Small Cities Now A Big Market For Smartphone Biz

India, undoubtedly has emerged as the next smartphone destination worldwide, but the real growth of smartphone business lies in the rapidly developing Tier 2 and Tier 3 cities and towns. Rapid adoption of smatphones and expanding internet reach in small cities and towns are set to spearhead the next wave of growth for the smartphone market. Acknowledging the next big growth market after Tier one cities, smartphone makers as well as E-Commerce players are spreading their network in smaller cities and towns.

According to the latest report from IDC, 25 major tier 2 and 3 cities currently make up around 21.3 percent of the Indian smartphone market. The “Monthly City Level Smartphone Tracker” report stated that most of the demand in smaller cities is for 3G models, but with increasing 4G smartphone portfolio across all brands. The latest Ericsson Consumer Lab report states that with the decrease in smartphone prices, the adoption of mobile internet within the lower socioeconomic segment has increased over the last two years, from 38 percent in 2013 to 45 percent in 2015.

Shift From Feature Phone To Smartphone

There is a clear trend of migration from feature phones to low-end smartphones in smaller cities and towns, and this has fueled the growth of budgeted smartphones in smaller markets. The stiff competition among the smartphone makers has benefited end users in terms of price benefit. Ketan Mehta, who runs, mobile and computer accessories shop in Jamnagar stopped keeping feature phones in his shops 6 months back as smatphones are now available at a price of a feature phone.

“There is huge demand for budgeted smartphones and second hand high end smartphones. We sell minimum 15-25 pieces every day. The buyers are not only youngsters but farmers who are now embracing mobile technology”, Mehta said.

Mehta, however, pointed out that the brick and mortar face stiff competition from online players who offer attractive schemes and discounts on smartphones. “ Many times, customers come to our shop to understand features and buy the product online. They also question us for price parity between offline and online”, he said.

Most of the demand in smaller cities is for 3G models, but with an increasing 4G smartphone portfolio across all brands, the demand for 4G smartphones is expected to grow exponentially. “ With improved network and broadband speed the demand for 4G smartphones will further grow. Also, users especially young generation specifically demand 4G smartphones. The sale of 3G smartphones is still high in Solapur, but with the 4G rollout, the demand for 4G smartphones will rise in the next six months”, said Dinesh Naik, owner of Technomedia Enterprises.

Also Read: Online Retailers Driving Smartphone Sales In India

Despite of growing online business, the traditional offline channel is still relevant and very significant in the smaller markets. Hence, vendors are building the offline distribution network in tier 2 and tier 3 cities as they have understood that offline must go hand in hand with the online channel.

Chinese Brands Bullish Over Tier 3 Market

As Tier 1 markets saturate, the next growth frontiers for smartphone players are clearly the smaller cities and towns. Chinese smartphone vendors who are very bullish over smartphone industry in India are quick to tap market potentials in the smaller markets. According to IDC, Chinese brands have already captured more than 20 percent of the smartphone market in 25 Tier 2 and Tier 3 cities of India and are expected to penetrate further with robust offline presence. Chinese vendors are rapidly building the offline distribution network in tier 2 and tier 3 cities.

The majority of the sales for Lenovo, Motorola, Xiaomi, Oppo and LeEco are sold through online channel in smaller cities due to their superior positioning as quality brands, with a value for money proposition. Others like Oppo and Vivo are expected to grow in coming months in these markets with their huge marketing spends and increasing retail presence. Similarly, domestic smartphone players such as Micromax, iBall, Lava and Intex are also capitalizing on the business opportunities in the smaller towns. In a bid to get more traction, smartphone vendors such as Micromax offer multilingual support in their handset to connect with the local culture.

“Chinese brands are doing really good in Surat as they are at par in terms of quality and features. But Chinese smartphones do lose on the front of after sales support. But vendors have started support centers in the city which may increase the sale. The more traction is in mid range smartphones between the price tag of Rs 10,000-Rs 15000”, said Jignesh Shah, owner of Star Computers.

Also Read: Chinese Smartphone Vendors Invading India’s Smaller Cities

Considering the new growth markets online players such as Amazon and Flipkart have also expanded their geographical coverage to a surge in online buying. While Amazon has tied up with India Post to service 19,000 pincodes, Flipkart hiring delivery staff in over 1,000 cities. Flipkart has also been developing its mobile app to work under poor network conditions.

E Governance Projects Fueling Growth

Various E Governance projects are also encouraging the growth of the smartphone industry. In a bid to assist farmers, the Agriculture Ministry has taken various initiatives such as Crop Insurance, AgriMarket etc. Similarly, various government subsidies have linked with mobile numbers of users, hence, people in smaller towns and villages are increasingly buying budgeted smartphones. Here is an opportunity for smaller brands, which sell mainly feature phones and low-end smartphones in rural areas and tier-3 towns, are increasingly looking to tap basic phone users who wish to upgrade their feature phones to smartphones.

Bharti Airtel, Vodafone India and Idea Cellular are expanding their 4G networks beyond Tier 1 cities, while Reliance Jio Infocomm is expected to start 4G services later this year. Smartphone vendors have already reduced the prices of devices supporting 4G upto Rs 4000. This is further expected to encourage adoption of affordable 4G smartphones in the smaller cities.

Leave a Response