D2C brands are using their unique model to reach consumers in Tier 2 and Tier 3 cities, offering them access to high-quality products and services that were once only available in urban areas.
In a rapidly evolving business landscape, Direct-to-Consumer (D2C) brands have emerged as pivotal players in the dynamic Indian market. Their role in bridging the divide between urban, semi-urban, and rural regions of India is becoming increasingly prominent. By adopting a direct online sales approach, D2C brands are successfully extending their reach to consumers in smaller towns and cities, where traditional retail outlets may be scarce.
The significance of D2C brands in India transcends mere commerce; they are poised to revolutionize the consumer landscape in Tier 2 and Tier 3 cities. Their value proposition lies in offering top-notch products and services at competitive price points, granting consumers in these regions the same access to quality offerings that their urban counterparts enjoy.
Challenges and Opportunities of Catering to Consumers in Tier 2 and Tier 3 Cities in India
One of the biggest challenges for D2C brands catering to consumers in Tier 2 and Tier 3 cities is the lack of infrastructure. Many of these cities have limited access to reliable internet and transportation, which can make it difficult for consumers to shop online and receive their orders. Additionally, consumers in these cities are often more price-conscious than their urban counterparts.
Despite these challenges, there are also significant opportunities for D2C brands in Tier 2 and Tier 3 cities. These cities are home to a large and growing population of middle-class consumers who are increasingly interested in shopping online. Additionally, consumers in these cities are often more brand-loyal than urban consumers, once they find a brand that they like.
Mr. Raghunandan Saraf, Founder and CEO of Saraf Furniture, said, “These regions offer immense potential due to their large populations and increasing disposable incomes. However, there are logistical and infrastructural challenges that can complicate reaching these consumers. These challenges include establishing efficient supply chains, navigating diverse cultural preferences, and addressing limited internet connectivity in some areas.”
Moreover, he emphasized the significance of localized marketing strategies and after-sales support. He highlighted that despite these challenges, considerable opportunities exist. He drew attention to the fact that Tier 2 and Tier 3 cities are experiencing a surge in aspirational consumers who are actively seeking quality products. He underscored the idea that D2C brands can capitalize on this demand by delivering value-driven propositions and tailoring personalized experiences.
Ms. Shalvi Govil, Head of E-commerce & Operations of The Indian Garage Co., mentioned the key challenges and opportunities of catering to consumers in Tier 2 and Tier 3 cities in India.
Challenges
Awareness and Brand Perception:Building brand awareness and establishing a positive perception among consumers in these cities can be challenging.
Price Sensitivity: Consumers in Tier 2 and Tier 3 cities tend to be price-sensitive and have limited purchasing power.
Distribution and Supply Chain: Setting up an efficient distribution network in these cities can be challenging due to limited infrastructure and connectivity. Maintaining a consistent supply of products to meet demand can also be difficult.
Cultural Diversity: India has diverse regional cultures, and brands need to understand the preferences and tastes of consumers in different cities. They may need to adapt their product offerings to suit local preferences.
Opportunities
Growing Middle Class: Tier 2 and Tier 3 cities in India have a rapidly expanding middle-class population with increasing disposable income.
Untapped Market Potential: Many Tier 2 and Tier 3 cities in India are relatively untapped by fashion brands, offering a first-mover advantage and the opportunity to establish market dominance.
Rising Urbanization and Changing Lifestyles: As urbanization increases in these cities, there is a shift in consumer lifestyles and preferences. This presents an opportunity for fast fashion brands to cater to the fashion-conscious urban population.
Digital Penetration: With the rise of internet penetration and smartphone usage in Tier 2 and Tier 3 cities, e-commerce platforms provide a cost-effective way for a brand to reach a broader consumer base and overcome distribution challenges.
Localization and Customization: Brands can leverage the cultural diversity of these cities by offering localized products that align with regional tastes and preferences. Customization options can also enhance the brand’s appeal and cater to individual consumer choices.
“Overall, while there are challenges, fast fashion brands like The Indian Garage Co., catering to consumers in Tier 2 and Tier 3 cities in India can benefit from the growing market potential, changing lifestyles, and the availability of digital platforms,” she added.
D2C Brands Are Bridging the Gap Between Urban, Semi-urban, and Rural India
D2C brands are using a variety of strategies to bridge the gap between urban, semi-urban, and rural India. One common strategy is to offer regional language support. This makes it easier for consumers in non-urban areas to shop online and understand the product information. Additionally, many D2C brands are partnering with local retailers to offer offline sales and customer support. This helps to reach consumers who may not be comfortable shopping online or who do not have access to reliable internet.
