Digital Transformation in Southeast Asiaa

CENTER FOR CONSUMER INSIGHTS MARKETING, SALES & PRICING

The State of Digital Transformation in Southeast AsiaA-

How CPG can take the lead and drive business growth

October 2017 Purpose of study

The digital ecosystem in Southeast Asia is rapidly evolving, giv- ing rise to new consumer needs and disruptive business models. In this challenging environment, the incumbents—while cognizant of the needs of digital transformation—were looking to learn more about this megatrend and how to respond to it.

To inspire, educate, and facilitate digital advancement, BCG, Google, and Mindshare conducted an assessment of more than 100 companies across SEA.

2 Agenda

The digital imperative in SEA

CONSUMER GOODS SEA GTM STUDY RESULTS Digital marketing E-commerce Digitization of sales

3 The digital Digital is rapidly influencing imperative in SEA consumer behavior and habits

Today’s consumer is increasingly digitally savvy Digital is transforming their shopping habits

Mobile is a key device for all online activities and Shifting trust dynamics Curators and creators Online deal-savvy internet access on the go.

Increase of time spent on digital platforms.

53% of SEA's combined Increasing use population is online.1 Conversion to mobile Hyper-targeting, speed of messaging apps

Retail shifting to e-commerce

1. 1, 2 Press research, 3 Digital in South East Asia, BCG internal consumer survey 2015, 2016 4 The digital This urgency is being felt across imperative in SEA companies in SEA

~70% have digital as their top strategic priority...... with leadership cognizant about impending challenges

% of Companies “Consumer purchase pathways have become • Location-based marketing very complex, making influencing them 100 • Real-time demand capturing more challenging.” • Multiple campaigns across touchpoints –Marketing Director, CPG Marketing

80 “Industry is heading in the direction where the • Unlimited shelf space with e-commerce consumer expects retailer to ship good expecting • Low distribution investment to their needs.” 60 reach market –Sales Director, CPG Sales

• Demand-driven SCM “Cost savings of the order of 10-30% can be tapped 40 • 3D printing products by upgrading to digital supply chain.” • Geo-analytic-based route optimization –SCM Manager, CPG SCM • Sensor-based replenishment 20

• Crowdsourcing ideas “Digital is disrupting the very core of business. It’s challenging the long-held strengths 0 • Prototyping, A/B testing of companies.” • Innovative business model –Digital Head, CPG CPG Banking Telco Innovation Top Strategic Priority

Source: BCG- Google digital transformation survey 2016 5 The digital Reaction to digital transformation is imperative in SEA inconsistent with huge gap between leaders and laggards, across functions

Digital Maturity Significant digital maturity gap between Advanced top and bottom performers

Established

Industry has matured to an intermediate stage

Intermediate

Basic

Inconsistency in adoption of digital across functions

Strategy Go to market Product Data & analytics Technology Operations People & Support innovation organization functions

Industry Bottom 10% performers Top 10% performers

A structured, systematic, and coherent approach to digital transformation is needed to reap its full potential. Source: BCG- Google digital transformation survey 2016 6 The digital BCG perspective: Digital transformation imperative in SEA requires concerted efforts across functions

Business strategy driven by digital

Digitize the core Shared digital accelerators

New digital growth Product and Operations Go to market Support functions service innovation

People and organization Data and analytics Technology Ecosystems

People and organization, data and analytics, technology , and ecosystems are the building blocks of digital transformation.

7 The digital To educate, inspire, and facilitate digital imperative in SEA advancement, an assessment was conducted

Reached more than 100 companies in SEA across three specific industries

Interviewed leaders and observed more than Consumer 100 companies from Singapore, Thailand, Malaysia, Vietnam, Indonesia, and the Philippines to assess their digital transformations.

Financial institutions

Technology, media & telecom

8 The digital In collaboration with BCG, imperative in SEA Google, and Mindshare

Vaishali Rastogi Shiv Choudhary Arnika Chaudhary Joanna Flint Karl Duffill Maneesheel Himanshu Senior Partner and Partner and SEA Lead, Center Managing Director Agency Business Gautam Shekhar Managing Director Managing Director for Consumer (APAC Agency Head, WPP Leader, Digital CEO, ASEAN Insights Business)

9 The digital Key insight: Consumer packaged goods imperative in SEA industry lags behind the telecom and financial services industries in SEA

