For anybody who spends enough time reading business news or economic journals, it is apparent that we are currently living in a very challenging time. Businesses large and small are paying the price of the economic uncertainty - and in many countries, economic downturn - caused by the compounding effect of COVID-19 in the past couple of years plus the wars currently happening, global supply chain disruptions, and risk of stagflation - which further magnified the slowdown in global economy.

Consumers have lower purchasing power than ever with the inflation and increasing price of daily commodities. Businesses also suffer from rising costs of doing business, tightening financial regulations, and global supply chain disruptions. Thankfully the effect is less devastating in Indonesia. Our economy is expected to grow by 5.0% in 2022 and 5.2% in 2023 as domestic demand continues to recover - but not without any risk if the global economy doesn’t recover anytime soon.

That said, businesses and consumers are looking for ways to optimize their hard earned dollars to work harder. We have seen that play out over the past few years with businesses putting more investments in digitizing their business from operations all the way to marketing and sales. And the biggest growth driver of Indonesia’s digital economic growth can be attributed mostly to eCommerce which contributed to 54% of digital economic growth.

According to Edwin Chayadi, VP of Marketing Solutions in Tokopedia, there are 3 stages of consumer and business behavior shifts that fuel this staggering growth. The first stage is “Adaptation”, at the peak of COVID-19 that happened in the early of 2020 until early 2021, with lockdowns and government tightening of physical contacts. Consumers have little to no choice but to shop online for their daily necessities. Businesses also adapted their strategy to go online to cater to the changing consumer behavior. According to Tokopedia internal data, more than 2.8 million new merchants came onboard to the platform from January 2020 to early 2021. Studies done by McKinsey and Indonesia Central Bank also showed that 9 out of 10 people in consumers have conducted online shopping and 55% of business owners have shifted to online eCommerce channels to sell their products.

The second stage is “Expansion”, which happened in early 2021 all the way to the end of 2021, in which consumers and businesses have accepted that shopping online and digital business strategy is the “new normal”, digital channel is no longer a good to have but an essential part of people’s daily life. During this time, investments on infrastructure, operations, marketing, and sales on digital platforms especially eCommerce have attained a critical mass where businesses of all sizes and categories have adopted a full on digital strategy including the industries that were previously happen mostly on offline channels such as F&B, groceries, auto, financial services, entertainment, etc. Research by the Bank of Indonesia shows that 52% of all businesses spend marketing on online platforms as their primary channel.

To support the need for more robust online marketing and promotions, Tokopedia invested in more marketing tools and more campaigns to support the growth of online shopping craze. In 2021, the number of marketing campaigns across categories on Tokopedia grew 175% compared to the previous year.

The third stage is “Acceleration”, this stage is marked with the recent loosening of lockdown policy. People have started engaging in more offline activities albeit not completely back to pre-COVID era. Despite what we believed to be the end of the “digital-first” era, recent research on global shopper study shows that in February 2022 digital transactions volume still increased by 41.3% and 65% of consumers still choose to avoid going to crowded public places. According to research by Google, Bain, and Temasek, the SEA eCommerce market will double from $53bn to $104bn by 2025 with Indonesia being the biggest market as the infrastructure on logistics, payments, business models, product assortments, and convenience offered reached a mature stage. Consumers will stay on the digital channel as their primary medium to discover, search, and purchase. All in all, the impact of COVID-19 has shaped a new digital hybrid consumer behavior that will last for the foreseeable future and businesses that can embrace this consumer behavior change and adapt their strategy will win the race.

As we have discussed previously, optimizing hard earned dollars in this challenging business environment is key to thriving. CMOs and Marketing departments in most companies are facing one of the key challenges they struggle to get right. Which is their quest to make sure their marketing spend can help generate high growth while at the same time yield good positive return on investment. It is increasingly difficult these days to find the best marketing channels to invest in. Even in the digital marketing space where the commonly agreed to be the most effective channel - with its ability to target certain audience segments based on certain persona (demographic, geographic, interest, behavior, device, connection, etc), efficient buying model based on impressions/clicks/actions/installs, and end to end measurement capability and advanced attribution analytics - is starting to lose its charm in the past couple of years due to increasing concerns over users’ privacy and tightening regulations on users tracking.

According to the recent survey, at the very top of challenges faced by marketers today is the ability for them to “determine the ROI” of their investments (46% votes), followed by “locking budget/resources difficulty” which is a byproduct of not being able to determine ROI (44% votes). If we take a look at where the majority of digital ad spend today is going, it is no secret that most businesses spend the majority of their marketing dollars on big platforms such as Google and Facebook. Their ability to hyper target audience using 3rd/1st party data, the ability to track web/app using pixel/SDK/MMP/S2S to measure the performance, and the ability to use machine learning for optimization based on those collected data - have been the holy grail of digital marketing. But that is no longer true today.

