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Indonesia 2015: Thought Leadership

Why appealing to the masses is essential to growing the market for top-end goods
      Nadya Ardianti

Account Director 

Kantar Worldpanel 

Nadia.Ardianti@kantarworldpanel.com

The international consumer goods manufacturers who strode into Indonesia on the promise of fast-paced economic growth and a surge in consumer spending are probably a little worried about the current slowdown. GDP growth is now at its slowest rate for five years, and it would be logical to think that for those brands with premium price tags, the newly affluent consumers whose business they were counting on may be thinning out.

But consider this: Although the pace of economic growth has slowed, Indonesia’s GDP is still outpacing growth in developed countries, and remains a leader among developing markets. The World Bank expects 5.2 percent growth in Indonesia this year; this compares to a 2.2 percent average for developed markets, and 4.8 percent for developing countries. In addition, Indonesia’s young, working-age population is expanding, providing huge scope for wage growth and consumption.

The outlook, then, is positive for brands providing luxury or premium products in Indonesia, and we are seeing premium brands’ sales increase despite the slowdown. But the buyers of high-end products are not necessarily the people you might expect.

Add to basket

In other markets, it’s usually the case that growing a premium market means convincing people to switch from mid-range brands to more prestigious or luxurious labels. What we’re seeing in Indonesia, however, is that growth in premium sales comes not from consumers switching a cheaper item for a more expensive one, but rather from the adding brands to their shopping repertoire, and buying both cheaper and more expensive items.

Kantar Worldpanel data shows that, in categories such as detergent, soap, and personal care, where there are budget, mid-range, and premium options, consumers don’t buy just one product or the other - they buy several products across the price range. In fact, only 5 percent of value growth in premium products is coming from consumers who have switched from a basic item to a top-end one. In 92 percent of cases, the growth comes from people who keep buying their mid-range goods, and buy premium items in addition. The remainder are newcomers to the category.

Myth-busting

As brands look to build value and grow sales in this market, it is important to better understand the buyers of premium products – and dispel a few myths.

First, most people expect that the buyers of premium products are more affluent than those who are not. This is not the case. The practice of ‘repertoire purchasing’ across price brackets means that people in the middle and at the lower end of the Socio-Economic Classification are well represented among buyers of premium products. In fact, 65 percent of buyers of liquid soap – a premium product compared to bar soap – come from CDE households, and 54 percent of premium detergent buyers are also classified as CDE. Even premium baby milk powder, which carries a high price tag of 60 percent above the standard range, attracts 33 percent of sales from CDE households. Premium selling, therefore, is about not just one income bracket but desire, and creating premium occasions.

Secondly, it is assumed that premium products command high consumer loyalty. This is false in Indonesia today. Our data shows mass-market goods actually generate stronger loyalty. Consumers who exclusively buy premium goods are almost non-existent; usually, premium and mid-range goods are bought by the same people. Brands should, therefore, ensure their portfolio architecture reflects the repertoire that shoppers select from.

Thirdly, it is assumed that promotions are not an appropriate or effective mechanism for premium goods. Again, this is a misunderstanding. Kantar Worldpanel research in China has shown that small packs encourage trial of premium products for a small outlay, but in their small size also emphasize their luxury offering – a little indulgence, perhaps – so improve both sales and brand image.

Look beyond wallet size

Sustainable growth in the trend towards premiumization will come not only from targeting specific consumer groups, but by encouraging a range of people to purchase more frequently. As such, some practical advice for manufacturers:

  • Be accessible yet aspirational, to appeal to all social classes
  • Market smaller pack sizes in an aspirational way, as an affordable luxury
  • In communications, emphasize the benefits and quality of goods to justify the premium pricing
  • Consider emphasizing other features, such as the health benefits of a premium brand
  • Think about the consumer experience – make it feel premium
  • Point beyond the product itself and inspire a broader consumer lifestyle