This Festive Season Why is Amazon Targeting Tier II and Tier III, Indian Markets?

Gearing up for their Great Indian Festival sale, the e-commerce giant, Amazon is expecting fresh customers especially from the Tier II and Tier III cities. Amazon India announced the expansion of its own delivery network in Uttar Pradesh, including Lucknow, Kanpur, Allahabad, Agra and Meerut.

Awanish Singh, Director Last Mile Operations Amazon India said that to penetrate deeper into the smaller towns the growth of the delivery network was required.

Singh states, "We believe that customers, no matter where they reside or are located, value fast and reliable delivery. We have expanded our delivery network in UP and this will enable us to better serve our customers and also support our prime customers with free and fast delivery, especially for the upcoming festive season.”

He further adds that this growth in the delivery network will also create numerous opportunities for local entrepreneurs to scale their business to greater heights under 'Amazons Service Partner' and 'I Have Space' programme.

Here are a few reasons why India’s Tier II and Tier III markets are becoming a hot favorite market option for e-commerce companies:

Higher Population:

According to a report by Boston Consulting Group (BCG), the population in tier II-IV will increase 4.5 times by 2025. This indicates that the driving growth in the country was majorly due to the rise of much ignored growing tier II and III cities.

With India’s economic growth, its rising purchasing power is making the emerging cities look promising with an untapped market. According to EY report, 26.4 trillion of household income in India is concentrated in tier II-III markets as opposed to 800bn in India’s big 8 metros.

Cheap Real estate & Labour:

Been off the radar for a long time, these cities also provide various other advantages, chief among them being cheaper real estate and affordable labour, helping businesses to reduce costs.

BCG also predicts that Tier II and III towns will account for 45% of India’s consumption and will add 30% of affluent households who will be a significant market for premium luxury products by 2025.

Penetration of the Internet:

Another important factor is the growing penetration of the internet and easy accessibility to information with the growing use of smartphones. These factors are greatly influencing and altering purchasing habits in these cities.

There is a vast demand and supply gap in these new markets. While 23 of these cities represent 19% of the household income, they have only 12% of retail market presence.

Selling Online to Smaller Cities

Due to internet penetration in these markets, e-tailers are also creating strategies to make way into them. American e-commerce giant, Amazon, 2 years ago tied up with local store owners and entrepreneurs to open Amazon outlets in tier-IV and V towns. Thereby helping customers place orders and act as pick-up points for all orders.

Last year, Manish Tiwary, VP, category management at Amazon India, conceded that 70% of Amazon’s new customers came from Tier II and tier III cities. Earlier this year, the company claimed that it saw a 235% annual growth in tier II and tier III cities for a four-day promotion, it ran.