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Driving Sustainable Premiumisation Trend

02/09/2015

Indonesia GDP growth is slowing down and at slowest pace in the past five years. The tremendous promise that the country holds seems far and faded at the moment. What is more, the future looks decidedly different for consumer goods manufacturer who previously lured by the economy growth that create a whole new set of consumers itching to spend their newly acquired wealth.

Given these recent development, it seems logical to assume that offering premium products is like daydreaming. However, before we write of the potential of premium products, take into consideration this: our demographics profile is still on the high side: young working-age and growing, populations coupled with huge scope for wage growth and consumption. Also as a country, our GDP growth although slowing down is outpacing growth of developed countries and leads the growth of developing countries. Based on World Bank, Indonesia is expected to grow at 5.2% this year while developed and developing countries are expected to grow respectively at 2.2% and 4.8% in 2015. The upshot is positive outlook for future is expected as such we should see a continuous growing demand for luxury and premium products in Indonesia.

In Indonesia, on the top of quality, prestige is the key motivation driver for purchase of premium brand of jewelry, clothing, handbag and other accessories as these high end products has become popular economic class symbol among Indonesia wealthiest including the rising middle class. For consumers’ goods, however, growing demand for FMCG premium products driven by different motivations as follow:

Health Awareness
Higher health awareness is expected to create a group of consumers who willing to pay a premium for product who help to maintain health and or improve health. To capture the opportunity from the growing awareness, more and more manufacturer for example promote less sugar products; Teh Pucuk Harum less sugar shows a healthy trial rate at 7% with repeat rate at 33% showing that the product has favorably position in its consumer shopping basket. Companies that can adapt their portfolio/brand architecture to these growing concerns are likely able to drive premiumisation

Functionality/Benefit
Consumers are becoming more informed nowadays as such they are raising expectation regarding consumers’ good products. They are ready to pay more likely when the provided product offer specific benefits or function and visible result. Classic example is from toothpaste category whereby special benefit toothpaste i.e. sensitive teeth toothpaste enjoy higher price index at 348 with sizeable penetration at 15%

Convenience
Urbanization, higher working female rate and longer time at work; they are all leads to more demand for convenience product. Kantar Worldpanel data reveals top buyers recruiters categories in 2014 such as instant coconut milk, frozen food, canned food and RTD tea all have common factor: convenience. It suggests that convenience products are on demand and as purchasing power is stronger, consumers are more willing to spend more for these convenience products.

Indulgence
Permissible indulgence trend is rising and has been driving demand for categories such as ice cream and chocolate. Driving premiumisation in products consumed as indulgent treat is mandatory since less likely that consumer may want to trade off taste or quality with cheaper price. From KWP data, ice cream and chocolate has enjoyed a significant upsurge in consumer spending per trip by 7% and 11% respectively.

The trend of premiumisation is spot on in Indonesia yet considers the market structure at the moment, premiumisation for a developing country like Indonesia where middle to low SEC accountable for 65% of household population not necessary only from cheap to expensive. There are several premiumization approaches. The first approach obviously when consumers willing to pay extra for a brand which require marketer to build a strong quality image. The second approach is when consumers trade up to more advance format or function like the case of upgrading from bar soap to liquid soap; in this case marketer need to address which concern or problem can be solved by trading up to more advanced format. The third one is adding steps to regime which is more unique to personal care categories. The last approach is in the area of white space where consumers try more categories – this is very true for Indonesia market since 2/5 of Indonesia FMCG categories only purchase by less than half of national households.

The trend of premiumisation is spot on in Indonesia as seen from strong growth of premium products. The growth can come both from buyer base expansion and spending increase, however, in Indonesia; the growth is mostly through value as it’s difficult to recruit vastly with a premium positioning. Exception is for premium offering that provide affordable luxury option such as sensorial fabric softener packed in small pack size, single pack baby diapers and facial moisturizer sachet, etc.

What unique is when we look premiumization trend, the growth mostly through adding to repertoire and not yet replace the conventional product. Example is when we look at category that have both basic and advance format like detergent, cleanser and personal care; the majority of buyers are the one who buy both format indicates that likely these different format serve for different usage occasion. The same case at variant level, based on our advance analysis*, only around 5% value growth of premium variant coming from conventional variant replacement, 92% are more likely from added to repertoire.

The bottom line is when we are talking about driving sustainable premiumization trend, it is not only about targeting specific consumer group but it’s also about win more purchase occasion. As such, some practical advices for manufacturer to remember are:

˃ Be accessible yet aspirational to reach all social classes
˃ Do not expect to reach a large target however aiming lower medium SEC is not impossible
˃ Market smaller pack sizes in an aspirational way  affordable luxury
˃ Communication remains a priority to boost premium offering by focusing on benefit and quality
˃ Provide more control over consumer experience.
˃ Go beyond product itself and giving consumer inspiration on lifestyle
˃ Go beyond basic and build brand image on different aspect i.e. health and safety

Author

Nadya Ardianti

Commercial Director

 

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Nadya Ardiyanti

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