Why Tier II & III Cities Are Becoming The Hotspot For Businesses

Sneha Santra
Sneha Santra Mar 12 2019 - 3 min read
Why Tier II & III Cities Are Becoming The Hotspot For Businesses
Tier II and Tier III cities are reckoned as the growth engine for the future

It’s a common misconception that starting a business in tier I cities only can give you higher profits. But in the last few years, Tier II and Tier III cities have witnessed huge growth across all the business sectors.

The economic growth in metro cities is beginning to saturate, owing to heavy competition, and set demographic. In this scenario, Tier II and Tier III cities are reckoned as the growth engine for the future. Realizing the potential of these cities, many brands have already established their presence and are earning huge profits, for e.g., Tanishq, Barista, Baggit etc.

Puneet Gulati, CEO, Barista, said, “Our major growth is coming from tier ii and tier iii cities.” Digitization and rapid advancement in technology and better connectivity have significantly increased the scope of business in small towns.

Here are the major reasons why businesses are hugely leveraging on tier II & III cities for growth.

Higher Disposable Income

As India grows economically, the disposable income of people living in tier II & III cities is also growing. Its rising purchasing power has naturally made these cities promising, yet untapped markets. According to a report, 26.4 trillion of household income in India is concentrated in tier II-III markets as opposed to 800 billion in India’s big 8 metros.

In fact, Chandigarh & Pune, Tier II Cities, are among the top 10 wealthiest cities in India.

Less Competition

With big companies majorly focusing on expanding their presence in tier I and Metro cities, tier II & III cities have been off the radar. While 23 of these cities represent 19% of the household income, they have only 12% of the retail market presence.

There are huge demand and supply gap in these cities, with mostly unorganized players in the market. Thus, these cities are emerging as a promising market for various businesses.

Low Cost of Labour & Resources

One of the major reasons behind this major shift is cheaper real estate and manpower. These factors effectively reduce the cost of doing business in these cities, thus influencing the penetration of major brands in tier ii & iii market.

Another major reason which is bringing these cities into the limelight is connectivity. Recognising the potential of these upcoming cities, the Indian government’s ambitious Regional Connectivity Scheme is attempting to create and renovate airports, making accessibility to smaller cities affordable.

Low Marketing Cost

Marketing and promotion are one of the major factors behind the success of any business. Given the burgeoning competition and fast-paced lives of people in tier I cities, even a good marketing campaign or advertising may not get the desired results.

In tier ii & iii cities, the cost of advertising is comparatively lower than the tier I cities. Oftentimes, word of mouth is the fastest way to advertise there, which the most reliable & effective form of advertising.

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