Mr. Saraf said, “At Saraf Furniturе, we see our D2C brand as a bridgе that connеcts urban, sеmi-urban, and rural India. One of our kеy stratеgiеs is to leverage thе digital rеvolution in India, making our products еasily accessible onlinе. Wе hаvе invested in user-friendly websites and mobilе apps that catеr to a widе rangе of consumеrs, including thosе with limitеd intеrnеt connеctivity. Furthermore, we offer a divеrsе product rangе that catеrs to various tastеs and prеfеrеncеs, еnsuring that our furniturе appеals to both urban and rural sеnsibilitiеs. Additionally, we have established rеgional warеhousing and fulfillmеnt cеntеrs to еxpеditе dеlivеriеs to Tiеr 2 and Tiеr 3 citiеs, еnsuring a sеamlеss customеr еxpеriеncе. Our customеr support tеams arе trainеd to addrеss local concerns and prеfеrеncеs, fostеring trust and loyalty among our customеrs in thеsе rеgions.”
Similarly, Ms. Govil also mentioned that they have a comprehensive approach that involves tailoring products to match local tastes, ensuring affordability for price-sensitive consumers in semi-urban and rural areas. Additionally, there are offline touchpoints established through our collaboration with Fashion Factory, and our digital presence spans our e-commerce website and partnerships with local online marketplaces.
Advice for D2C Brands Looking to Expand Their Reach to Tier 2 and Tier 3 Cities
For D2C brands that are looking to expand their reach to Tier 2 and Tier 3 cities, it is important to understand the unique needs and preferences of consumers in these markets. It is also important to invest in regional language support and offline sales channels. Additionally, D2C brands should focus on building trust with consumers in these markets by offering high-quality products and services at competitive prices.
Mr. Saraf also advised D2C brands targeting Tier 2 and Tier 3 cities that are looking to expand their reach.
Invest in understanding thе local markеt dynamics, including consumеr behavior, prеfеrеncеs, and spеnding pattеrns. This knowledge will bе instrumеntal in tailoring your product offеrings and markеting stratеgiеs to rеsonatе with thе targеt audiеncе.
Focus on building a robust and еfficiеnt supply chain network. Timеly and rеliablе dеlivеriеs arе crucial for gaining the trust of customers in thеsе rеgions. Collaborating with local logistics partnеrs can oftеn bе a wisе choicе.
Invеst in customеr еducation and support. Many consumеrs in Tiеr 2 and Tiеr 3 citiеs may bе nеw to onlinе shopping, so providing clеar guidancе on how to placе ordеrs and accеss aftеr-salеs support is еssеntial. Building trust through еxcеllеnt customеr sеrvicе is kеy to long-tеrm succеss.
Bе patiеnt and adaptablе. Expanding into thеsе rеgions may takе timе, and thеrе may bе unforеsееn challеngеs. Adaptability and a willingness to itеratе on your stratеgiеs arе critical for succеss in this divеrsе and promising markеt. With the right approach and a commitmеnt to understanding and sеrving thе uniquе nееds of consumеrs in Tiеr 2 and Tiеr 3 citiеs, D2C brands can unlock significant growth opportunities in India’s hinterlands.
With the right approach and commitment to understanding and serving the unique needs of consumers in Tier 2 and Tier 3 cities, D2C brands can unlock significant growth opportunities in India’s hinterlands.
A wise man once said – ‘Good Marketing makes the company look smart, whereas Great Marketing makes the customers feel smart’.
Yes, the customers are definitely going smarter by the day, and all of this is not just led by the technological advancements and innovations that we are seeing globally, today’s industries, entrepreneurs and marketers also play a significant hand in it.
One of the best examples is India itself, which is the next big thing in terms of startups and entrepreneurs, who are growing each day, and that too with the aim of gearing the country ahead in the global canvas.
Entrepreneurship in India today is no longer a myth. According to the Global Entrepreneurship Monitor (GEM) India Report (21-22) entrepreneurship in India has noticeably expanded in the past few years. The Total Entrepreneurial Activity rate, which is the percentage of the adults who are starting up with or running a new business has increased from 5.3% in 2020 to 14.4% in 2021.
The Growing Penetration in Tier 2 and Tier 3 Markets!
Though the Tier 1 cities of India have always been the regions to pilot for the entrepreneurs and startup founders from across the world, the entrepreneurs of India are not simply satisfied with the penetration in the first-class cities of the country. They are focusing largely on Tier 2, Tier 3 cities, and beyond.
