Indian e-commerce firms should look to rural and semi-urban markets for their next set of customers, according to a new report released Friday by consulting firm EY India, which pegged that market to hit nearly $12 billion in the next four years.
Rural India is experiencing the same phenomenon that drove e-commerce in urban India–cheap smartphones and cheap data are helping millions of new customers to go online, and they are all potential customers.
Internet penetration in rural and semi-urban areas is expected to more than double to 45% by 2021 from their current level of 18%, according to EY India. Their “aspirations are as large as urban users… [and] this represents a significant growth opportunity for e-commerce to serve this segment,” the firm’s report said.
But that opportunity comes with its own challenges as these new, first-time internet users will need some amount of hand-holding–just as their urban peers did when they first started shopping online. (For instance, e-commerce firms introduced the concept of paying with cash on delivery because new urban shoppers were not comfortable using their credit or debit cards online.) In the case of rural India, EY suggests offering assisted sales, including a physical presence.
This market will pose other challenges as well:
- Language — to snag customers, e-commerce firms will have to speak and sell in the target audience’s local language, and that will change from one area to another, even within the same state.
- Access and transport infrastructure (which in turn will impact supply chain efficiencies).
- Product portfolio is critical as it needs to serve markets that are hyper local.
- Lack of on-ground presence, including poor after sales services, is a quick way to lose customers.
“Success will come for e-commerce companies that continuously innovate to engage consumers,” said Ankur Pahwa, Partner and National Leader – E-Commerce and Consumer Internet, EY India. “E-commerce companies will need to innovate on distributed logistics, building trust with aspirational rural consumers and providing them with right category-product-mix through product curation and rationalization”
A handful of companies are already seeing this as an opportunity and are making inroads in clearing some of these hurdles to reach these new set of potential customers. Some of the startups that have set their eyes on this market include Shopclues, IPay India, Inthree, StoreKing, One Bridge, Connect India, according to EY India.
“Their initial success is an indication of the fact that rural market has a huge potential and requires more effort to satiate the needs for products,” the report said. What gives them hope is that many of the new shoppers on e-commerce giants such as Amazon and Flipkart are from rural India. This reflects “the potential picture of the vast opportunity that lies in rural India.”