23 Oct 12 To win in Indian e commerce business, researching tier 2 and 3 cities will be imperative

Kodungalur, Bhatinda, Bilaspur, Dinjapur, Panchkula, Nalaspora, Karamsad, Bemetara, – aren’t destinations ‘off the beaten track’ in India, instead they’re cities that have regular shoppers at online shopping portals. Surprised? No. It is the reality of the online retail market scenario in India.

E commerce snapdeal

Several online retailers have targeted the internet savvy urban population in metros and tier 1 cities like Delhi, Mumbai, and Bangalore. However, interestingly, the current growth is being fueled by tier 2 and tier 3 cities like Jaipur, Chandigarh, Jamshedpur and others. Rising disposable incomes, increased penetration of media and entertainment has created needs in these cities which are largely unmet. There aren’t any high-street, retail, branded shops to cater to the fashion tastes and aspirations of consumers in these regions. Players like Yepme (online fashion shop), Fashos.com have seen bookings of up to 70% of their orders from tier 2 and tier 3 cities. The online retail industry in India is expected to grow at a whopping 35% from INR 20 billion in 2011 to 70 billion in 2015 according to Associated Chambers of Commerce and Industry of India (Assocham). I believe that in coming times, going forward it is these areas that will definitely give the huge fillip to the online retail industry and will be very crucial to create a winning proposition in this industry.

Online players must employ analytics to understand customers and identify new markets

The Indian market has multiple target customers with different aspirations. They need different value propositions to attract them. Players that invest in understanding these consumers will have a better idea of how to modify their brands to accommodate consumer preferences. Analytics on consumer behaviour will help companies in deducing changes in consumer tastes and identifying other prospective markets for their products and services.

Knowing your customer

Creating a product offering requires an inmost understanding of the unmet needs and aspirations of the customer. I feel that companies will need to be aware of changing aspirations, to continuously evolve with these changes. For example, during a market study regional variations in colour preferences were found. Women in the south prefer green and yellow colours for traditional attire, whereas colour preferences in the north tend more towards shades of red and maroon. Product offerings that reflect these options will gain popularity. Marketing and communication needs to be tailored to attract target customers. Adjustments such as including an option for regional languages on web portals and advertising messages definitely makes the shopping experience more accessible to the consumer.

Identifying other prospective markets

Online shopping started out as a fad and has grown to a widely exercised option to offline retail shops. With a growing population shopping online, the popularity will spread to different areas and will be essential for companies to track. Tier 2 and 3 cities are highly undocumented in India and need efficient analytics to monitor changes in these markets. Tracking known metrics like disposable incomes becomes increasingly tedious and time consuming for companies. It may be more worthwhile to track other related indicators of changing tastes and emerging choices in spending. These could be, the opening of organized fast food options in these places (new Mc Donalds outlet), access to urban shopping formats (a branch of Big Bazaar in the town), private sector banks opening a branch, among other factors. All factors together suggest a changing consumption pattern.

Awareness of these factors will help e-commerce firms to focus on these markets (increasing delivery infrastructure, effective communication strategies) and increase their penetration and share. With the market changing rapidly and many players entering the fray, a continuous research effort to understand the changing needs of the audience will be the key to winning and maintaining a lead in this space.

Nidhi Purohit

Nidhi was a team leader at ValueNotes.

1Comment
  • Breaking the distribution barrier in retail?
    Posted at 18:55h, 21 March Reply

    […] Ecommerce has worked better for some product categories than others. Fashion and technology including phones, ipads, cameras, mp3 players and so on have been the key leaders so far – which makes sense, given the profile of a large chunk of internet users in India – young and tech-friendly. Internet penetration is currently at around 10-12%, but is expected to increase rapidly, and this will be a key driver for growth of ecommerce going forward. […]

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