Changing Perception Of Luxury In Tier 2 & 3 Markets Of India

Luxury is something that adds to pleasure or comfort and is more than just a necessity. In the modern context, it is more of an expenditure that goes beyond the necessary. With time, however, the phrase ‘luxury’ has evolved a lot. It is known to deliver a superior satisfaction at two levels- one is at the level of the Product itself, and the other is experiential. At the product level, it satisfies the functional aspects like craftsmanship, precision, materials, unique design, exceptional product capabilities, technology and innovation. At the experiential level, it brings about the reward of possessing a coveted item, association with a hierarchical brand and a distinct, if subtle status marker.

Being the second-fastest growing economy in the world, India is believed to be one of the most sought-after markets by the luxury brands. In a report by ASSOCHAM 2018, the Indian luxury market is valued at $18.5 Billion and is expected to grow more than $100 Billion in the next 7-8 years. The report also pointed out that the economic growth is leading to urbanisation and higher disposable incomes and has helped drive the growth of luxury goods. Luxury and international brands are exploring both retail and offline routes to enter into these areas, which has resulted in the strong performance of luxury goods. It is interesting to note, that Tier, I and Tier II cities, represent 45% of the total luxury market goods consumption. 

The Indian luxury market, which had earlier been restricted to the top of the pyramid for years, is now witnessing a change in its consumer base - the well-travelled and informed Indian middle class. Enterprises have finally opened their eyes to the fact that there is more to India than the metros. 

India has eight metro cities that have a population of over 1 million. In the past few years Tier II cities have come up as important marketplaces - these include Nagpur, Indore, Chandigarh, Thane, and Vadodara among others. Two new cities, Jaipur and Surat, have joined the club of metros with their household incomes predicted to go as high as to 800mn in a year or two. A significant factor that has increased consumption in these markets is the growing penetration of the internet and easy access to information with the rise in smartphone users. These factors are greatly contributing and altering purchasing habits in these cities.

A report by Ernst & Young titled ‘India’s Growth Paradigm – How Markets Beyond Metros Have Transformed’ looks at 50 cities that make the cut as business centres. The report recognizes 42 'new wave' cities of India which are non-metro. Also, as per the Boston Consulting Group (BCG), the population in Tier 2- 4 market is expected to increase by 4.5 times by 2025, and their spending on FMCG will be close to 104 bn USD by the same time. 

With frequent international travel and the penetration of media, more and more people are becoming brand-aware and conscious and want to consume the best of global brands. The rising aspirational class has definitely added to the numbers of consumers in these cities. With an aspiration to ‘look and feel great’, this demographic dividend provides a significant boost to the luxury products and market in India. E-commerce has also played its role in partially bringing luxury in the forefront.  Owing to increasing internet penetration in Tier II and Tier III cities, e-tailers are also crafting strategies to make headway into smaller towns. 

Taking advantage of the internet boom, international and homegrown brands are eyeing these markets and are penetrating in them through e-commerce and strong logistics. This strategy has helped them in serving the enthusiastic consumers of tier 1 and tier 2 cities successfully.  Various factors have altered the face of the Indian economic landscape. Cities that were dormant once are today at the center of business strategies for some of the world’s biggest companies entering India. International brands now venturing into India will surely tap the niche markets and leverage their set of opportunities in the smaller but full of potential interior markets.