As per the recent census, India has registered a total of 4000+ towns, and only 8 cities among them are classified as Tier 1. So, it can easily be realised that a considerable section of the Indian population resides in Tier 2, Tier 3 cities and more.
The IT industry was one of the first to realise the potential of Tier 2 and Tier 3 cities in India. This happened when they found that the Tier 1 cities have reached a saturation point. The startups of India have largely caught up with the changing trends. Besides, being geared up with the new-age Government of India schemes like Digital India, Startup India initiatives, and more, the Indian government has also joined forces with the status and entrepreneurs of today to gift India a golden future that the whole of India can enjoy!
20% of Indian startups belonged to Tier 2 and Tier 3 cities of India in 2017
Only 20% of the startups came from the tier 2 and tier 3 cities of India when reported in 2017. This was a growth from 16% of the startups of India, which came from the tier 2 and tier 3 cities of India. These numbers rapidly rose up to become 50%, as per April 2022 reports.
The penetration of the Tier 2 and Tier 3 markets today is on a rise holding the hands of the unicorn startups of India and all other budding startups and promising ideators of the country.
Research conducted in 2019 pointed out that out of over 16,000 startups registered in India then, nearly half of them have their business centres in smaller Indian cities.
Why are the Startups and Entrepreneurs choosing Tier 2 and Tier 3 Markets of India?
Numerous industries and startup founders are looking to penetrate the Tier 2 and Tier 3 markets of India because of more than one reason. Some prominent ones are:
Growing competition in the Tier 1 cities
Lack of employment in Tier 2 and Tier 3 cities
Gaining more audiences/customers in these cities
Improving the Tier 2 and Tier 3 cities
Expand their businesses
Affordability in Tier 2 and Tier 3 cities
Support of the Indian government to start up in these cities
The growth of startups and startup initiatives in these smaller towns in India are not only proving to be effective for the startup founders and entrepreneurs. The Tier 2 and Tier 3 cities are also reaping significant benefits due to the advancements taking place there.
Advantages of Tier 2 and Tier 3 Cities with Growing Startups and Entrepreneurs’ Focus on Them:
Some of the major benefits that the Tier 2 and Tier cities of India are enjoying with the improvement of industries and markets for startups and other companies in India are:
Upliftment of the standards of living in Tier 2 and Tier 3 cities
More income to the people living there
Access to quality goods and services
Improvement of facilities
A reduced movement to the Tier 1 cities
A reduced dependency on imports
It ultimately boils down to the marketers and entrepreneurs of the country, who would actually be there and advance the growth of the industries in Tier 2 and Tier 3 markets of India.
Here are some of the glimpses of some major companies that includes the Indian unicorns, who have actually proved that the Tier 2, Tier 3 and Tier 4 cities are marketable enough in these modern times:
DailyHunt
The business model of DailyHunt largely banks on the sharing of vernacular language content, a majority of which is spoken in tier 2, tier 3 cities, and beyond in India. So, though Dailyhunt is headquartered in a Tier 1 city, Bengaluru, the company focused on the other cities right from the start. Besides, its acquisition of companies like LocalPlay, a hyperlocal platform for video and news content, is also in line with its objective of boosting its hyperlocal presence in Tier 2, Tier 3 and Tier 4 geographies of India along with cementing its present position as a leading local language content discovery platform.
Moj
Owned by Mohall Tech and headquartered in Bengaluru, Moj is an Indian video-sharing social networking platform that supports 15+ languages. Much like Dailyhunt, Moj’s business model also revolved around video content sharing in vernacular languages, which itself targetted the cities beyond the Tier 1 cities of India. Furthermore, the banning of the viral Chinese video sharing platform TikTok on June 29, 2020, also played an angel’s hand is lifting the platform up to help India emerge as an Aatmanirbhar country.
Did you know the downloads of the Moj app crossed 50K in Google Play Store in just 2 days?
Paytm
The Vijay Shekhar Sharma-founded fintech company that focuses on UPI payments and other services including banking, eCommerce services and more, is not only known to the Tier 1 cities but is famous beyond them as well.
Speaking on its penetration in tier 2 and 3 cities of India, Paytm revealed that around 50% of its userbase is from the smaller cities of India – Panipat, Rohtak, Pondicherry, Surat, Ranchi and more. This remarkable feedback that Paytm has pulled up is largely attributable to its multilingual app and the growing demand for easy UPI transactions, which are conveniently done via our phones, irrespective of their types.
