With more money flowing into consumers’ pockets, the country’s urban market place has expanded from metros to smaller cities. And a report released by audit and consultancy firm Ernst and Young (E&Y) says the urban growth story that so far has been driven mainly by metros, has now expanded more into tier I, II and III towns.
As of 2001, as much as 33% of India’s urban population was located in the top eight cities, including six cities considered metros. This market also had 40% of the urban population’s disposable income. However, by the end of 2007, the share of metros had come down to about 30% of the Rs74 trillion consumption market of top 100 cities. The rest 70% came from what the report terms as key urban towns (KUTs) and the rest of urban India (ROUI).
The six metros are Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Kolkata, while KUTs comprise top 22 cities outside metros and ROUI constitutes urban cities outside metros and KUTs.
An E&Y study says rising affluence levels in India’s non-urban metro markets offer new opportunities to marketers
Titled The Dhoni Effect: Rise of Small Town India, the report says the increased affluence and the resulting change in consumption patterns in these towns have forced marketers to devise new ways of exploiting this emerging opportunity. “Traditionally, focus on top 10-15 cities has given marketers the major chunk of their business and has also resulted in limited presence in KUTs. With rise in purchasing power across KUTs, marketers are carefully spreading out to these markets in search of the next growth opportunities,” says the report.
The report cites examples from industries such as telecom where subscriber growth in the top four metros was at a scorching 58%, but at a much higher rate of 93% in the rest of India. “The volume growth in subscribers is, thus, coming from KUTs and ROUI.”
The low penetration level of products and services in KUTs and ROUI presents a unique opportunity for growth for marketers, the report says. “We are witnessing a whole new opportunity in the non-metro urban markets where the rising affluence levels and changing consumption patterns are opening doors for marketers to service the new aggressive opportunity,” says Ashok Rajagopal, partner (media and entertainment practice) at E&Y.
The report, however, points out that despite increased consumption in towns outside metros, media investments, or the spends made by marketers on their advertising and promotions, have not grown in proportionate terms. According to the report, 60% of media spends still go to the six metros in the country. This, the report points out, will need to change in the near future.
The analysis highlights that increased marketing spends would be necessary to ensure increased product and service penetration in markets outside the metros.