Banking across functions most advanced

Established Banking

Intermediate Telecom

Basic CPG

Strategy GTM Ops People Data and Product Technology Support and org analytics innovation functions

Digital Maturity (index CPG ops = 1)

Source: BCG- Google digital transformation survey 2016 10 Agenda

The digital imperative in SEA

CONSUMER GOODS SEA GTM STUDY RESULTS Digital marketing E-commerce Digitization of sales

11 Digital marketing maturity of companies Digital marketing measured across depth and breadth of engagement

Advanced

Depth will be rated in each channel Depth: Level of sophistication Established in each channel to be rated

Intermediate

Breadth: Array of channels Basic available, with each representing varying levels of engagement

None

Display Search Partners, Blogs, Website and CRM, marketing Apps and Socia Online Word- and video engines influencers communities microsite automation microsites media of-Mouth ads

Discover Consider Experience Engage Advocate Level of Engagement Creating an "advocate" in someone means enabling "discover" in another. 1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 12 Example: FMCG brand assessment on the Digital marketing engagement maturity canvas

• Engages in retargeting, A/B testing, etc. • Strategy is not Advanced conversion-focused. • Seasonal campaigns–no sustained efforts. • Lack of content/platform to push for more active Extended one-way engagement. • Basic product info available. • No dedicated page, not • Basic tags tracking. in top navigation, no Intermediate • Lack of more up-to-date campaigns. beverage-related tags.

Basic

• Occasional reviews • Occasional paid mainly on Facebook. None endorsements. • Potential to improve • Need for more sustainable, brand perception in tactical partnerships. more channels.

Display Search Partners, Blogs, Website CRM, marketing Apps and Socia Online word- ads engines influencers communities automation microsites media of-mouth

Discover Consider Experience Engage Advocate

Level of Engagement

Creating an "advocate" in someone means enabling "discover" in another. 1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 13 Large dispersion within CPG sector; leaders Digital marketing in digital marketing are primarily MNCs

< 15% of companies have reached established maturity Leaders in digital marketing are MNCs

% of Companies MNCs are leading in digital marketing execution across touchpoints 40 • Operate across touchpoints from discovery to advocacy • Messaging strategy consistent across 30 campaigns and touchpoints • Execution of digital marketing is coherent with offline marketing • Executing digital marketing for more than 20 five years and increasing spends on digital

3831 3533

10 18 15 12 12

0 0 None Basic Intermediate Established Advanced

14 Factors enabling digital marketing Digital marketing excellence for leaders

Digital is the top agenda for the Execute campaigns across multiple Partner with specialized media/ Invest in data integration to access Invest in people training and CEO and part of yearly investment touchpoints with a basic digital creative agencies with digital richer insights capability building and review cycle rhythm topped with curated use marketing capabilities of channel for specific events

• Dedicated budget and resources • Understand role of each digital • Engagement with nimble and • Technology and IT upgraded to • Diverse training techniques to lead digital initiatives marketing channel in consumer niche agencies for curated con- integrate sales, marketing, CRM implemented from classroom purchase pathway tent creation data, etc. to provide singular training by experts, sharing of • Performance tracking view of customers success stories from global integrated with quarterly and • Active presence maintained • Creating mass snackable counterparts yearly review cycle across touchpoints content for digital channels at • Partnership with third party to nimble speed is strong foothold access real-time information for • Leadership support to learn on • Commissioning of special of small digital creative houses quicker response the job by testing and failing taskforce in initial years of digital transformation • Media AOR/creative AOR role extended to integrate, collabo- rate, and synchronize efforts in digital marketing

15 Leaders utilizing digital marketing Digital marketing potential in unique ways

• Used location-based targeting and • Converted paper coupons into • Loyalty members can opt into • Created an agile ad delivery created a virtual circle by tagging e-coupons weekly personalized offers system in partnership with Google three nearby cellular towers that responded to restaurant ca- • Launched through a brows- • Built cross-channel capability, pacity in real time and dynamically • Random users receive a call from er-based web app called “Spin including email offers and mobile adjusted ad spend and messaging a radio personality, telling them the Bean” recommendations in each delivery neighborhood to visit the Colgate booth for free • Gets real-time insights on redemp- samples, chance to win prizes, etc. • Uses scalable technology platform • 10% increase in ROAS (return on tion patterns through a dashboard ad spend)

16 Revitalizing an icon for the digital Digital marketing consumer: Wall’s Thailand

The iconic, tricycle-riding Wall’s Man is an institution in Thailand, bringing ice cream and joy to millions of Thais across the country. We connected the iconic Wall’s ice cream man to his consumers by creating a new, mobile-activated service with GPS tracking and interactive messaging, turning a traditional icon into a new-world phenomenon.