Flipkart
Walmart-backed Flipkart is a leading ecommerce company, which not only cares for their customers in the Tier 1 cities of India. When last reported on June 17, 2021, Flipkart revealed that over 52% of its customers come from the tier II and beyond cities. This increase in penetration in Tier II, Tier III cities, and beyond has been a combined result of the promising opportunities that these cities have and the zeal to expand the reach of the company.
Cosmetics and Beauty Products Companies like Sugar Cosmetics, Nykaa and more
Gone are the days when cosmetics and beauty products and services were restricted to the Tier 1 cities of India. Beauty regimes are now a significant part of the daily routine and vocabulary of millennial women, regardless of where they hail from. With the rapid penetration of smartphones in the smaller cities today, the women in tier 2, tier 3, tier 4 cities, and beyond are not behind even by a step from their Tier 1 counterparts.
Reports revealed that over 15% of the occasional cosmetic users who belong to the secondary and tertiary cities have tried their first face primers, foundations, BB creams, and more in the past 2-3 years. The online beauty marketplaces like Sugar Cosmetics, Nykaa, and more have a large hand in it though, who have actually made shopping for cosmetics and beauty products, availing of beauty services, and more, easier by bringing them online. The Covid-19 pandemic breakout, along with bringing the great resignation, major recessions, economic breakdowns, layoffs, and more such calamities, has also helped industries and individuals grow in many ways. One of such benevolent effects of the coronavirus pandemic is that it ushered in a new period of work from home where the countries and the working professionals living in them learned about the potential of the internet and were more close to the things happening online. An inclination to purchase cosmetic products also increased this way.
To know how businesses market to their audience in Tier 2 and Tier 3 cities, StartupTalky reached out to entrepreneurs from diverse fields. Here’s what we got to know about how they market to people in Tier 2 and Tier 3 cities:
Amit Nigam – COO & Executive Director, BANKIT
Amit Nigam – COO & Executive Director, BANKIT
BANKIT tries to reach the tier 2 and tier 3 segment of the audience through retailers who are already familiar with the customer and can reach them more effectively. This helps in overcoming the most common challenge that companies face while reaching consumers in Tier 2/3 areas: Gaining their trust.
Shalabh Upadhyay – Founder & CEO, NEWJ (New Emerging World of Journalism)
Shalabh Upadhyay – Founder & CEO, NEWJ
The future of online media will be defined by those who create content, produce stories in the language which the masses understand. And that’s what we precisely do at NEWJ. Within a short period of two years since inception, we have grown our regional network base to 12 languages (including English and Hindi). Our in-house data capabilities help us build predictive models on the content consumption patterns across social media. Our state-of-the-art tech architecture collates user consumption & computer vision data to derive insights and patterns on how a content piece will perform. This enables us to connect with and market our content effectively.
These cities are seeing increasing attention and fast infrastructural growth. You now have state-of-the-art warehouses coming up on what used to be farmland. When we create content for these audiences, we use our expertise to explain the process, i.e., what has to be done, along with why it has to be done-why keeping something chilled matters or why a bar code matters, why it’s important to be able to trace something. So you have to explain much more of the context.
Then there is language to consider that requires a constant feedback loop and intelligent design to ensure that the platform’s UI is flawless and simple without being simplistic.
Building presence in these markets requires a different approach as growth in awareness may be slow. As mentioned above we’re doing that via distribution partners which may include certain tech companies soon. CSR initiatives on behalf of certain trusted names in the logistics space have also allowed for our outreach to increase in these locations.
Sudha Anand – Founder, Swaas
Sudha Anand – Founder, Swaas
Social media like Facebook and Instagram are the best modes to reach to tier 2 & 3 customers, said Sudha Anand, Founder of Swaas.
Here are some of the points highlighted by the Founder of Teach My Lesson:
Clearly articulate the value offered in plain terms
Price solutions aptly. Price is often the proxy for quality, and solutions priced considerably lower than the benchmark are seen as not trust worthy
Leverage locally accomplished individuals to endorse the brand and build credibility. Related to this, use local micro-influencers and not mega influencers.
Make customer ratings and review visible and vocal; everyone relies on reviews
Deliver on the promise – the customer journey need an enjoyable yet straightforward. Under promising and overdelivering is better than vice versa
India is progressing, and customer expectations are high across tiers, ‘Chalta hai’ ab nahi ‘Chalta hai’
Thankfully, with the advancement of technology, Tier 2 and Tier 3 cities have proper access to the Internet today. With the campaigns that we run and the marketing we perform, it is easier to spread the word to our target audience regardless of their City-tiers.