In April 2021, Apple launched it AppTrackingTransparency (ATT) framework, Google also launched its own version of similar updates with Android 12 which happened in late 2021 to limit the sharing of Advertising ID, and soon Google Chrome browser will start to limit the use of third party cookie - essentially disrupted the very core of these platforms’ best offering because now every tracking of users activity is limited and requires opt-in consent rather then “on” by default. What that means for businesses is that they are no longer able to create & target audiences accurately and at scale, measurement of performance esp ROI is no longer as robust as it used to, and machine learning optimization is not as effective anymore. Many companies we spoke to suggested that they’re losing the amount of audiences and performance in the 30-60% range. These chain of events pretty much puts marketers and businesses in a difficult position as the effectiveness of their biggest marketing investments isn’t as good as it used to be.

If we look beyond Indonesia and take more mature markets such as the United States, China, or India. There is much to learn about how large marketing investments have shifted to eCommerce companies such as Amazon, Taobao, Flipkart, etc. Take US market for example, based on data from eMarketer Oct 2021 research, market share for Amazon ads business from 2020 to 2023 is predicted to grow from 10.3% to 14.6%. In China, Alibaba & its subsidiary companies as an eCommerce platform dominated with about one third of the digital marketing ad spend share. We expect the same trend is going to happen in Indonesia where significant increase in digital marketing investment will go to eCommerce platforms.

In Tokopedia, since early 2020 until first half of 2022 there has been 3764% growth in terms of numbers of mid/large merchants brands investing in its marketing solutions. In terms of Ad spend, Tokopedia experienced 1754% growth in terms of ad dollars invested in the past 3 years and there is no sign of slowing down. If we look closely at why this is happening, it is clear that brands and merchants are seeing the value of how marketing on eCommerce platforms can drive a lot of growth by riding on the rapidly changing consumer behavior. In addition, brands and merchants are also seeing very high return on ad spend (ROAS). Some notable examples: one multinational beauty brand was able to grow their business by 6.5x with >400% ROAS since they started investing in eCommerce marketing solutions in Tokopedia. Another multinational FMCG brand was able to grow their business by 12x with >1500% ROAS. Lastly, one of the top 3 global computer brands was able to grow their business by almost 4x with >2000% ROAS.

To understand how eCommerce marketing has been able to gain such mass adoptions and good results, we need to understand the drivers behind it. It all boils down to 4 things: First, the wealth of consumer data eCommerce companies possess. Data on every user's interactions, transactions, and anything in between are collected, stored, and managed in a way that the data can be used for ads targeting. The data is very actionable as it is not a proxy or some probabilistic model that many Ad Tech companies try to build for ads targeting. Imagine being able to target people who are interested in smartphone products from their recent browsing behavior, who have typed certain smartphone brands into the search bar, or who have added smartphone products to cart or wishlist. These are all high intent data that platforms outside of eCommerce have very little or no visibility on. And now an interested company who sells relevant types of products can serve highly relevant ads with the right product and promotion to the right people. Second, is eCommerce platform’s closed loop ecosystem. What it means is basically on an eCommerce platform, users can discover products, search for certain items, read reviews and product description, compare prices, purchase, pay, and get the products shipped to their front door in a few clicks of a button. The simplicity, safety, and convenience offered is something that many modern consumers resonate well with. For businesses, having online stores that are able to reach millions of users at scale without having to spend on a lot of overhead costs is a big USP in itself. Third, as ecommerce platforms' marketing solutions get more mature, they offer full funnel marketing products to suit marketers and businesses different marketing objectives. From big awareness campaigns all the way to always on performance marketing. Ad products on eCommerce platforms have matured in a way that can serve specific marketing needs as well as full funnel marketing needs. Fourth, the ability to measure performance accurately. For more than 2 decades, digital marketing has been mainly done by involving one or many publishers/networks to drive traffic to another website/app. What happens next is pretty complex and presents its own challenges - without getting too technical about ad serving, Ad tracking, redirects, fingerprinting, etc - First, Advertisers are seeing a somewhat big discrepancy in the numbers of traffic they drive from publishers to the destinations. Second, it’s difficult to stitch and attribute the actual conversions to certain ads users’ see or click accurately. Third, in a multi device connected world where people move between mobile apps, to mobile web, to desktop throughout the day, the current tracking technologies have challenges to stitch users’ interaction across devices. Fourth, many advertisers use multiple advertising channels with each channel claiming their own attribution, which makes it difficult for marketers to determine which channels perform best. With eCommerce platforms these measurement challenges are almost non-existent because every channel is housed under a single tracking infrastructure and based on real user unique ID.

To close, eCommerce strategy and eCommerce marketing is no longer an option. It is a requirement to grow and thrive in the rapidly changing consumer behavior that moves towards digital in every facet of their life. Companies who can embrace this paradigm shift will surely gain competitive advantage over those who don’t.