Courtesy of Bain
By Praneeth Yendamuri, Dhruv Vohra and Sameer Mehta 

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 Southeast 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 Southeast 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 Southeast 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 Southeast Asia report, Bold Moves: Leading Southeast Asia’s Next Wave of Consumer Growth.

The report uncovers several traits defining consumer behaviors — 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 recognize 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, Southeast Asia’s status as a market block 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 GDP growth rate is projected to well exceed the global average of 2-3%, with some Southeast Asian countries doubling it. This economic upswing and its related boost to the region’s high- and upper-middle-class populations is 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 Southeast 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 emphasizes the future power of Gen Z — representing shoppers currently between the ages of 17 and 27 — in expanding and shaping the Southeast 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 AR/VR electronics. The takeaway is clear: to build successful market growth, companies must consider nuanced/personalized marketing and offerings that engage all Southeast Asian age demographics.

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

To effectively gain market leadership in the region, companies must first recognize Southeast Asia as “same-same, but different.” Each battlefield (market, channel, or consumer segment) must be won separately, requiring ruthless prioritization 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:

• The Localized Traditional Approach (specialized or localized products priced for the masses)
• The High-End, Digital First Approach (purpose-driven, digitally enabled operations at premium pricing)
• The Low-Cost Champion Approach (economy pricing to target consumers from lower- to mid-income levels)
• The Retail Copycat Approach (affordable, retail-branded products that mimic the look and feel of high-end branded goods)
• The 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 U.S. and European consumers. Overall, Southeast 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 customized or personalized to fit their unique needs, from wellness and baby care products to beauty products and electronics. Because personalization strategies are expensive and hard to execute at scale, many companies are embracing AI to explore bringing production and delivery costs down.

In addition to the personalization of actual products, consumers show a strong preference for personalized content/marketing. When marketing reach is personalized, shoppers are more likely to spend more on a product or brand (63%) and recommend it (66%).

AI has become an important tool for businesses to meet these expectations at scale and across the full customer journey. With the Southeast 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 Southeast Asian markets, our report suggests a four-step action model for success:

1. Prioritize, sequence, and fund your Southeast 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.

2. 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.

3. Evolve your business models and consumer engagement

Future winning models in Southeast 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 ESG prioritization, fully local product specialization, a flexible approach to asset ownership, and investments in disruptive or innovative marketing platforms, including those driven by AI-powered data analytics.

4. Become a “scale insurgent disruptor”

Companies primed for success in the Southeast 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, prioritizing stable returns, and using models that can pivot quickly to respond innovatively to local consumer needs, brands can maximize their growth and profit potential in the region.

Southeast 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 Global Business Group, Mid-Market, APAC at Meta and Sameer Mehta is Investment Director and Head of Southeast Asia at DSG Consumer Partners.

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