30 Oct 13 Leveraging Opportunities in Tier II and Tier III cities in India

A number of tier II and III cities like Jaipur, Nagpur, Bhopal, Chandigarh, Coimbatore, Ludhiana, Mangalore, Indore and Kochi, have come into reckoning as the growth drivers of the future. They are attracting large investments as they possess a significant cost advantage – in terms of land prices and manpower. Further, the government is also upgrading the infrastructure by introducing policies on SEZs, National Investment Manufacturing Zone (NIMZs) and improving public transport, airports, etc.

This year, thanks to good monsoons, the agricultural incomes are expected to increase. The agri-GDP for the Agricultural Year 2013-14 is expected to be 2.5 – 3 times higher than the previous year. Since many tier II / III cities are largely agrarian driven, it translates to higher disposable incomes in these cities.

As tier I markets have reached saturation, companies across sectors from hotels to automobiles to luxury goods, are now looking at these markets for future growth.

Customized Sales and Marketing strategy for Tier II and III cities

Companies moving to markets in smaller cities in India need to develop new strategies and formulas for these markets as they have some inherently different characteristics.  One cannot treat the Tier II and Tier III markets, simply as an extension of their tier I markets.  A sales and marketing strategy devised for metro cities may not necessarily work for other cities.

  • Tier II / III consumers are not as well researched as Tier I counterparts

With low penetration, internet in India still remains a tool accessible largely by metro and tier I city consumers. Therefore, these consumers come well researched prior to the purchase of any product, technology or service. Compare this to consumers in tier II / III cities who are largely accessing the internet through their mobile phones, and rely on personal opinion rather than an ‘internet opinion’.  A company’s sales force should be ready to handle such ‘unprepared’ customers and educate them about their product portfolio.  A successful implementation of this small virtue would ultimately get them life-long customers.

  • Different set of Influencers present in Tier II / III cities

Consumers in tier II / III markets generally rely much more on recommendations of relatives, neighbours, friends, compared to the tier I consumers. The changing influencing patterns imply that companies need to rely less on social media, focus more on advertising in local language and conduct various customer related activities.

  • First time buyers v/s Upgraders

Since saturation levels in tier I cities are high, the consumers there are more likely to look for upgrades. On the other hand, tier 2 cities will have greater number of first time buyers of products, technology or services. Say for example, a tier I consumer might look to upgrade from a LED to a High Definition LED TV, while a tier II consumer may be looking to buy his first LED TV!  Therefore, companies need to focus on the right products for each market.

Further, innovative business models go a long way to help companies penetrate the market. A recent example is Micromax which has been successfully able to tap the tier II and rural markets of India by offering features like water resistant, dual SIM cards and long battery life for their phones. This has enabled them rise to the second position in smart phones in India after Samsung.

Essentially, companies that are looking to penetrate tier II and III markets need to develop appropriate products and sales & marketing strategies and business models, suited to the market. The tier II / III markets are the definite growth drivers for the future and a good local market intelligence framework would help in the successful ascension in this market.


Rohan Jain

Rohan was part of the ValueNotes solutioning team, where he helped create and design business proposals. Prior to that, he was in the research team.

  • Varun Motwani
    Posted at 19:57h, 04 February Reply

    Hi Rohan,
    The information and the kind of work that you guys have done is really very pleased
    I would be really pleased if you can provide some information regarding, how to penetrate with a bang in the market with a new brand of packaged drinking water?

  • abhilash
    Posted at 10:44h, 29 May Reply

    hi roshan,
    This is Really informative article post. Thank u for posting. I would be grateful if u could provide me some more detailed statistics on mobile internet penetration in tier 2 and tier 3 cities. I am working on project related to pharmaceutical industry in tier 2 and tier 3 cities, I need some reliable information on smart phone penetration in those cities.

  • Hey rohan
    Posted at 04:05h, 18 March Reply

    Could you help me out, in strategies for how to penetrate in teir3 cities in retail market.
    Cheap and easy ways of marketing.
    As you are from marketing background, please let me know.

    CA Mayank Garg

  • Panduranga
    Posted at 16:34h, 19 January Reply

    which are the tier3 places near Mysore Karnataka and analysis for the year 2014

    • Rohan Jain
      Posted at 05:51h, 20 January Reply

      Few examples of Tier II and Tier III cities in and around Karnataka include – Trichy, Madurai, Trivandrum, Kochi, Mangalore and Coimbatore.

      Regarding the 2014 outlook for Karnataka, the state government is expected to roll out their next industrial policy starting this year.

      With Bangalore as the epicentre of manufacturing in Karnataka, there are plans to scatter the manufacturing sector by setting up garment factories in tier 2 and tier 3 cities.
      Local language BPO’s are also expected to drive the growth of tier 3 cities in Karnataka.

      As of December, 2013 the Ministry of Commerce and Industry has approved the setting up of 3 National Investment and Manufacturing Zones (NIMZ) in Bidar, Tumkur and Gulbarga. The one coming up on 12,500 acres of land at Tumkur will predominantly host component makers for automobile, aerospace and allied sectors. Another NIMZ has been proposed for Kolar.

      The upcoming Information Technology Investment Region (IITR) at Devanahalli will also be given a NIMZ status to attract investments in the knowledge and education sector.

      These are few developments expected to drive growth in and around Karnataka.

      For an overall outlook towards research trends in 2014, please have a look at our CEO’s blog –


  • Mr.Valia Vinay
    Posted at 08:41h, 05 November Reply

    Which are tiere 2 cities near Mumbai?

    • Rohan Jain
      Posted at 12:09h, 05 November Reply

      Pune would probably be the closest tier 2 city to Mumbai. Other tier 2 / tier 3 cities in Maharashtra include Nashik, Amravati, Aurangabad, Nagpur, Solapur, Kolhapur amongst others. Maharashtra as a state also has one of the larger pool of tier 2 and tier 3 cities in India.

      • Rishabh Jain
        Posted at 07:13h, 17 February Reply

        Hi Rohan,
        Can you help me with some statistics on tier II & III cities and opportunities they are holding for online retail industry. (primarily online fashion/apparel market)

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