The Challenge The Approach The Results

Maintaining relevance Adapted to consumers 4% lift in sales Due to changes in consumer behav- Lean in to the change: engage in first two months of activation ior, the brand’s core audience had core target audiences digitally. become increasingly hard to engage, 17% lift in vendor recruitment and sales shifted from street vendors Launched a bot More people are joining Wall’s vendor to convenience stores. within Line chat platform for users team, making distribution faster. to order an ice cream, with immediate Stock management and fuel fulfilment by a nearby vendor 33% of Thais are friends with Wall’s Selling less makes stock manage- on wheels. on the Line platform. ment hard for vendors, and leads to Please view case study link: significant amounts of wastage of https://vimeo.com/193571760 stock and fuel.

Community Vendors are critical to local sustainable business and were losing touch.

17 Agenda

The digital imperative in SEA

CONSUMER GOODS SEA GTM STUDY RESULTS Digital marketing E-commerce Digitization of sales

18 E-commerce in SEA is E-commerce growing exponentially

E-commerce growing fast at ~32% YoY... … with competition intensifying for market share

Bn USD Total retail market Total retail market Alibaba joins Lazada board as a controlling at $ 0.7 trillion at $ 1.4 trillion shareholder and invests $1B USD. As part 100 of the deal, Rocket offloaded a 9.1% stake 16x for $137M USD.

Amazon entered Southeast Asia via 80 Singapore (with rumors of expansion plans across SEA).

60 Southeast Asia is poised to become one of the world’s fastest-growing regions for e-commerce revenues, nearing $88B USD 88.0 spends by 2025. 40

5.5 0 2015 2025 Ecommerce % total retail 0.8 6.4

Source: Google-Temasek Report 19 Most CPG players are building E-commerce an online presence

Lack of sophistication in execution

E-commerce play across companies is mostly selling key SKUs across multiple online channels

• Lack of sophistication on product assortment, delivery models across platforms Int’l players • Lack of discretion in marketing, promotions, etc. across online e-commerce channels

“We are very active in e-commerce. It’s a big macro trend, and we are on top of it. We are selling most of our products on Lazada.” –Sales Head, CPG Local players*

*PH market 20 E-commerce maturity of companies E-commerce measured across depth and breadth of platforms

Advanced Depth will be rated in each ecommerce Depth: Level of sophistication in platform Established each to be rated basis presence, product assortment, delivery, etc.

Intermediate

Breadth: Array of channels available, Basic with each representing a unique business model.

None

Manufacturer.com Specialist Pure online B&M Pure online Online food/grocery online general marketplace

Manufacturers Pure online retailers Pure online retailer Traditional Pure online retailer Open platforms available selling directly focused on one with a broad range of retailer offering sources products for consumers/ to consumers product/special grocery products online service from manufacturers manufacturers to sell needs and sell online directly to consumers

Multiple platforms for ecommerce engagement with consumers.

1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 21 E-commerce maturity of companies E-commerce measured across depth and breadth of platforms

RedMart Lazada Advanced AmazonFresh MetroDeal

LINE MAN Deliveroo foodpanda Established UberEATS

Intermediate

McDonalds Kaidee Basic Stores Qoo10 Specialists Inc. Lelong.my Jollibee tokopedia Mercury Drug Puregold None Supermalls

Manufacturer.com Specialist Pure online B&M Pure online Online food/grocery online general marketplace

Manufacturers Pure online retailers Pure online retailer Traditional Pure online retailer Open platforms available selling directly to focused on one with a broad range of retailer offering sources products for consumers/ consumers product/special grocery products online service from manufacturers manufacturers to sell needs and sell online directly to consumers

Multiple platforms for ecommerce engagement with consumers. 1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 22 Leaders in e-commerce are primarily E-commerce MNCs, operating in babycare, cosmetics, and personal care categories

~10 % of companies have achieved e-commerce maturity of established Leaders in e-commerce are MNCs

% of Companies MNCs are leading in e-commerce execution 40 across platforms

• Operate across platforms with unique channel strategy for each 30 • Mostly operate in babycare, cosmetics, and personal care categories • Developed partnerships with e-commerce platform providers to minimize channel 20 conflict

