With a growth of 49 per cent YoY in their GMV in 2020, the potential of e-commerce in Indonesia has become one of the most talked-about by many people.

A study by Google-Temasek reported that the GMV of e-commerce in Indonesia is predicted to grow at a CAGR of 37 per cent from 2020 to 2025 to reach a GMV of US$146 billion in 2025.

However, despite the high growth potential predicted by many analysts, several concerns might inhibit e-commerce in Indonesia from reaching its full potential. One of which is the high unpenetrated population in non-tier-one cities in Indonesia.

Reports from KataData and Kredivo in 2020 stated that two-thirds of the total e-commerce transactions in Indonesia are coming from tier-one cities in Indonesia, which only account for 13.85 per cent of the total population.

Whereas a report from Alpha JWC Ventures and Kearney stated that in the next five years, there will be two to three potential unicorns from e-commerce, lending, and SME services that will emerge on the back of the growth of tier-two and -three cities.

This fact indeed leads to a big question on why it’s even possible and what leads to such a huge gap. The low participation of lower-tier customers in Indonesia is not strange, given the unequal adoption of technology and digital literacy between urban and rural cities in Indonesia.

Nielsen, Kearney’s analysis even stated that more than 80 per cent of the population in the non-metropolitan areas are considered laggards when it comes to adopting technology. This figure contrasts with tier-one cities where the percentage is just under 20 per cent.

The high internet penetration rate in Indonesia, which is 73.7 per cent, does not necessarily change customers’ behaviour in Indonesia easily. Therefore, those unpenetrated customers play an important role in determining Indonesian e-commerce success.

Lately, we have seen many startups target lower-tier customers with an approach to empower offline sellers and local communities that already exist. This certainly indicates that community trust and the word-of-mouth advertisement method are still the most effective in determining customer buying decisions in those regions.

For example, startups such as Mitra Bukalapak and GrabKios are trying to digitise local mom-and-pop stores, or social commerce players such as Chilibeli, RateS, and KitaBeli that utilise agents in the area to market their products.

The quite striking characteristic difference between the tier-one and non-tier-one customers has become an important foundation for the Indonesian e-commerce giant in finding a way to boost adoption for the unpenetrated customers, mainly from the non-tier-one region.

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In recent years, e-commerce players in Indonesia have been trying various ways to attract lower-tier customers into e-commerce, such as by building an entertaining platform to boost traffic, trying to maximise word of mouth strategies, and even introducing cash-on-delivery services to the smooth buying process.

Live stream feature to boost engagement and trust

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Back in April 2020, I worked as a live-streamer in an online shop selling various products through Facebook live streaming to Indonesian migrant workers in Taiwan.

Before working here, I didn’t understand why a certain type of people would like to spend their time watching long-hour live streaming to buy the products they want if online shopping can be as simple as click and buy.

Later that I know those prospective buyers like it if we as sellers could demonstrate the products we sell, such as using them or showing further details.

More than that, other viewers can sometimes give testimonials about the products. At the same time, we promote these products, so this can encourage potential buyers to be more confident and convinced on buying the products.

Live shopping was initiated back in 2016 by the Chinese e-commerce giant Taobao and slowly began to gain popularity since it mixed the convenience of online shopping with real-time engagement, such as communication between customers and sellers that could boost customers’ trust in purchasing products.

In the last few years, other players such as TikTok, Pinduoduo, and Kuaishou began adopting the same feature.

Contributing to ten per cent of total China e-commerce GMV in 2020, live shopping in China is predicted to grow double in their presentation to total e-commerce GMV in 2022 to become a 28B yuan business, according to HSBC and Qianhai Securities.

E-commerce players in Indonesia began implementing live shopping in 2019, and many use public figures, KOLs, and actresses as talents to generate traffic.

Tokopedia did this in the early days of their live shopping feature, namely the Tokopedia Play. By the time Tokopedia Play was released, they had designed this service exclusively for official sellers. They packaged it as an entertaining platform before opening the service to all sellers as it is today.

Nowadays, the average live streaming audience from the official store at Tokopedia that collaborates with KOL as talent can be watched by around 88,000 people. Tokopedia also stated that the overall live streaming could lead to an increase of up to 262x in-shop visits and drive up to 100 per cent shop’s daily orders.

Then, what is so special about the live shopping feature so it can become a new trend that shakes e-commerce?

Arun Sundararajan, an Indian economist, once mentioned in his book, The Sharing Economy that the explosion of crowd-based capitalism must also be balanced with the ability to build a “digital trust infrastructure”.

In a non-face-to-face setting, building trust involves establishing authenticity and assessing intentions.

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The introduction of live shopping in e-commerce apps allows customers to assess product authenticity and sellers’ intentions to build trust in online shopping.

The solutions offered in answering doubts about shopping online are the main contributors that could further attract new target customers and boost sales.

In-app TikTok like video sharing feature as promotional content

Short video sharing services with vertical formats have become a new trend among the world community in recent years. Yes, TikTok, as the social media that initiated this feature, has now evolved into one of the social media with the most users in the world.

In Indonesia itself, TikTok is also a very popular platform, with the number of users reaching 92.2 million users. Based on Statista data, TikTok Indonesia’s monthly active users are the second largest globally, with 22.2 million, just behind the United States with 65.9 million.

One of the Indonesian sellers and influencers on TikTok, Natasha Surya, shared tips on how she was able to sell 7617 fur carpets in less than 2 hours through her Tiktok live streaming feature.

Natasha said that a few days before the live, she always made a short video review within 60 seconds of the products that would be sold on live streaming via her Tiktok.

