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The State of Indonesia E-Commerce within COVID-19 & Rise of Social Commerce: An Overview

August 6, 2020

In 2019, e-commerce accounted for more than half of the digital economy in Indonesia with its US$21 billion contribution to the overall economy. The striking growth of Indonesia’s e-commerce sector has made it one of the fastest-growing markets in the world. When reviewed annually, Indonesia’s digital economy has grown almost fivefold from US$8 billion in 2015 to US$40 billion in 2019. At this rate, Indonesia's digital economy has been forecasted to reach US$133 billion by 2025.1 The growth drivers behind the thriving economy can be observed among the people and the government. Both parties have significantly contributed to higher digital penetration that has changed the ways of interacting socially, obtaining information, and consuming products and services.

SIRCLO, with its continued mission of helping brands sell online, outlines a number of insights covering various areas of Indonesia’s e-commerce landscape within the COVID-19 pandemic and the rise of social commerce. In collaboration with Ravenry, SIRCLO has carried out extensive market research in June 2020 involving 2,987 respondents. The results were further analyzed with supporting desk research and SIRCLO’s internal data to provide an in-depth discussion on the current state of e-commerce, as well as the effective strategy for businesses to move forward.

In this article, SIRCLO lays out 3 main points of discussion:

Key Growth Drivers of the Digital Economy: E-Commerce as Key Sector
E-Commerce Trends Amid COVID-19 Pandemic
New Trends Require New Strategies

Key Growth Drivers of the Digital Economy: E-Commerce as Key Sector

Between 2016 to 2020, the Indonesian government’s spending on Information and Communication Technology (ICT) infrastructure has continued to increase.2 The budget has been mainly used to develop the Palapa Ring and Satria Project, continuously creating a sustainable and more widespread infrastructure for Indonesia’s digital interconnectivity. These projects are expected to provide remote locations with broadband internet access and eventually give the whole country access to the digital world.3 The enthusiasm for digital interconnectivity is also observable among Indonesian people, as indicated by the country’s mobile phone adoption rate which has increased from 51.5% of the total population (in 2014) to 62.4% (in 2018).4 In particular, the enthusiasm is very much seen among Indonesian digital natives (born after 1990), who have been actively adopting digital technologies and spending more time on the internet.5 Apart from the low price point of smartphones nowadays,6 Indonesia’s mobile data cost being among the most affordable globally7 also plays a part in enabling mobile internet access for more people.

Indonesia’s current digital economy growth is highly driven by a particular key sector that is rapidly growing in size; e-commerce. In 2017, consumers in Java areas (i.e., Greater Jakarta, Bandung, Surabaya and Semarang) contributed about 70% of Indonesia’s e-commerce spending, while cities outside of Java as well as non-urban regions both in and outside of Java contributed 30%.8 By 2022, the e-commerce spending in Indonesia is predicted to be equally distributed between Java cities and other Indonesian regions.9 When looking deeper into the range of consumers behind this forecasted growth, Indonesia’s growing middle-affluent class (MAC) — currently making up about 51% of Indonesian population10 — contributes most. The Indonesian MAC consumption has now comprised half of the country’s household consumption11 with an average 19.31% of their household consumption was spent on e-commerce purchases in 2020.12 Under the health constraints of the COVID-19 pandemic, even more household consumption by ranging consumers is being facilitated through e-commerce, as it provides very little human contact in its overall transaction process.

E-Commerce Trends Amid COVID-19 Pandemic

Based on a research by RedSeer, the pandemic is expected to onboard about 12 million new e-commerce users.13 Under normal circumstances, this massive growth could have taken 1.5 to 2 years. Not only is the pandemic expected to widen e-commerce’s pool of consumers, it has intrigued about 40% of new users to want to keep using the platform even when the pandemic is over.14

Both consumers and businesses have turned to e-commerce platforms as their alternative channels for continuity in these uncertain times. One of Indonesia's online marketplaces, Blibli, experienced an increased number of registered merchants by 90% in April 2020 compared to the previous month.15 This signals that numerous non-essential brick-and-mortar stores that were forced to close temporarily due to partial lockdown measures have resorted to e-commerce to keep their business running.

While businesses are generating revenues through online platforms, consumers have been making the most of it to fulfil their needs alongside minimizing the physical contact in the shopping process. According to SIRCLO’s survey, which compared consumer purchasing habits before and during the pandemic, purchases on basic needs (e.g. F&B and Health and Beauty) have seen a considerable increase, while purchases on tertiary products have declined.

The shift in product categories (product mix) consequently caused high valued products such as Household Items and Mom and Baby to experience a significant drop in the new product mix percentage. Meanwhile, purchase value on daily necessities like Food and Drinks still increased slightly.17 SIRCLO’s survey in comparison to the previous year further indicated that the Health and Beauty category reported the highest increase by 30% with the Food and Drinks category following after with a 17% increase. While the two categories encompass the primary needs that are in high pursuit, other categories such as Women’s and Men’s Fashion goods experienced 4% and 16% decrease in transactions respectively.18

The checking out experience through e-commerce platforms have also faced a shift in preference. SIRCLO’s survey results indicate that digital wallets (e.g., OVO and GoPay) are gaining popularity as the top payment method among Indonesian online shoppers who participated in the survey. In contrast, the more conventional methods of payment, such as debit or credit card, are plunging considerably.

