Smartphone sales: How smaller cities are getting an edge over metros

Sales of smartphones in smaller cities and towns grew at a faster pace than in the metros and tier I cities, outpacing overall market rate in 2017 and reversing a trend of previous years, research agencies said.

The trend is likely to continue in 2018 as brands such as Xiaomi, Lenovo, Oppo and Vivopenetrate deeper into smaller cities and towns to increase sales, experts said. The smartphone market in tier II and III cities is expected to have expanded by 18% in 2017 from a year earlier, at twice the pace of the urban markets, as prices of the devices declined, according to Counterpoint Technology Market Research, a Hong Kong-based firm that tracks shipments countrywide.

International Data Corporation (IDC) India, which measures sales to end-customers in the top 30 cities by population, put the growth rate in the smaller cities at 53%, while that in the larger urban markets was 15%.

“User spending in smaller cities across online channels has been increasing. The growth is also driven by replacement users who are likely to have shifted from an entry-level smartphone to mid-end segment,” said Tarun Pathak, an associate director at Counterpoint.

By comparison, overall smartphone market grew 13%, slower than 18% in 2016 and 23% in 2015. Feature, or basic, phones grew 7% in 2017 versus 3.4% in 2016. Almost a third of the smartphone sales in the smaller cities were below $100 (Rs 6,400), he added.

“Rapid urbanisation is transforming the new consumption hubs, especially in the tier II cities. New investments are leading to better connectivity and generating new employment opportunities in these cities, further increasing consumption in these markets,” said Jaipal Singh, a senior analyst at IDC India.

The research firm found that tier-2 cities such as Bhopal, Gurgaon and Jaipur had the fastest quarterly growth, at 40% each during July-September. Driving the purchases were zero down-payment plans, no-cost EMI offers, freebies and cashbacks from on online channels Amazon and Flipkart, which lowered the effective prices of smartphones. Large-format retail stores and standalone stores upped the ante to cash in on rising demand in the smaller cities, matching the online players with offers and freebies.

“For smartphones, we saw a growth of close to 70% in tier II and tier III markets last year, while phones above Rs 25,000 witnessed close to 45% increase in unit sales, with tier II and III witnessing a growth of close to 60% in this sub-category,” said Noor Patel, director of category management at Amazon India. The trend is likely to pick up pace in 2018, with two-thirds of the users of sub-$100 devices in rural India – exceeding 70 million – likely to upgrade in the short term, driven by attractive value propositions and offerings in the $100-200 (Rs 6,400-12,800) price segment, Pathak said.

IDC’s Singh said handset companies would want to tap into the demand from smaller cities and towns, where growth potential would be higher.

“Demand in urban India has slowed down due to higher replacement cycle and demand for second-hand devices, a trend which is more common in such markets than lower-tier markets,” Pathak added. Counterpoint Research found Chinese brands had almost 43% market share in the smaller cities in India compared with more than 50% in the overall smartphone market, indicating a relatively stronger presence of local companies in such markets.

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