38 27 • Product portfolio and promotions strategy specific to each business model 24 10

0 0 None Basic Intermediate Established Advanced

23 Factors enabling e-commerce E-commerce excellence for leaders

E-commerce is part of overall Customized product assortment Joint business planning with Platform marketing to ensure Backend fulfillment models channel strategy and is managed for e-commerce and dedicated role platforms partners and logistics consumer engagement on platform designed to address specific from investment and planning POV for brand service providers beyond purchase needs of e-commerce

• Channel margin and product • Promotions and offers cus- • Yearly and quarterly engage- • E-commerce experience en- • Supply chain in terms of portfolio decided to avoid chan- tomized to platform role (i.e ment with e-commerce partners riched with engaging content to logistics, warehousing, delivery nel conflict discounter platform or premium to ensure that right digital further develop customer need support, etc. geared to kind platform) shelf, promotions are planned of fulfillment model • Pricing decided to ensure level • E-commerce platform to sell by month playing field of all distribution • Certain players use e-commerce product experience, ideas rather • Partnership with last-mile channels as platform to garner early cus- • Marketing budget sharing done than just product service providers to ensure tomer insights in a new product between platform providers seamless customer experience launch and brand to ensure favorable • Driving economics with co- • Motorbike deliveries leading economics marketing with e-retailers, • Product assortment based on direct platform providers to increased consumer expecta- customer profile of platform and tions on super fast deliveries its business model

24 Best-in-class examples of E-commerce e-commerce execution in SEA

• Premium online exclusive offering • Established deeper relationship • Developed end-to-end e-commerce • SKII maintained different channel to avoid competition from Amazon with customer via platform market- strategy, piggybacking on Lazada’s strategy for mfg.com, Sephora, ing of makeup genius app operation and Lazada • Premium price to compensate for higher operational cost • Allowed customers to test • Attracted customer with online • Mfg.com used to provide exclusive products virtually and create only deals new product offers • Seasonal only to ensure sufficient store experience order volume for cost-efficient • Drove volume by selling in bulk • Sephora and Lazada run promo- logistics and bundled promotions tions on bundle packs

• Offered real savings with cash back

25 How Lazada outranked the rest E-commerce in Southeast Asia

Southeast Asia’s leading online shopping mall, Lazada, used Google’s target outranking share bid strategy to increase its website traffic by 30%, growing market share for key product categories.

The Challenge The Approach The Results

Customer acquisition Automate operations More website visitors Acquire new customers while Employed programmatic AdWords Increased traffic by more than 30% competing more effectively in key flexible bid strategies product categories Placement above competitors Conquest at scale increased Used the target outranking share Improved target outranking share bid strategy to automate cost-per- against specific competitor domains click bids with the goal of outranking by up to 280% in four weeks competitors on strategic search terms More exposure to the right customers Grew ad impression share by 50%

26 Agenda

The digital imperative in SEA

CONSUMER GOODS SEA GTM STUDY RESULTS Digital marketing E-commerce Digitization of sales

Digitization of sales measured across Digitization of sales depth and breadth of value chain

Advanced Depth will be rated in step of value chain Depth: Level of sophistication in Established each step of value chain in terms of digitization of activities, etc.

Intermediate

Breadth: Array of stages of value Basic chain from mfg unit until consumer digitized.

None

Manufacturing unit Warehouse Distributor Salesperson Retailer Consumer

All manufacturing Real time visibility of Third party data is Tech enabled sales Digital merchandize units with produc- stock. Location is integrated and full person with info adherence, order tion capabilities network optimized. visibility of sales, on daily planning, taking, promotions by sku. stocks, ARS, etc. training, etc. planning, etc.

Journey of product from manufacturing unit till consumer.

1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 28

Digitization of sales measured across Digitization of sales depth and breadth of value chain

Tracks distributor information in terms Visibility across of stock visibility, manufacturing units spends, ARS, etc. Advanced for stocks visibility with data integration in real time with distributors' IT

Stock visibility by sku, by batch at Handheld Established warehouse level with enabled sales network optimized force

Intermediate

Digital merchandize Basic adherence, order taking, promotions planning, etc.

None

Manufacturing unit Warehouse Distributor Salesperson Retailer Consumer

All manufacturing Real time visibility of Third party data is Tech enabled sales Digital merchandize units with production stock. Location is integrated and full person with info on adherence, order capabilities by sku. network optimized. visibility of sales, daily planning, taking, promotions stocks, ARS, etc. training, etc. planning, etc.

