Preparing for the next evolution of Southeast Asia’s digital consumers 

Courtesy of Bain & Company

Southeast Asia is adjusting to a new normal with the welcome return of travel and in-person gatherings, be it at work, with family and friends, while shopping, or for play. While it’s easy to slip back into old routines, some habits adopted during the pandemic—such as a heavier reliance on e-commerce—are here to stay. As economic headwinds buffet the world, important questions about the digital consumer landscape are emerging. Should companies continue to invest in the online experience, given that 8 out of 10 consumers in the region are digital consumers? Or will consumers return to offline habits?

As it turns out, the answer is not black and white. In June, Bain & Company and Meta partnered to conduct an annual survey of more than 15,000 digital consumers and more than 20 business leaders across Southeast Asia to better understand the forces shaping the business landscape. The results, captured in our SYNC Southeast Asia report, Southeast Asia’s Digital Consumers: A New Stage of Evolution, show that the future may lie in a hybrid and connected experience that effectively bridges online and offline advantages.

While the rate of e-commerce adoption slowed across Southeast Asia in 2022, the outlook remains positive. E-commerce penetration growth is the highest across the Asia Pacific region—higher even than China and India—and now accounts for 11% of total retail for a worth of $129 billion. E-commerce sales are rising, and average basket sizes grew from $52 to $56 across most categories. Increasingly, though, consumers are demanding an integrated shopping experience that enables seamless movement between online and offline channels at different stages of the consumer journey.

Channel preference is not the only consumer behavior in transition. Brand-switching is edging up, especially for non-essentials. This is certainly noticeable during Mega Sales days as consumers chase deals. But they are switching for other reasons, too, including value, quality, and experience. At the same time, e-commerce marketplaces as well as nontraditional avenues for digital shopping—such as business messaging, live-buying, and classifieds—are edging out direct-to-consumer channels. Social media is gaining traction as a platform for nontraditional e-commerce. And, as Southeast Asia’s creator economy expands, video is emerging as an important anchor point. The relevance of video as a social media platform has grown from just 7% in 2020 to 21% in 2022, at a compounded annual growth rate of 70%.

Even as business leaders adapt their strategies to match rapidly shifting consumer preferences, they need to keep an eye on emerging technologies, such as the metaverse. The Southeast Asia region overall ranks above most other markets in terms of Web3 development and fintech, including the use of e-wallets, cryptocurrency, and non-fungible tokens. Metaverse-related technology is also making inroads among digital consumers, with 69% of digital consumers having used such technology in the past year. Immersive virtual 3D interactions are just a few years away from widespread adoption; the metaverse could be a major hub within a decade. As consumers embrace virtual reality for social and business purposes, they’ll expect the same capabilities to infuse the shopping experience.

All these factors are converging to create significant opportunities for disruption. Business leaders can seize the moment with a multipronged approach that tackles current economic challenges, enhances the consumer experience, and optimizes underlying technologies and operating models. Based on these trends, we have identified six strategies to help businesses determine a path to growth.

1.    Stay the course: Despite inflationary pressures, geopolitical issues, and potential industry-wide “belt tightening,” businesses should continue their investment and business development strategy in Southeast Asia. The region’s GDP is expected to outpace most other markets and hold steady against inflation. Consumption per capita is on a high-growth track, making the entire region an attractive market with untapped potential.

2.    Have an inflation plan: Inflation is here to stay; businesses must address it head-on by transforming their price-to-cost equation. Practical initiatives to consider include enhancing revenue growth management, redefining the overall value proposition to enlarge value margin, and reducing costs through procurement, the labor force, and supply chain reinvention.

3.    Balance security with efficiency: Businesses need to adopt supply chain strategies that reduce their vulnerability to disruption. To succeed in today’s environment, the traditional view of supply chains must change from global and lean to resilient, sustainable, and responsive. This transformational change will demand bold, unconstrained thinking across the end-to-end operations value chain.

4.    Build a hybrid strategy: An integrated omnichannel strategy is the future of the consumer landscape. This is a multiyear journey that requires businesses to obsess over their customers, foster lifetime loyalty, remove barriers to conversion, and revisit offline retail spaces.

5.    Invest in the future: The metaverse is ascendant, and business leaders need to begin laying the foundation for a more virtual future. They can effectively marshal their resources by focusing on industry forces they can identify and plan for, developing scenarios for alternate futures, building a portfolio of bets to balance commitment and flexibility, and continuously planning and allocating resources to enable adaptation.

6.    Focus on talent: Businesses need to upgrade their operating models to streamline and constantly assess how they source, organize, manage, and retain talent. Developing compelling consumer experiences will depend on a workforce that is talented and committed, teams that are empowered and entrepreneurial, and systems that allow for the free flow of information.

The time for action is now. Digital consumers across the region have high expectations and a greater willingness to experiment with new products, platforms, and funding mechanisms. They will not wait for their favorite brands to catch up. Long-term bets will pay off for businesses that adapt alongside or even ahead of consumers. There’s no time like the present; business leaders should start integrating post-pandemic consumer preferences into their planning cycles now and iterate along the way.

Praneeth Yendamuri is a Partner at Bain & Company based in Singapore. Dhruv Vohra is a Managing Director at Meta Business Group Southeast Asia based in Singapore.

Praneeth Yendamuri and Dhruv Vohra