Regardless of the chosen payment method, e-commerce transactions overcame a notable increase in March 2020, reported by the Indonesian Central Bank. The number increased by 18.1% to US$98.3 million transactions and the total transaction value increased by 9.9% to US$ 1.4 billion.19

New Trends Require New Strategies

In 2020, the number of social media users in Indonesia have reached 160 million users.20 Since its rise in the early 2000s, social media has been providing its users with a state-of-the-art platform for direct interaction with one another. In the past few years, this space of interaction has been used by sellers and businesses to have direct engagement with their consumers leading to transactions, making it a new e-commerce platform made available. This phenomenon is referred to as social commerce: the buying and selling of goods through social media platforms. Consumers’ trust towards sellers and the quality of products sold on social media platforms are becoming relatively high with a level of 82%, among the frequent shoppers in Indonesia surveyed by SIRCLO. In 2017 alone, the social commerce sector accounted for 40% of the Indonesian e-commerce market, with a total Gross Merchandise Volume (GMV) of US$3 billion.21

In the perspective of the sellers, social commerce has key advantages that can offer them with more opportunities and empowerment for their business operations. Firstly, social media platforms have a low entry barrier that eases the process for businesses in setting up their own online store.22 In addition to that speedy factor, social commerce offers faster turnaround of money compared to online marketplaces that would require the seller to wait for 5-8 days until the customer receives the item before earning their money.23 In contrast, transactions through social media platforms are done directly and individually, hence cutting the turnaround time to be more immediate for sellers.

Particularly, WhatsApp (76%) and Instagram (72%) are among the most popular social media platforms to sell goods online, according to Paypal.24 Both platforms provide a specific Chat feature to let sellers and consumers converse with one another. The direct engagement provided by social media is even proven to be favorable as online marketplaces such as Shopee and Tokopedia have now provided a similar Chat feature to replicate the conversational experience.

On top of that, 94% of Indonesian consumers claimed that they are most likely to buy products from sellers who are responsive to chats before making a purchase, according to Facebook and BCG’s survey.25 When the conversation and transaction between people and businesses are specifically conducted through chat, this phenomenon is called chat commerce.

Gazing forward, the rise in chat commerce would potentially push companies to provide cutting-edge customer service capabilities further beyond. The rise of chatbot adoption in big corporates from different industries such as automotive, banking, telecommunications, and FMCG have indicated the future of customer-merchant interactions via messaging platforms.26 For businesses to get started, utilizing SIRCLO’s latest product that’s integrated to WhatsApp Business API, SIRCLO Chat, is a first step that businesses can take to enter chat commerce.

Moving forward

With Indonesia’s high digital penetration rate and its growing e-commerce industry bringing along new trends over time, it becomes more urgent for businesses to create a truly seamless experience for their consumers. With the assorted channels available today and the inevitable need of an offline store for certain industries, businesses need a strategy that is able to integrate various business channels (both online and offline); the omnichannel strategy.

Indonesians are gradually on its way to become digitally-adept consumers and the omnichannel strategy has been effective in helping businesses adapt to the progress. Over the past years, various omnichannel technologies have been developed, providing a fully integrated online system that manages multiple essential aspects of a business; sales, payment, logistics, fulfillment, warehousing operations, back-office, customer loyalty. Eventually, both business environments can be interconnected, allowing businesses to create a seamless customer journey. One of the available technologies in Indonesia is SWIFT, a product of ICUBE, that has been utilized by popular brands in Indonesia like Mitra10 and Hush Puppies to refine their omnichannel approach. Being omnipresent plays a crucial role in helping businesses remain competitive and drive new revenues. By delivering great customer journeys on any channels that businesses tap in, businesses can give consistent experience and value for their consumers.

The COVID-19 pandemic has evidently changed the dynamic of commerce. While cities in Indonesia enter an “adopting new habits” phase, brick-and-mortar stores are allowed to continue their offline operations for the time being in an effort to revive the country’s economy. However, those who still maintain in-house quarantine would still go for the safer option; shopping through e-commerce with less human contact, digital payments, and front-door delivery. When looking at the situation in the long run, online and offline commerce are not bound to replace one another. Instead, both will go hand-in-hand as options for consumers to choose from.

Therefore, once Indonesian consumers start utilizing both online and offline platforms according to their needs, it is becoming more crucial for a business’ competitiveness to become omnipresent in multiple platforms; web stores, marketplaces, and social commerce. Furthermore, creating an interconnected environment for a seamless consumer experience would bring more value to the business itself.

Being a part of a fast-paced industry demands businesses to swiftly adapt as well, so if your business hasn't, SIRCLO is here to be your trusted e-commerce solution partner. For more detailed insights of the above analysis, click the button below.

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Disclaimer

SIRCLO neither provides regulated advice nor guarantee results. The materials we convey reflect general insight and best practice based on information currently available, and do not contain all of the information needed to determine a future course of action. Such information has not been generated or independently verified by SIRCLO and is inherently uncertain and subject to change. SIRCLO has no obligation to update these materials and makes no representation or warranty and expressly disclaims any liability with respect thereto.

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