I’d like to share an intriguing note that struck a chord with me in Indonesia, and I reckon it could be handy for folks in other countries too. From my experience running a startup that’s all about streamlining distribution networks to connect local brands with consumers in developing cities in Indonesia more efficiently, I wasn’t expecting such an overwhelming response from the market. This said, after delving into a published article from an independent think tank committed to fostering the growth of Indonesian SMEs, COSMOS, I gained a strong and clear insight into these reactions.
According to Katadata’s consumer survey, out of every three people, only one opts for e-commerce. Yet, that one person who shops via e-commerce often still prefers the offline route, while the other two who don’t do online shopping mostly stick to traditional shopping.
Despite the significance of online shopping for e-commerce users, offline shopping remains crucial for all users, even for those occasionally venturing into the online sphere. Particularly in tier 2 and 3 cities in Indonesia, offline shopping still holds significant importance due to limited access to online platforms. Consumer satisfaction and trust play a major role in the decisions of non-users to avoid online shopping. Worries about the product quality not meeting the online advertised standards and a few key issues such as fraud risks, and logistic concerns deter non-users. These facts pose both opportunities and challenges for online channels to effectively address these issues.
Referring to Katadata’s research, the online sales channel seems more suitable for brands focusing on increasing turnover within the range of US$1.3 – 6.4 million annually. Online channels are seen as more cost-effective, straightforward, and quicker for brands to establish a solid market presence. It’s a different story for brands generating over US$32 million in annual sales (national brands).
At this stage, these brands often find their online sales stagnating, hence needing to shift their focus to alternative sales channels, specifically the offline channel. The offline channel tends to have a far higher growth ceiling than the online channel because there’s a significantly larger consumer base in offline channels, especially in lower-tier cities. Statistically, 88% of Indonesia’s population resides in tier 2 and tier 3 cities, with only 34 percent actively using e-commerce.
All the national brands interviewed agree that both offline and online sales channels are equally important. However, contrary to brands with turnovers of US$6.4 million, brands with annual sales above US$32 million have consistently and significantly better performance in their offline channels compared to their online channels. These brands cater to consumers with limited or no access to online commerce, which contributes to their success and dominance in the market.
These national brands recognize the importance of adopting a connected commerce strategy as their brand evolves and their channels become more intricate. Connected commerce aids brands in seizing opportunities from evolving consumer behavior by allowing seamless interactions in integrated online and offline channels. Several businesses/startups facilitating trade for Small and Medium-sized Enterprises (SMEs) are attempting to create consumer networks based on community interactions and networks of various SMEs as providers of goods needed within the community. Larger companies also collaborate and allow some of their facilities to be used by other companies to ease consumer shopping, transactions, and product pickups. Both these approaches fall under the current term ‘connected commerce.’
Taking cues from the success of IKEA in adopting the concept of connected commerce, IKEA has successfully integrated various sales channels. Consumers can shop at the outlet while tracking their online purchases’ deliveries. Similarly, buyers can browse catalogs and make online purchases while collecting items at the outlet. All of this is seamless because online and offline transaction information is integrated. Connected commerce has enabled consumers to shop according to their preferences by merging online and offline shopping experiences seamlessly. Positioned at the intersection of social commerce, e-commerce, and traditional retail stores, connected commerce serves to connect and integrate various sales channels.
To become a national brand, a brand should dominate the majority of consumers in Indonesia, particularly those in lower-tier cities. Despite the importance of online channels, market leaders usually have deep roots in offline channels. However, it’s important to acknowledge that the costs involved in setting up offline channels are significantly higher than those of establishing an online presence. Managing the circulation of sales channels within connected commerce is quite intricate, especially in maintaining competitiveness in the market. To cater to various needs simultaneously, Indonesian national brands collaborate with Evermos to reach consumers in tier 2 and 3 cities, especially in embracing non-e-commerce consumers.
Considering Indonesia’s geographical conditions and limited internet access, traditional offline sales channels still dominate the retail landscape. Connected commerce offers SMEs a new alternative to expand exposure, boost awareness, gain market access, and distribute goods. Connected commerce allows a brand to accommodate diverse consumers within different demographic profiles through different sales channels to accommodate these differences and adapt to shifts in offline sales. This note might serve as an insight for brand owners to consider adopting the concept of connected commerce in Indonesia and beyond.
Arip Tirta is the President and Co-Founder of Evermos.
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