The videos that are made always explain the advantages and disadvantages of the product, the unique selling point of the product, and the amount of discount offered. Natasha argues that this aims to facilitate the decision-making process of prospective buyers.

Seeing the trend of selling using video-sharing as a promotional method is considered quite effective. One of the e-commerce giants, Shopee Indonesia, released the in-app TikTok-like video sharing feature in Q4 2021.

This new feature is intended to help sellers promote their products in the Shopee apps. To optimise this video-sharing feature as an effective promotional tool for attracting potential buyers, Shopee Indonesia even makes the Shopee video section one of the buttons on the main page.

Shopee video also implements a similar concept to TikTok for-your-page (FYP), where users can watch various short videos randomly distributed according to the audience’s preferences.

To attract fans of short video services to switch from TikTok to Shopee video, Shopee does not limit the uploaded content always to be related to promotions and sales. Still, Shopee video encourages various types of video content that are entertainment, like TikTok.

Opening access to everyone by cash-on-delivery feature

Since the cash-on-delivery payment method was adopted by various e-commerce in Indonesia in 2018, this payment method has increased significantly.

The COD method has become the majority of payment methods in Indonesian e-commerce, with 78 per cent of the total payment methods. This percentage is almost four times higher than all digital payment methods combined, such as bank transfers, cards, or digital wallets.

Based on data released by Central Statistics Bureau in 2019, it disproportionately shows that out of the 34 provinces in Indonesia, only the capital city of Jakarta has a preference for digital payment methods (Bank transfer, Card, or digital wallet) higher than 50 per cent.

Meanwhile, the other 33 provinces still rely heavily on the cash-on-delivery payment method. Seeing the cash-on-delivery payment method that is so dominant today, can you imagine what Indonesian e-commerce was like before this payment feature was implemented?

Uniquely, every e-commerce in Indonesia has its strategy for introducing the COD feature in its apps. For example, one of the leading e-commerce in Indonesia, Tokopedia, utilises the COD feature only as a method to gain trust and form shopping habits from new target customers. That is why this feature is only available for use a maximum of six times for each user.

On the other hand, Shopee can be said to be at the forefront of promoting this COD feature by providing a free shipping fee for the first six deliveries and even the lowest service fee compared to its competitors, which is two per cent of the total transaction value for subsequent deliveries and even coverage delivery areas are available throughout Indonesia.

Shopee does various ways to attract new target customers to use this feature. Apart from promoting free shipping, Shopee is also campaigning for the COD payment feature through advertisements on local Indonesian television.

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Using a jingle from an old Mexican song called “La Cucaracha”, they turned the lyrics into an offer to use the COD feature because it offers free shipping, and we can pay for the products we buy as soon as they arrive in our hands.

The ad also features a well-known senior Indonesian comedian carrying an orange box and singing energetically as he delivers the package to the customer.

With lyrics that are so interesting and simple, Shopee wants to make this advertisement attractive marketing psychology for potential customers to be able to sing along and finally understand the message that Shopee intends to convey.

Making advertisements with unique concepts like this is a mainstay of Shopee in attracting customers’ attention. Of course, we still remember the megastar Cristiano Ronaldo who danced baby shark in one of the Shopee advertisements a few years ago.

Big four e-commerce competition and TikTok as a newcomer with significant advantages

With the four big players controlling 91 per cent of the total e-commerce GMV, it is certainly interesting to see how the strategy of each marketplace in winning the competition becomes the best.

Shopee and Tokopedia are currently considered tier-one, while Lazada and Bukalapak are in the second tier with a large gap.

In terms of monthly active users, it was reported that Tokopedia outperformed all other marketplaces with 129.1 million. However, in terms of their transaction amount (GMV), it can be seen that Shopee slightly outperformed with US$14.2 billion, followed by Tokopedia with US$14 billion.

The data attached above certainly cannot conclude who will be the winner of e-commerce in Indonesia in the next few years. With the market for non-tier-one customers still wide open, the competition becomes very interesting. Anyone who can maximise this potential can certainly be a game-changer who will play a significant role in e-commerce in Indonesia.

Tokopedia play, which uses KOL and influencers as talent in live streaming, has succeeded in attracting customer traffic to enter its apps, as seen from the high monthly active users.

While the effectiveness of the Shopee Video in bringing new customers will also become something interesting to see, considering its efficacy on TikTok in encouraging smoothness in the buying process.

On the other hand, TikTok is also very serious about entering the e-commerce industry. This is evidenced by the introduction of the shopping cart feature and Shopee Seller University, which is a place for TikTok to educate its sellers on how to maximise their TikTok account as a platform for them to sell their products.

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The availability of live-streaming and shopping cart features will open up opportunities for TikTok influencers to sell their products directly to buyers. Seeing the number of active TikTok users today, which has reached 92.2 million, is certainly a valuable competitive advantage for TikTok in attracting target customers.

Various strategies implemented by existing e-commerce players in Indonesia to attract unpenetrated customers, the emergence of social commerce startups that focus on tier-two and tier-three, and the participation of social media platforms such as TikTok in enlivening e-commerce in Indonesia make me believe that e-commerce in Indonesia will grow rapidly in the upcoming years.

In terms of market share, I would expect the big four to drop in their dominance percentage due to the many new players entering the market.

On the other hand, the competition will also be tougher, as big players’ features, strategies, and approaches become more and more similar to one another.

Reflecting on the past, the majority of startups in SEA are willing to “burn a lot of money” as their surefire strategy in attracting new users, and in the end, only the one with the most money will survive and excel.

This is certainly a very positive thing from the customer side because shopping at e-commerce becomes easy and close to them.

The opening of COD access to all provinces in Indonesia and the high penetration of social commerce in their area will make customers better off because they have more choices and power to compare prices.

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