Indian brand pros debate the shifting clout of cities, towns

Be the first to comment
IAA Debates, Mumbai.
IAA Debates, Mumbai.

Looking at India's growing economy, participants placed their bets on the role of metro centers vs. secondary markets

MUMBAI — The second season of the IAA Debates series here, presented by Dainik Bhaskar, kicked off in Mumbai on Nov. 28. The topic was, ‘Metro Markets are losing their sheen to Tier II and Tier III towns for consumer products/services’.

The debate, sponsored by the India chapter of the International Advertising Association, took its title from the Indian government’s classification scheme for urban centers. Tier I cities number 100,000 or more residents; Tier II and Tier III towns start at 50,000 and 20,000 residents, respectively.

The debate comprised four speakers: Sadashiv Nayak, CEO, Future Retail; Ronita Mitra, senior VP – brand communication and insights, Vodafone India; Amitabh Pande, senior director – consumer insights and strategy, PepsiCo India Region; and Atul Phadnis, CEO, Whats-On and GM (Apac), Gracenote.

It was moderated by Mini Menon, executive editor, Bloomberg TV India.

Nayak and Phadnis spoke for the motion; Pande and Mitra spoke against it.

Metro: The high-cost market

Phadnis started off the debate with a global analogy: "We’re not saying that metros are down in the dumps. We’re not saying that metros have completely gone away. We’re also not saying that metros are history. What we’re essentially saying is that metros are losing their sheen in favor of Tier II and Tier III towns.

"Being part of a company which is spread across 60 countries, of which some countries are U.S. and in Europe, also a part of which are India and Indonesia and the Middle East, to say that the U.S. and the U.K. don’t matter anymore and the developing countries actually are more important is not true."

While the U.S. and U.K. contribute perhaps the largest amount of most multinational corporations' revenue, he added, future growth will come from developing countries. "I would stretch the same analogy for the current topic which is that, there are challenges in the metro markets. These challenges are faced by a host of marketing companies.

"When you have a growing economy, like India which clocked about 5 to 5.5 percent last year, is expected to gallop to a very high growth if all the reforms actually happen. If you break down that GDP growth by the two key market categories that we’re debating right now, you’ve got the metros that contributed roughly to about 4 to 4.5 percent vis a vis the Tier II, Tier III towns and the rural markets which grew by about 6.5 percent. There itself you can actually start to see that there’s high growth in those markets."

Phadnis argued that metro markets are very expensive — for facilities, real estate, resources, warehousing, manufacturing and acquisitions.

He also cited saturation in the metro markets: "Not only do you have Indian brands but also a whole host of MNCs and international brands competing in the metro markets. So if you have to swing the market share in any category by even half a percentage point, it is extremely challenging and very expensive."

"Cut to some of the Tier II and Tier III towns, where the same situation does not exist. This is because some of the categories are largely underexploited. From a growth perspective, lower cost, lower competition typically gives you an interesting blend."

He highlighted the role digitization has begun to play in the smaller towns. "With conditions of higher Internet penetration, what is changing is that the pipe going to homes is also able to deliver internet and we’re seeing a silent revolution in these smaller towns. This is going to be a big swing in terms of some of the e-commerce models which will dramatically alter the way we are experiencing growth in those towns. Internet bandwidth as per the IAMAI has been doubling every two years in those towns."

‘Lazy marketing’

Pande began by questioning how we define ‘sheen’ in itself. He asked, "What do you mean by ‘sheen’? Is it just growth or growth that really matters? If we would have been debating this say three years ago I wouldn’t have chosen to bat on this side. But in the last year the world has been changing faster than we think. In the last one or two years, the U.S. and the U.K. coming back into growth have put them firmly back into the driving seat of the world economy. The reason is simple, for the emerging markets, such as India, to matter in the global economy it needs to grow at 9 to 10 percent. Whereas 2 to 4 percent for U.S. and U.K. is enough to matter and that’s the same analogy you can apply to metros and Tier II, Tier III towns."

Pande based his argument on the following four pointers:

Are metros losing sheen? They’re not.

"Consumer goods industry in 2014 has grown by about 7 to 8 percent by published reports. If you take the metros and the non-metros, the metros are roughly the same or a point higher. If you look at the categories that we play in, you’ll see that the metros are actually growing a tad bit faster.  In some categories, actually, at twice the rate of non-metros."

"Two years ago they seemed to be losing sheen, but not now."

They need to shine

"Metros contribute about 10 percent of the population and they contribute about 30 percent of the FMCG industry. That’s a big size. Marketers are invested in making them succeed. If they’re not growing enough now they will need to make it grow very soon and you’ll see that changing very fast."

They can shine

"There are marketers that are showing us the way. The data that we interact with suggests that the companies that are growing at a rate of 30 percent have a greater contribution of business coming from the top eight metros."

"If you’re in the business of growth, done the first round of penetration, you’ve reached everybody. The next growth is about ideas. And companies that are going to be invested in creating new ideas, new propositions are the ones that will get back to double digit growth."

‘Cities are polarizing people’

Nayak rebutted Pande’s point citing the data for 2014. He said, "How long are you going to fall back on the sheer size of present market? The whole argument is being built on the sheer size at present. The topic clearly says ‘losing sheen’. It doesn’t say being irrelevant. It’s not lazy marketing; one has to watch out whether the metros are going to get rusted."

