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.