Get All Access for $5/mo

Tier II, III The Next Frontier For E-commerce and D2C Players According to a recent report by CyberMedia Research, Tier-II cities like Guwahati, Coimbatore, and Lucknow are leading in terms of time spent on online shopping

By S Shanthi

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Pexels

E-commerce and D2C (direct-to-consumer) businesses have come of age globally. But in India, experts had always forecasted that they would reach an infection point only when they crack and capture non-metro cities, towns and villages. And, the pandemic came as a blessing in disguise for these sectors by allowing the businesses to leapfrog many years and go beyond urban India.

These platforms are today racing ahead to capture this yet-to-be-completely tapped market. For instance, last year, e-commerce giant Flipkart said that it aims to increase its consumer base in Tier II and III cities, particularly in the fast-moving consumer goods (FMCG), home and general merchandise categories. This year, Tier II and III cities accounted for 75 per cent of the total customer base of the e-commerce major during its Great Indian Festival sale, an Amazon India spokesperson was quoted as saying by PTI.

It is not only the e-commerce giants that are tapping into these markets, but conglomerates like JioMart, Tata Digital and e-commerce startups such as Meesho, Udaan, DealShare and Nykaa are also focusing on strategies to capture these markets. D2C players are also ensuring that they get a major pie of this next set of internet consumers. To quote an example, during last year's Nykaa Pink Friday, shoppers from Tier II and III collectively accounted for 57 per cent of the purchases on Day 1.

Currently, over 60% of SUGAR's sales come from outside of metros, from small towns like Siliguri, Karnal, and Bhatinda, amongst others and we see great scope for greenfield expansion there. "Tier II and III markets remain a core priority as we aim to reach out to new customers and advertise our brand in areas that do not offer contemporary trade stores and e-commerce penetration is minimal," said Kaushik Mukherjee, co-founder & COO.

Driving factors

Internet penetration is the first and foremost reason behind the uptick in online shopping. According to various data, rural India had around 194.07 million internet users as of September 2018.

Moreover, the economic growth seen in these places has increased purchasing power and disposable income among their residents. According to a recent report by CyberMedia Research, a market research and advisory firm, Tier-II cities like Guwahati, Coimbatore, and Lucknow are leading in terms of time spent on online shopping.

"As disposable income levels increase, people are allocating more time and resources to explore and shop online. They have witnessed the success stories of others who have embraced e-commerce, leading to a growing trust in online platforms. Over time, this increased awareness and trust have contributed to higher engagement and time spent on online shopping," said Somdutta Singh, founder and CEO, Assiduus Global.

Further, logistics and last-mile delivery networks have also improved significantly in Tier-II cities, making online shopping more convenient and reliable. E-commerce platforms have invested in expanding their delivery infrastructure to ensure timely and efficient deliveries to these cities. For instance, logistics unicorn Shiprocket works closely with over 17+ courier partners at rates starting from INR 23/500g to ensure that its clients can deliver to the nook and corner of the country. We have incorporated functions such as pickup escalations and multiple pickup addresses to ensure that your product is delivered on time," according to Shiprocket.

The availability of organized retail chains and branded outlets is relatively low in these cities. "Offline shopping has always been constrained by a fundamental limitation - the need to have a sufficient population in the vicinity to support a brick-and-mortar store. The fixed operating costs associated with running a physical store make it unfeasible to establish outlets in every village and city. Online shopping has emerged as a game-changer, breaking free from the shackles of geographical boundaries. Regardless of their location, customers can now easily purchase products from online stores. This benefits not only the customers themselves but also the online retailers, particularly in Tier II and Tier III cities where marketing costs are significantly lower compared to metropolitan areas," said Ilesh Ghevariya, founder and CEO, French Crown.

Strategies Used

By targeting these regions, online retailers are using multiple strategies to target customer base that is ripe with untapped potential. For instance, they have recognized the demand for regional products and have curated a diverse range of products tailored to the tastes of these cities. "The availability of a wide selection of products, including regional specialties, has attracted residents and increased their time spent on online shopping platforms," said Singh.

Compared to Tier-I cities, Tier-II cities have certain distinguishing characteristics. For instance, Tier-II cities have a higher proportion of first-time online shoppers. "Therefore, e-commerce platforms focus on building trust and providing a seamless shopping experience to cater to these consumers," she added.

Further, in these markets, despite UPI penetration, there are still customers who prefer cash on delivery over paying beforehand. So, many companies are coming up with COD offerings. "Cash on Delivery is a relatively risk-free process of buying products and services online. It is especially true for first-time online buyers, and for products that are expensive. COD has been instrumental in the unprecedented growth of online commerce in India. It is an easy concept for the masses to understand and accept. In India, it is a payment process that is expected to stay for several years," said Shiprocket.

What Future Holds

Even though it's a huge market waiting to burst, capturing the same is not devoid of challenges. For instance, Tier-II cities often have less developed infrastructure compared to Tier-I cities. This includes transportation, logistics, warehousing, and last-mile delivery networks. "Inadequate infrastructure can lead to delays in deliveries, higher operational costs, and difficulties in maintaining consistent service levels. Companies also need to adapt their product offerings, marketing strategies, and customer service to cater to the specific needs and preferences of these markets. Localization efforts can be complex and require a deep understanding of local cultures, languages, and consumer behavior," said Singh.

Additionally, when it comes to shopping, whether online or offline, finding the perfect fit can be a daunting task. However, online stores present a unique challenge that is not commonly found in their offline counterparts - the sizing issue and the touch-and-feel experience. "As every brand has its own sizing scheme, customers can easily try on clothes in offline stores before making a purchase. This luxury is not available to those who shop online. Customers are left with no choice but to take the risk and order based on size charts and measurements provided by the brand. This can often lead to disappointment when the fit doesn't match their expectations," said Ghevariya.

Experts also say that companies need to invest in talent acquisition strategies and provide adequate training to build a competent workforce. Also, Tier-II cities often have local players that have a strong presence and understanding of the market and also enjoy brand loyalty. "Companies entering these markets need to carefully analyze the competitive landscape and differentiate themselves by offering unique value propositions and superior customer experiences," she said.

Overall, even though Tier II and III markets have changed the e-commerce dynamics forever, unleashing the full potential requires expansive structural and strategic changes.

S Shanthi

Former Senior Assistant Editor

Shanthi specializes in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. 

 

News and Trends

"45% of All Ongoing Hydropower Projects in India are Ours": Patel Engineering

Patel Engineering reported a turnover of INR 4,400 crore in the last fiscal year, with a projected 10 per cent growth for the current year.

Side Hustle

'Hustling Every Day': These Friends Started a Side Hustle With $2,500 Each — It 'Snowballed' to Over $500,000 and Became a Multimillion-Dollar Brand

Paris Emily Nicholson and Saskia Teje Jenkins had a 2020 brainstorm session that led to a lucrative business.

News and Trends

Broadcom Stock Soars on AI Growth Outlook

Broadcom's next-generation AI chips, built with advanced 3-nanometer technology, are set to debut in the spring

Leadership

Should I Stay or Should I Go? 8 Key Points to Navigate the Founder's Dilemma

Here are eight key signs that help founders determine whether to persevere or let go.

Leadership

Visionaries or Vague Promises? Why Companies Fail Without Leaders Who See Beyond the Bottom Line

Visionary leaders turn bold ideas into lasting impact by building resilience, clarity and future-ready teams.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.