Nayak, building on Phadnis’ comments, said, "Happy hours build consumption. The few hours that you save in travelling in metro cities really drive consumption. What we as retailers are witnessing is how Diwali has become a three-day festival in metros." He also cited the festival as a great consumption opportunity in the smaller towns.

Speaking about the factors working against metros, Nayak said, "As cities we’ve gotten used to reclaiming freedom, there’s something for us to learn from these towns. Metros need not also feel the need to ‘reclaim’ certain things, which should rightfully be ours in the first place. We are the creators of where we are now in the first place where we’ve jammed our roads and created places where we are unable to move. This is something the Tier II and Tier III have got going for them."

The speaker further added, "Cities are polarizing people. Every SoBo [South Mumbai] has a small slum around it, every Santacruz has a slum around it. Somehow cities have managed to create a served class and a serving class with a humongous disparity between the two which comes in the way while trying to implement marketing strategies. Look at the ripple this way: if someone is consuming something in the served class it would be consumed much faster in the serving class."

Nayak spoke about combing through the market and finding out opportunities for sale. "Happy hours really work for Tier II and Tier III towns, communities do exist there, there’s a free flow of movement which leads to far greater opportunities of consumption."

‘Starts with metros; percolates to smaller towns’

Mitra argued against Nayak’s point about metros losing time during traveling, "Where we’re talking about metros being about distance and therefore that having an impact on consumption, that is where technology comes in and that is where the metro audience is so adept at adapting technology for their own convenience and bettering their lifestyle. Mobile is a place where people are catching up on the lost time in their commute."

Mitra refocused Nayak’s argument about zeroing in on retail opportunities during festivals by saying, "When it comes to festivities, the key difference between the metros and small towns is about the metros being about the future, being trendsetters and not being locked into the circumstances of the ecosystem but finding solutions around that. When it comes to the served – serving class argument, metros are in fact, really about democracy. In a city like Mumbai, you could have a rich industrialist in a BMW stuck at the same signal as a blue collar worker in an auto rickshaw where neither can do anything about it. You could live in the most expensive apartment but your view would be that of a slum and that is what creates so much of level-headedness."

Mitra went on to list the factors that work in favor of the metros. "The higher SEC consumers are still in the metros and that is what determines the higher affordability. Infrastructure development always leads in the metros. It all starts with the metros and percolates to the smaller towns. Even though technology may be available, it’s great that solutions are available to the smaller towns but the adoption and depth of consumption of technology is higher in the metros and this is a trend which is likely to continue. More than 50 percent of internet users are still in the metros and so are 60 percent of social media users. This is important because social media is important, it is about influences and setting trends. So, metros really are about opinion makers, opinion leaders and trend setters."

The speaker did concede that the cost of conducting business is lower in smaller towns, but however, reminded the audience that e-commerce in the smaller towns is being driven by cash on delivery. "Adoption of newer categories is still much higher in the metros. Therefore, even though e-commerce is growing in the smaller towns, is cash on delivery really a sustainable model? What is going to drive its future growth?"

The most important are the softer aspects of a metro which really make the metros far more progressive than a smaller town, she said. "The work culture in a metro is far more professional, more structured, there are far more opportunities therefore for startups and entrepreneurs. For women, metros are a much better place. You’ll find a lot of women actually moving from small towns to metros because they want to move away from a patriarchal society. Education forms the bedrock of society and is a critical foundation for all of us to grow and develop. The best educational institutions are still in the metros. Arts really are a soft side which is really about a determinant of how progressive or liberated a society is. This continues to be higher in the metros and hasn’t percolated to the smaller towns."/

‘Past will not always be able to predict the future’

The comment that caught Phadnis’ attention was when Nayak asked, ‘How long are you going to fall back on the sheer size of present market?’ He said, "I think the past will not always be able to predict the future. Especially when, you’ve got such a dramatic change happening in the Tier II, Tier III towns."

 Value vs volume

On whether it is a value-versus-volume game, Phadnis noted that this is exactly where lazy marketing is perhaps most relevant. He argued that smaller towns in the beginning are tougher because they are more fragmented and scattered across the country and if there’s no lazy marketing rather hard work on the ground, these markets are providing higher growth and lesser competition.

Nayak opined that cities are about those few people who get lots and lots of volume and towns are about many people getting a little bit of volume but great value. "Diwali is a three-day event here. What sells in Diwali? Clothes! Cities are waiting for when will that 50, 60, 70 percent off boards are be put up. Towns are willing to go and spend, visit friends, buy food, that’s where the high margin products are. So, if someone hasn’t yet discovered the potential in smaller towns from a marketing perspective they have to go back and look at their marketing strategies."

Mitra noted that small towns still are about easy growth. She differentiated the consumer between the two regions saying, "The metro market consumer is far more exposed. He’s got global exposure today. He has got exposure to brands and categories from across the world and therefore to get him to upgrade is a far more challenging task than it is in a smaller town."

 Verdict

At the end of the debate, the audience, which had taken a stand at the beginning ‘For’ or ‘Against’ the motion, revised their positions based on the arguments made by both teams. Based on the audience’s response, Menon declared the team speaking ‘For’ the motion as the winner.

This article first appeared on campaignindia.in.

GET YOUR CAMPAIGN DAILY FIX

The latest work, news, advice, comment and analysis, sent to you every day

register free

Campaign Jobs

Thousands of jobs across advertising, creative, marketing and media

Trending on Campaign

RSS FEEDS