Journey of product from manufacturing unit till consumer. 1. App may not be available in some countries Source: BCG analysis, Happy Marketer analysis 29

Leaders in digitization of sales are primarily Digitization of sales MNCs with strong operations in India

~10% of companies have achieved sales digitization Leaders in e-commerce are MNCs

% of Companies MNCs are leading in sales digitization across value chain 40 • Utilized digital tools across all the touch points of sales digitization • Mostly have strong operations in India and 30 importing successful sales model to SEA from India • Led integration of third-party data (i.e. distributors, retailers with internal systems)

20 • Enabled sales force with digital support in form of handheld devices 33 31 with access to product, sales, and merchandise information

10 18

12 6

0 None Basic Intermediate Established Advanced

Leaders are excelling by investing Digitization of sales in GTM: Sales digitization

Invest in digitization of daily Integrated distributors and Upgrading skill sets of sales force Online route planning to ensure Management is technology management systems and retailers information systems by enabling them with tech support logistics is optimized and right enabled for tracking company weeding non-value activities with internal systems SKU with right promotion is spend and effectiveness: available at right store

• Information such as order tak- • Operations management: Billing, • Sales call planning: Outlets • Tracking delivery from ware- • ROI monitoring and ing, cash collection, e-invoicing, inventory info, dispatch visibility, covered during the day house to distributors to retailers channel spend and order fulfillment captured and system to capture record (basis geo-analytics and in real time with preplanned info • Trade cap setting and and reviewed daily payments, aging, partial pay- salesperson allocation) on promotions and SKUs t monitoring ments, etc. o push by each region • Target monitoring for distribu- • Knowledge transfer channel: • Outlet profitability tracking tors/salesman/outlets/route for • Order fulfillment and target Online training and ready • Live GPS-based monitoring of sales by SKU and promotions monitoring: SKU allocation to access to counterparts to truck with alerts on deviations • Scheme/promo design and stores and sales and spends access guidance and information tracking, etc. • Performance management of monitoring vs. target salesperson in terms of store visits, order fulfillment

Best-in-class examples of Digitization of sales digitization of sales in SEA

• Mapped customers locations, orders, fleet, and Personalized performance management • Partnered with agencies for store census inventory on map • Reports include sales views, spends by rep • Enabled gap analysis to identify untapped markets • Maximize revenue with route planning based on • Pipeline management and inventory tracking • Enabled cohesive sales and distribution strategy type of fleet and product features with analysis of competitive data in region Precise recommendations • Used the Distance Matrix API to build a batching engine, which automates dispatching drivers, • Uses geo-location to display top missing and optimizes pickup and drop-off points SKUs by store

Honestbee scales sales and operations Digitization of sales with cloud-based mapping

honestbee launched in Singapore in July 2015 with the goal of being Asia’s largest and most convenient online supermarket. Soon after launching, the company looked for a mapping service that would increase the efficiency of overall sales and delivery operations.

The Challenge The Approach The Results

Increase efficiency of dispatchers Selection of scalable online Geographical expansion To scale rapidly, honestbee needed a mapping platform Launched a grocery delivery service way to utilize its delivery workforce Used Google Maps based on quality in four Asian cities and functionality of the software, Improve user experience especially for customization via APIs Efficiency in sales and delivery Ensure it is easy for consumers to use Improved the efficiency of dispatchers the front end of the sales platform Efficiency through batching and drivers Used the Distance Matrix API to build Future-proof for services not a batching engine, which automates Scalable software stack currently offered dispatching drivers, and optimizes Reduced development time and While honestbee had an immediate pickup and drop-off points speed time to market by using Google need based on grocery delivery, it was Maps APIs important to build a solution capable Mobile-ready user front end of solving different use cases (such Enabled order placement using An- as delivering/collecting laundry) droid and iOS apps built around these mapping services

Things to consider when Digitization of sales shifting to digital

What is the strategic objective? Do you want to become a category leader in digital?

What do you need to accomplish to achieve this strategic objective?

• What are the quick wins in digital transformation to build a business case for transformation? • How will you address issues of proliferation of platforms, safety of digital advertising, etc.

What capabilities need to be developed, and how will you develop them (i.e., in-house vs. partnership or acquisition)?

What is the investment appetite of the organization to fund digital transformation?

How can you structure your organization to better support the objective?