Rural market presents $10-12 bn opportunity for e-tailers: EY

The rural e-tail market presents a $10-12 billion opportunity for e-commerce firms in the next four years, on the back of rising household incomes, increasing consumption expenditure, diversified income sources from non-agricultural activities, positive agricultural outlook, and increase in internet penetration, among others, according to a new EY report, Rural e-commerce: The untapped potential, released on Friday. The total e-commerce sales may likely to grow at 32% compounded annual growth rate from 2017 to 2021, the report says.

The report states that demand in rural India is geography-specific and would require considerable localisation. Further, while rural customers are aspirational and desire to own branded products, they are also price sensitive. Hence, companies need to create the right balance in their product mix comprising both value-for-money, unbranded items and branded products, which cater to their aspirations.

“Rural online retail opportunity is clear and present for aspirational rural India; however, success will come for e-commerce companies that continuously innovate to engage consumers, especially with those users who are online but are not transacting on the Internet or are limited to only using online channels for availing specific services only,” says Ankur Pahwa, partner and national leader, ecommerce 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 rationalisation.”

To gain traction in the rural markets, companies would be required to rethink their business models and focus on demand generation, supply and services innovation. According to the report, some of the measures they can take could include offering an easy line of credit by partnering with financial organisations that help with micro-lending will enable spending both from businesses and rural customers; leverage on existing social structure and infrastructure to create awareness, among others.

This segment of consumers will be harder to engage and win over. Language and trust will be a key engagement factor and given the diversity, the more regional one becomes, higher would be the conversions. Access and transport infrastructure is another challenge and hence supply chain efficiencies, sourcing and logistic partner selections are significant strategic levers. Lack of touch, feel and fear of poor after-sales services will need to be addressed through assisted sales and omni-channel physical presence.

“Effective use of vernacular languages and assisted commerce will help drive the large rural online opportunity for e-commerce firms looking to accelerate growth beyond the favourable industry metrics. The key will be to create business models purely with this customer segment at the centre of all operations and seamlessly intertwining the physical and digital worlds into a single touch point with the rural customers,” Pahwa says.