emphasised the future power of Gen Z – representing shoppers currently between the ages of 17 and 27 – in expanding and shaping the South-east Asian marketplace, particularly in their preference for online shopping and products that align with their generation’s sense of individuality, authenticity, sustainability and identity.

Interestingly, however, older consumers were not far behind Gen Z in their reported daily use of online shopping channels and digital tech, including even new technologies exploration, such as augmented reality and virtual reality electronics. The takeaway is clear: to build successful market growth, companies must consider nuanced/personalised marketing and offerings that engage all South-east Asian age demographics.

Companies can also build successful market share with stock-keeping units targeting members of the solo economy, another emerging South-east Asian demographic that will shape consumer preferences and spending habits in the decade ahead. Already, small and single households represent 50 per cent of the total population in the region, with the percentage of single-person homes growing at 2.4 per cent annually.

To effectively gain market leadership in the region, companies must first recognise South-east Asia as “same-same, but different”. Each battlefield (market, channel, or consumer segment) must be won separately, requiring ruthless prioritisation and sequencing to allocate resources effectively. Once the “where to win” is clear, companies may want to move to “how to win”.

Brands can look to “insurgent disruptors”, companies that are effectively stealing market shares from incumbents, for inspiration on how to profitably and quickly grow in the region. These brands report finding success – taking share away from incumbent brands, leading to a much higher share volatility in the last five years than the five years preceding them – by deploying one of five strategies:

• Localised traditional approach (specialised or localised products priced for the masses)
• High-end, digital first approach (purpose-driven, digitally enabled operations at premium pricing)
• Low-cost champion approach (economy pricing to target consumers from lower- to mid-income levels)
• Retail copycat approach (affordable, retail-branded products that mimic the look and feel of high-end branded goods)
• Shapeshifter approach (products focused on delivering new solutions for unmet needs)

Significantly, our survey found the region’s consumers to be more concerned about their well-being than US and European consumers. Overall, South-east Asian shoppers report a strong willingness to pay for wellness goods, including sports nutrition, fitness wearables, and vitamins or supplements. Still, these products’ high costs and limited availability prevent their larger market adoption.

Additionally, savvy shoppers throughout the region report a growing preference for products that are customised or personalised to fit their unique needs, from wellness and baby care products to beauty products and electronics. Because personalisation strategies are expensive and hard to execute at scale, many companies are embracing artificial intelligence (AI) to explore bringing production and delivery costs down.

In addition to the personalisation of actual products, consumers show a strong preference for personalised content/marketing. When marketing reach is personalised, shoppers are more likely to spend more on a product or brand and recommend it.

AI has become an important tool for businesses to meet these expectations at scale and across the full customer journey. With the South-east Asian consumer increasingly embracing AI and use cases growing, the region is well-suited for AI to take off at pace.

Targeted playbook for effective brand growth

For brands ready to make a bold move in South-east Asian markets, our report suggests a four-step action model for success:

Prioritise, sequence, and fund your South-east Asian ambition

Brands should base their top priorities in the region on future-facing opportunities there – and seek funding accordingly. At the same time, companies must strategically choose which markets, channels, and consumers to target, whether low-end consumers, consumers across all incomes, or high-end luxury consumers only. Brands that avoid a one-size-fits-all model and effectively discern where to go deep versus broad in their marketing approach will net the greatest profit gains.

Build an obsession with the ‘local’ consumer

Companies must have an exhaustive understanding of their target consumers’ preferences and buying habits to cater to them effectively. This involves meeting and engaging consumers where they are – including well-allocated spending across various marketing channels – and choosing routes to market that meet consumer needs.

Evolve your business models and consumer engagement

Future winning models in South-east Asia are markedly different from historically winning ones. We predict the greatest success for companies that target one or more of the following approaches: top-line growth and environmental, social and governance (ESG) prioritisation, fully local product specialisation, a flexible approach to asset ownership, and investments in disruptive or innovative marketing platforms, including those driven by AI-powered data analytics.

Become a ‘scale insurgent disruptor’

Companies primed for success in the South-east Asian market must engage the best approaches from the insurgent and incumbent mindset. By finding a middle ground that walks the line between deriving scale advantages, prioritising stable returns, and using models that can pivot quickly to respond innovatively to local consumer needs, brands can maximise their growth and profit potential in the region.

South-east Asia is primed for growth now. For companies ready to move strategically, the region presents a rare opportunity to expand both brand loyalty and brand reach in previously untapped markets within one of the fastest-growing consumer segments on the globe.

Praneeth Yendamuri is a partner at Bain & Company; Dhruv Vohra is managing director at the global business group, mid-market, Apac at Meta; and Sameer Mehta is investment director and head of South-east Asia at DSG Consumer Partners.