It is widely believed that small towns will power India’s growth story in the future and that tier II and III towns are aiding the economic recovery from the impact of the Covid-19 pandemic. This shift from urban areas to rural areas poses a set of new challenges for marketers - how can brands reach out to their customers? What are the best means to do so?

In this episode of the State Of The Economy podcast, businessline’s Chitra Narayanan speaks to Shiv Shivakumar, who is a noted author and management thinker, and Tanvi Gupta, who is an Associate Professor at IIM Udaipur and the co-chair of the Consumer Lab at the premier institution. Listen in to understand the different dynamics marketers must address while pitching their products to a diverse audience.

Host: Chitra Narayanan, Producers: Jayapriyanka J, V Nivedita.

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This episode hosted by Chitra Narayanan, editorial consultant, Businessline, deep dives into how to market to the hinterland. As India targets to become a $5 trillion economy, it is widely believed that it will be the small towns that will be the future engines of growth. Post Covid, it has been the tier two and three towns that have been leading economic revival. However, even as brands chase the consumer in the small town, there are some pitfalls to consider as the diversity of each regional market poses a challenge. On this podcast, we have as our guests Shiv Shivkumar, well known management thinker and former chairperson and CEO of PepsiCo, and CEO of Nokia, and Tanvi Gupta, associate professor of marketing with IIM Udaipur and co chair of the consumer culture lab at the institute. Edited excerpts:

Chitra : Shiv, we have been seeing headlines like “brands see big markets in small towns” and “small towns will lead economic growth”. And yet, we see some conflicting signals. For instance, Zomato during its recent results said it pulled out of 200 smaller cities. Can we get a macro picture of what’s happening in the heart of India?

Shiv: India as an economy is always a work in progress country. Okay, we all want India to be $5 trillion tomorrow morning. That’s a good wish, but it takes time. To give you a sense, only five countries have grown 5 per cent plus in GDP over the last 50 years. India has grown 5 per cent plus for 40 years. We may think 5 per cent growth is low, but it’s not at all easy, given our size of economy of $3 trillion.

In absolute numbers, India may look very good, for example, $3.1 trillion economy - but you divide it by a 1,000 million people, then you have a per capita GDP income of $2,100. In category after category, we notice that the per capita consumption of a category is way below the global average. And it will be like that for the next 30-40 years. The one place where India is significantly ahead of the global average is in the use of financial instruments, especially in the digital area. And that’s the reason why in the G 20, the digital achievements are being highlighted, which is absolutely the best in the world.

If you look at small towns, and I’ve been to many small towns over the last one year, all these places are humming and buzzing. But that hum and buzz comes essentially from entrepreneurial activity. There is no public sector anymore in any of these smaller towns, which was a growth engine of the past. It’s entrepreneur activity driving these towns.

Next, if you look at all the small towns, over the last one year, there are three things which have actually impacted overall consumption. One is fuel price. Remember in small towns, when the fuel costs go up, they are challenged. Electricity bills are high which also affects them. And also food inflation. These are the three things which combined together make people say - hey, maybe I need to save, maybe I need to spend differently. I think a lot of people forget the fact that we are a work in progress country. We are impatient for good news. But it is a long journey. There are cycles up and down.

Within the smaller towns, if you go a little below they are impacted also by agricultural income. Now agriculture input commodity costs have gone up. Whereas minimum support price or state administered price has not really kept pace. So a lot of rich farmers too are postponing their purchase of things like SUVs. So it’s a combination of things. I would say it’s not a sign for a worry. But I would urge all to have patience with India.

Chitra: So basically, we should not overhype the potential of the small town to aid economic growth?

Shiv: No, I don’t think they’re overestimating the growth. I think the baseline of growth that they expect is higher than what is being delivered right now. But these are tough times, with inflation and fuel prices high. You just need to recognize that and monitor it. The way businesses should operate is to base all their costs on a pessimistic plan, not an optimistic plan. And they should base all their incentives on an optimistic plan. But invariably, businesses tend to do the opposite.

Chitra: That’s a wonderful piece of advice, Shiv. Coming to you, Tanvi, your team has done a great report from the heartland of India, looking at Digital creators. A lot of people think that digital has actually bridged the divide that exists between urban and smaller towns, they say there is a kind of homogeneity in the consumer being seen. And yet, despite this we do see differences. Can you highlight how the consumer in the small town is different?

Tanvi: What we observed when we visited multiple small towns and spoke to content creators is that massive change has happened over the last decade. The younger consumers in the smaller towns, they are being pushed into this whole space of aspirations. They have really high aspirations. And that is being fueled by the access to digital media and digital content creation. But they do differ in terms of their mentality when it comes to the metro consumer in a behavior which we call as rootedness. While the metropolitan lifestyle is kind of a parallel to the American dream, now because accessibility has gone up due to digital and other urbanization trends, people in small towns don’t feel the need to move out. So they’re staying there. And still, the aspiration levels are high. What we saw and we were quite surprised to see was that people are very innovative, very creative, but they are not trying to mimic the Metropolitan lifestyle. And the other interesting learning, which we found was what we call as a regional subnationalism. Generally, if you look at a bigger metropolitan consumer, you would say they are a little bit more globalised, even if they identify themselves with India, it’s more at a national level. For small towns, their sense of identity is much more rooted in their region, for example, somebody from a small town in Maharashtra might associate more closely with the Maharashtrian identity rather than the Indian identity as a whole. So you have this unapologetically vernacular content that is being created. A few decades back, we could see that small town consumers used to feel apologetic if they could not speak English or Hindi but now we are seeing emergence of a confidence in your own regional rooted cultural content and cultural language.

