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The upper tiers of the population pyramid have been thoroughly plundered by multinationals. Now, the lower part of the consumer pyramid is in sight for brands seeking new audiences. These segments consist of poorer, hard-to-reach populations – many of them speaking minority languages.
Companies such as Amazon and Netflix are setting their sights on rural India in particular for their next phase of customer acquisition. With a fast-growing economy with plenty of potential for raising consumer ambitions, there’s a great opportunity for the right offering. By 2030 it’s thought consumer spending will quadruple to $6 trillion.
But many people in this audience are hard to reach both geographically and linguistically. The untapped markets tend to be outside urban areas, or in smaller towns and cities.
According to the 2011 census, it seems only around a third of the country’s population is presently living in urban areas. They’re also speaking minority languages. In India, this usually means a language other than Hindi or Urdu – and despite a language’s minority status, it can still mean a language population in the tens of millions.
Challenges for foreign entrants
Regulatory and censorship rules mean Amazon Prime isn’t really engaging with the Chinese market. This leaves India as the brand’s largest non-domestic market. Amazon’s strategy seems to be to use its Prime Video streaming service to attract customers to the brand and convert them to its eCommerce services.
But there may be a problem with this end goal. Recent regulatory changes in India are making it much harder for foreign marketplaces to operate here, which has challenged Amazon’s eCommerce retail model.
India’s political attitude tends towards protecting domestic operators at the expense of foreign brands including Amazon (and Netflix). It’s unclear what the environment will be like for media and streaming businesses like these in the future but it’s clear that India has recently become a tougher market for foreign eCommerce brands.
Yet there are also many positives that continue to attract Amazon to the Indian market. Internet access is growing, broadband is relatively cheap and smartphone ownership is also affordable for many Indians. India is on a trajectory to become the world’s third-largest economy, with a huge internal level of domestic private consumption led by an emergent middle class.
Despite the environmental challenges there remains a lot of potential new Amazon customers who have never been online and are yet to try online shopping. It’s also clear that local language internet and video content both attract large audiences. Amazon’s service aims particularly to engage rural audiences in their own languages. The eCommerce platform has identified that 80% of new customers come from outside the major cities.
Consumers are interested in a wider range of products that are available to them locally, and there are often barriers to them travelling to places where the products they want are available. Rural areas can be very remote and transport infrastructure doesn’t always support easy travel.
Even if people can reach larger towns, not all brands are available in India’s urban areas because of the challenges of organising an effective supply chain in this market.
If Amazon’s strategy of attracting frustrated online shoppers using low-profit media services works, it seems as if India’s market may ultimately be worth the fight. But it remains a big “if”. Amazon’s strategy is a costly one. This type of over-the-top media isn’t profitable and it’s expensive to create original content or buy digital rights for existing content.
Amazon has plenty of competition from local providers such as Hotstar and SonyLIV, both of which offer local language content. All these paid channels are also in competition with free online content, particularly from YouTube.
And although users value content in their own language, the frugal Indian consumer isn’t too keen on paying for it. Services such as Amazon Prime and Netflix seem relatively expensive when you consider the amount of content they can offer compared to cheaper cable operators.
It’s worth noting that Amazon has had to make significant adaptations to accommodate the needs of its Indian audience.
It’s changed its shopping app so that it will work on the cheaper handsets commonly used by Indian consumers, and it’s made it easier to continue shopping even if the internet connection breaks down. It’s also connected to a network of local distributors where customers can pick up their orders.
Amazon makes a point of offering product descriptions that better serve Indian consumers. Not only does it offer content in its target Indian languages but it has also added more videos to accommodate the needs of less literate users.
The eCommerce giant has also anticipated the needs of the novice online shopper (of which India has many) by using its contact network to teach customers how to use the online store.
Logistics and order fulfilment remain key challenges in this market. There are a host of problems to overcome in India including customer preference for cash-on-delivery and a lack of formalised addresses. Despite all these challenges, it seems Amazon is still committed to success in this market.
At the start of 2019, Amazon Prime had around 10 million subscribers in India. In the next 3 years, it hopes to increase this tenfold. This seems an ambitious goal. But with India’s eCommerce market expected to increase in value to $100 billion in the same timeframe, it seems Amazon can’t afford not to pursue aggressive engagement in the Indian market.