Amit Agarwal – Founder & CEO, OckyPocky
Amit Agarwal – Founder & CEO, OckyPocky
With regards to the marketing approach in Tier 2 and Tier 3 cities, building local partnerships helps majorly to gain trust but we also focus on digital marketing and content marketing with a vernacular approach to find paying audience.
Raj N – Founder, Zaggle
Raj N – Founder, Zaggle
Brands need to innovate exclusively for rural consumers because the values and sensitivities of the rural audiences are a stark contrast to that of their urban counterparts.
Tanul Mishra – CEO, Afthonia Lab
Tanul Mishra – CEO, Afthonia Lab
The pandemic has resulted in a lot of changes on the ground. One of the most prominent of these is reverse migration and increased online buying in Tier 2 and 3 cities. On one hand, several kirana stores across cities and towns pivoted online, while on the other, many young professionals and graduates moved back to their towns driving rural consumption and demand. Established players like Flipkart and Amazon, through Samarth and Flipkart Wholesale and Prione respectively, are betting heavily on the rural entrepreneurship story.
The tier III environment is immensely different from tier I and II and therefore, communication to potential customers requires a specialized and integrated approach. Indian market is very diverse and demands regional connectivity. OTT (Over the top) players like Netflix, Amazon Prime Video, ZEE5, etc., are expected to spend Rs. 150 crore this year. We can see the push that is given by global companies towards local languages to enter the market of Bharat. Similarly, fintech industry is also expected to provide local language support and focus on user interface which is seamless and intuitive to expand its user base.
Mahadev Srivatsa – VP of Marketing & Brand Strategy, Practically
Mahadev Srivatsa – VP of Marketing & Brand Strategy, Practically
Marketing is always audience-led and the strategy has to involve a mix of the best mediums through which one can reach relevant audiences. Considering the emphasis that Indians place on education, keeping respective market nuances aside, the core TG for Practically i.e parents of kids aged 11 to 17 and the kids themselves, exhibit the same need across markets, and that is ‘a need for innovative learning’. To reach out to them, in the COVID era, the most impactful mediums of marketing have been TV and Digital. In pre covid era, BTL activations in such markets have acted as a crucial support to the main campaign. Radio & Print (regional) can also be looked at to effectively drive awareness among these audiences & build credibility. The key is to understand the touch points of your product, study customer journey and effectively strategize marketing for this segment. The correct choice of medium matters the most.
Conclusion
From leveraging locally accomplished individuals to personalizing linguistic features, entrepreneurs are leaping well above their grounds to rightly market in Tier 2 and Tier 3 cities. Hope their views gave you an insight into how to market in Tier 2 and Tier 3 cities.
FAQs
What are tier 2 and tier 3 cities in India?
The Tier 1, Tier 2, Tier 3 cities and beyond are simply the classifications of the cities of the country on the basis of development. Hence, the most developed cities in India are the Tier 1 cities, then comes the Tier 2 cities, and so on.
What are some of the business ideas in tier 2 and tier 3 cities?
The tier 2 and tier 3 cities are growing with the increased absorption of the internet and the modern initiatives and schemes by the Government of India to improve the cities beyond the first-class cities in India. Here are some of the most promising business ideas for growth in tier 2, tier 3, and more cities of India:
Financial firm
Advertising company
Beauty salon
Grocery store
Consulting company
Real estate business
Food delivery company
Farms
Nurseries
Manufacturing units
Clothes business
Consultation company
Logistics company
What are some of the Indian companies that are focusing on the Tier 2 and Tier 3 cities of India?
Most of the companies today are focusing on the Tier 2, Tier 3 cities and beyond in India. Some of the most prominent companies that are encouraging customers from Tier 2 and tier 3 cities are Paytm, Moj, Flipkart, Dailyhunt, Nykaa, Sugar Cosmetics, and more.
Which industries are foraying into tier 2 and tier 3 cities in India?
There has been an increasing foray into the tier 2 and tier cities in India in the past few years. Some of the major industries that have already entered the tier 2, tier 3, and tier 4 markets in India are:
Gaming
Fintech
Real estate
UPI
Edtech
Entertainment
News
Fashion
Food delivery
Logistics
Crypto
How many startups have their reach to the cities beyond the tier 1 cities of India?
As per the recent survey results, out of all the startups thriving in the country at present, around 50% of them have their reach, their business centres, in the tier 2 cities and beyond in India.
StartupTalky