Chitra: Shiv, do you agree with this assessment of regional subnationalism?

Shiv: I agree completely. And there are many markers for this. For example, there is the Irani trophy match going on, and guess who’s playing? It is Madhya Pradesh versus rest of India? When would you have thought MP would play the rest of India for Irani Trophy, and not the big town boys of Karnataka, Bombay or Delhi. So cricket has got very democratised. I think nationalism as a trend is sweeping the world in every country. But any region, which has a substantial base has its own trend of regionalism. If you take movies, for instance, which are the movies, which are bombing very badly? It is Bollywood. Why? Because they are copying Hollywood. The ones which are succeeding are Telugu or Kannada or Tamil.

Chitra: Given these trends of regional subnationalism, are marketers addressing communication to the tier two, three town consumers properly? How can they do it better?

Tanvi: When I visited the smaller towns and I spoke to the creators, some of them actually have had interactions with media agencies from the bigger cities. And they report a kind of a power dynamic at play where somebody from the metro seems to have a kind of a metro gaze on the small town, which is like creating a caricature of that small town life. So the same cliches are being perpetuated.

Chitra : Shiv, how about the product strategy for small towns. Are the right products being created for the small town?

Shiv: There are some categories where I think the rural consumer might say - you know what, I can’t see this being value for money. Maybe this is over engineered for me. So you need to tailor it a little. If you look at the drivers of purchase in urban India, they tend to be around aspiration, quality and price. In rural India, price comes first, followed by quality and aspiration, it’s extremely important for you to recognise that rural consumers are not half urban consumers. A lot of companies make this mistake.

Also, I would say - rethink the business model as to how you go to the consumer. For example, when we sold 2 million phones to rural women, we sold it on an EMI basis with a microfinance company which gave that as an income generating activity. So women would deposit 75 rupees every week for 26 weeks to own a phone. That was a completely new business model, which was a three way partnership between Nokia, Airtel, and SKS Microfinance.

Chitra: Coming to shopping behavior - according to BCG 50 per cent of online shoppers now live in smaller towns and by 2030 this will be 60 per cent. So this means there is an enthusiastic adoption of E commerce by small towns. One reason this could be so is because there is the lack of physical availability of these products. What do you think?

Tanvi: I think based on my observation when it comes to online shopping, I think in smaller towns versus the metros, there is a difference in the gender divide basically. I think online shopping in small towns is majorly done by men as compared to the woman.

Shiv: I think India will be an omni market. But if you look at online, online is not because physical is not there or experience is not there. Online is a top up. Always, online is for quickness or when you are feeling lazy. So food will be very big. If you notice in the pandemic, the top categories across India was actually beauty and education. I think the business of financial products, insurance, etc will also be big. Small town people tend to have few trusted relationships, they don’t want the retailer or somebody to know what they have bought, or what they are buying or where they’ve invested. So in those type of categories, what I would call as unmentionable categories where trust is involved, they’re quite happy to go online, they don’t want somebody - the insurance agent in that city - to know what they’ve done because they don’t want to be linked to him or beholden to him.

Now, in a lot of small towns, I’m just amazed at the physicality of retail. It’s so huge. But the personalization of the experience is very, very poor. One thing online has done is it taken away the fear of premium brands. Today a housewife or a young boy or a young girl are surfing through BMW or Mercedes or Louis Vuitton website, as it costs them nothing to do so. They are not saying, oh Mercedes, never. Those days are over. The second thing online is doing which is not good for marketers is that loyalty is dropping, because now you have a range of products across price ranges.

Chitra: If you have to give three takeways about the small town consumers, what would these be?

Shiv: For rural consumers and small town consumers, English is still very aspirational as a language and a mode of communication. Whatever they buy or don’t buy, never forget that. Second is for them, the good word of their friends’ matters much more than anything else. And third, please treat them with just the same respect as any other consumer. Just because they’re from a small town does not mean that they’re any less important as a consumer.

Tanvi: First, the small town consumer is full of aspiration. Consider the consumer as somebody who’s really striving to move forward in life. So products that enable that mobility should be offered to them. The second thing is about rootedness basically. Don’t assume that a small town consumer is just trying to mimic the Metropolitan lifestyle. And the third thing is about their regional identity.

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About the State Of The Economy podcast

India’s economy has been hailed as the bright spot amid the general gloom that seems to have enveloped the rest of the world. But several of its sectors still stutter about even while others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups. Tune in!

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