SAMILSAMILJOURNALJOURNALSAMIL News CoverageOnline & PrintApril 2016

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April 2016

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One Click Media

Companies target Tier 2&3 Cities

Tier 2&3 cities are the booming business markets among the Indian companies. Dr. Ravi

Lalwani explores the opportunities and new trends in regional marketing…

India is a huge country in terms of geography and comprises of thousands of small towns,

classified as tier 2, tier 3, tier 4, etc. The large number of such towns means that there is a

huge population, implying a huge customer base that purchases all kinds of FMCGs, durables,

services, etc. Are companies making the most of the opportunity in these towns and cities?

A report by the Indian Brand Equity Forum says that by 2018, the Indian retail sector is likely to

grow at a compound annual growth rate (CAGR) of 13% to reach US$ 950 billion. Food and

grocery is the largest category within the retail sector with 60% share followed by the apparel

and mobile segment.”

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A discussion with a few of the Indian companies reveals that they have extensive expansion

plans that intend to cover up all the major and minor locations of the country. Take Shriram

Automall for instance – it has 56 well structured Automalls ranging from national highways to

the remotest corners of the country. Furthermore, the company has a goal to inaugurate 70

Automalls by end of the FY 2016-17. Sameer Malhotra, CEO, Shriram Automall share the

company’s presence and markets: “We receive 20% of our business from tier2&3 cities,

among the overall business in India. Trichy, Madurai, Pondicherry, Salem, Tirunelveli,

Coimbatore, Vijayawada, Warangal, Visakhapatnam, Hubli, Nellore, Patancheru and

Rajahmundry are the top markets, which generates majority of the business for us. Agricultural

equipment, passenger vehicles and 2-wheelers are the popular pre-owned vehicles in these

markets.”

He also shared the expansion plan: “We are planning to expand our business in cities like

Agra, Aligarh, Coimbatore, Dhanbad, Mangalore, Nagpur, Nashik and Solahpur.”

SPECIAL FOCUS ON NORTHERN AND WESTERN MARKETS

Liberty Videocon General Insurance has its presence across all the tier 1, major tier 2&3 cities

of India. Roopam Asthana, CEO and Whole Time Director at Liberty Videocon shared the

details of the potential markets for the company: “We will open our new offices in Jamshedpur,

Durgapur, Patna and Dehradun.”

Online taxi aggregator My Taxi India.com receives around 30-40% from tire 2&3 cities of India.

Anshuman Mihir, Founder and CEO at My Taxi India.com shared: “By end of 2016, we will

provide our service in 68-70 new cities of the country, and will be focusing on growing markets

in the state like UP, MP, Bihar and Rajasthan.”

Manpasand Beverages has a wide distribution network that focuses on semi urban and rural

markets across 24 states that includes 200 super stockiest and 2000 distributors. Dhirendra

Singh, CMD of Manpasand Beverages shared his geographical expansion plans: “Initially we

had focused on rural areas of north India however, now our products are also available in

urban markets. The company receives majority of its business from north and western India. In

the coming months the company will be expanding its business in the southern and north-

eastern parts of the country.”

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The expansion plans of these companies seem to have maximum focus on northern India.

This implied that the market is huge but under-penetrated.

METRO VERSUS TIER 2&3

Tier 2&3 cities markets are underpenetrated, but are growing due to rise in disposable income

of the customers in these areas. The markets in tier 2&3 cities are largely less cluttered.

Dhirendra shared his views on weak distribution linkages: “Customers in tier 2&3 cities are

price sensitive, and the market has weak distribution linkages.”

Roopam shared his views on how technology and data accessibility will play a crucial role in

distinguishing metro and non-metro customers: “The imperative distinction between two sets of

consumers is that, metro customers usually do research before purchasing any product. The

democratization of data access would surely change the dynamics in near future. Nowadays

availability of the low cost smart phones is bringing an evolution among customers, for

accessing the required information about the product before purchasing it. However customers

in tier 2&3 cities mainly rely on personal opinion rather than searching the information about

the product on internet. The word of mouth plays a very crucial role in tier 2&3 markets, and

insurance policies purchasing decisions are mainly depended upon recommendations of

relatives, neighbors, and friends, compared to the tier I consumers.”

There is also major difference between the choice of the product and language preference in

the urban and tier 2&3 customers. Sameer explained: “Customers from metro cities are

relatively easier to convince and persuade. They don’t come with a specific vehicle

requirement, and can purchase other available vehicle, in case of unavailability of a specific

model. They prefer to communicate in English language and it takes less time for them in

making a buying decision. The pre-owned passenger and trucks are popular among metro

customers. On the other hand the customers from the tier 2&3 cities are more rigid on the

choice of vehicle they want and they prefer to communicate in their regional language.

Generally they take some time before selecting the vehicle of their choice. Tractors and

passenger vehicles have a major share in these markets.”

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These clear distinctions between metro markets and regional markets means that companies

cannot blindly expand with the existing set of sales processes and techniques. Customization

and refinement to meet the demands of the tier 2&3 city customers is imperative for success.

DIRECT AND INDIRECT REGIONAL MARKETING

Direct marketing is one of the most successful channels for targeting the tier 2&3 city

customers. Sameer shared the details of the other marketing channels: “We also use other

marketing channels like putting our company canopy in local markets, distribution of handbills

through local newspapers, and we also send the details of our upcoming events through SMS

and emails to our regional customers.”

Manpasand Beverages uses direct promotional initiatives, celebrity endorsements, television

advertisements and outdoor hoardings. Dhirendra said: “We offer a scheme to distributors and

retailers to purchase cooling accessories such as fridges and iceboxes at discounted prices to

create value proposition among the retailers. These accessories prominently display our

company products.” Liberty Videocon uses ODH, radio advertising, regional newspapers, news

portals, social media, etc, to targets its insuree.

REPAYMENT OF LOANS ON TIME

New generation Non-Banking Finance Companies (NBFCs) are increasing their focus on

tier2&3 cities to expand their businesses. According to Ashish Kohli, Head for Small & Medium

Enterprise Business at IndoStar Capital Finance: “For NBFCs, tier 1 cities are comfort zones.

But due to compression in interest rates and increasing competition in tierI cities, NBFCs are

looking at other cities like Pune, Jaipur, Indore, Coimbatore and Ahmedabad to tap the SME

sector.”

He further commented on loan repayment: “The repayment capacity of professionals, such as

doctors, in tier 2&3 cities is better, as there is less competition for their skill. Besides, lending to

them is more beneficial as they can recommend more borrowers/customers. We cater to

traders, manufacturers and professionals like doctors and chartered accountants (CAs).

Jodhpur has more CAs than Mumbai; they need capital with higher tenor which will reduce

their EMI burden.”

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