» Mobile phone company LG GSM sees a greater demand for its colour phones than its regular ones in the town of Ahmednagar near Pune and 70 per cent of the company's current sales come from the non-metro segment.

» Heard of Arrah, Arsikere or Barabanki? Well, broking site Sharekhan is already entrenched in these markets.

» DVD, Plasma-screen TVs and Home Theatre System sales are simply zooming in Class 1 towns.

"We have a foot in the door with exhibitors in these markets and as a result we have access to information" Shravan Shroff Director, Shringar Films

And that's just a smattering of examples. Mention 'class one towns' (with population of between 5 and 10 lakh) and marketers hawking anything from financial products and equities to apparel and personal computers to food and entertainment to high-end electronics and cars come alive. Ask for a list of potential markets and the speed at which the list is rattled off makes it sound almost made up.

Take the case of Kishore Biyani-promoted hypermarket, Big Bazaar, which retails everything from groceries and apparel to consumer durables and all kinds of household wares. Big Bazaar, which opened its latest store in Nashik last week and had done Bhubaneshwar just before that, is already planning the opening of its next outlet at Durgapur whilst strategising for Varanasi, Amritsar, Lucknow and Indore in the same breath.

Broking house Sharekhan has about eight of its 29 branches in class-one towns, with Anand, near Baroda, being the latest addition. A quarter of Sharekhan's network of 200 shareshops is in fact in non-metro towns. "The class one town market could potentially grow at 200 per cent over the next couple of years if some basic infrastructure issues are sorted out," says Tarun Shah, CEO, Sharekhan.

Take personal computers. The non-metro segments account for 35 percent of all shipments in the country. What's more, the sales growth in the non-metro areas has been a whopping 63 per cent in 2002-2003 (in the first half of 2003-04 non-metro sales touched 4.66 lakh compared to full year sales of 8.11 lakh the previous year) with a CAGR of 59 per cent over the last few years. Zenith Computers, the home-grown pc brand, is seeing a 100 per cent plus growth rate in the towns as opposed to the 10-15 per cent growth rate in the cities.

Consumer goods major Siemens, which is just entering the town segment, expects to see the 23-odd towns where it plans a presence to contribute to 50 percent of total sales in the next couple of years. "Dehradun, Mathura, Saharanpur, Roorkee, Gorakhpur, Jhansi, stand out as towns that are picking up particularly well," says Rajiv Karwal of Electrolux, the white goods major that has been targeting class-one towns aggressively for its high-end refrigerators.

Moving to financial products, specifically insurance, global insurance company MetLife is targeting a market size of 2 crore people from towns of over 5 lakh population where it will target about 20 per cent of the population in each town. Housing loan offtake looks impressive too. The Rs 60,000 crore housing loan market has non-metros account for more than 50 per cent of its business.

Finally, mobile phones. Take the experience of LG GSM, which came into the Indian market only last year. Interestingly, the company's strategy to make up for lost time is to launch a major offensive in the non-metro segment. "We are in fact getting really strong in the small metros. Gradually it's these towns that are getting us the major growth. We are growing much faster in these towns than the metros," says Praveen Valecha, Product Group Head, Mobile Phones, LG GSM. And it's not just growth. Even in absolute number terms LG GSM has an interesting story to tell. A whopping 70 per cent of its sales currently come from the non-metro segment.

"We are at a stage where we have covered the metros and are now seeing big growth in these towns" Chanda Kochhar Executive Director, ICICI Bank

The opportunity in the towns could clearly overshadow the metros in course of time if these marketers play their cards right. The point is best illustrated by the auto industry, where the share of passenger cars sold in cities 11-20 (i.e. 11th to 20th Indian city in terms of car sales) has grown by 0.6 per cent or accounts for a sizeable 25,000 cars in a total market of 7.6 lakh units. And the share of 60 cities (after the first 40 cities) is growing the fastest and has actually gone up by 1 per cent, and stands at 27,000 units.

Another vivid display of the rise in aspirations plays itself out every day on leading Indian online auction site Baazee.com, which was recently bought over by global online auction major eBay. Avnish Bajaj, Chairman & CEO of Baazee.com, discloses that 42 per cent of all the buying and selling across Baazee happens in the form of B and C class towns buying consumer durables and high-end technology products and mobile phones from sellers in A class towns, while buyers in A class towns pick up leather, wood, jewellery or local cottage industry products from sellers in the B and C class towns. "There is a great aspirational class in the towns that is absolutely hungry for a good range of electronics, consumer durables and tech products, which the sellers in the cities are able to offer them. What they look for more than anything else is the range and the latest models, which are invariably not available in their own towns," says Bajaj.

Of course, aspirations alone won't do the trick; it's the sheer rise in incomes that is translating the aspiration into actual demand. The National Council for Applied Economic Research (NCAER), which has just concluded its Market Information Survey of Households (mish), throws up some critical findings. Until 2002 about 58 per cent of all Indian households belonged to the middle-income category. That figure is expected to cross 63 per cent by 2005. Middle class households stood at a mere 43.5 per cent in 1994-95. If you take just the rural distribution of households, again middle class households, which constitute over 53 per cent of the total households currently, are expected to account for over 62 per cent of households by 2005.

Needless to say, it's the middle class that will drive the markets of the towns. "The NCAER data is a clear case of a pyramid turning into a diamond and eventually into an inverted pyramid, which essentially means that the bottom most class of households is actually shrinking and that income itself is going higher and higher," says Mumbai-based marketing consultant, Kamini Banga.

Another product category that is seeing nothing short of a wave that is again very indicative of the ever-growing aspirational class is loans of all kinds. ICICI Bank in fact displays a telling statistic this year. The bank's total loan disbursements (cars, personal loans, two-wheelers etc, but excluding home loans) is up from a little more than 45 per cent last year to in excess of 50 per cent of total disbursements in 2004.

Boom town: Bank branches like this one are mushrooming in Jalandhar

The bank's credit card offtake figures tell another compelling story. Towns such as Hubli have seen a 1,549 per cent rise in credit card growth over the past year, while Vijaywada in Andhra Pradesh boasts an 832 percent year-on-year growth in credit card offtake. "We are at a stage where we have covered the metros and are now seeing big growth in these towns," says Chanda Kochhar, Executive Director, ICICI Bank. "When we started out in these towns we thought it would be housing loans or two-wheeler loans that would see takers, but we are seeing more sophisticated product offtake like car loans, credit cards or personal loans," she adds.

Kochhar isn't the only one taken by surprise by the consumption potential in these towns. Quiz Biyani on the numbers he expects to see at his Nashik and Bhubaneshwar stores and the story only gets stronger. He claims that he has revised sales estimates upwards by 40 per cent for the first year of operation for Bhubaneshwar and the estimates for Nashik, which opened towards the end of June, have already been upped by 30 percent.

Obviously spurred by the success of Big Bazaar, Rahul Saraf of Sunsam properties, the real estate developer who houses Big Bazaar in its complex-Forum Mart in Bhubaneshwar-is already planning to tap towns like Siliguri and Guwahati next. Saraf for his part rattles off another set of equally impressive numbers. "The Baskin Robbins outlet at Forum in Bhubaneshwar does business of Rs 1.70 lakh a week while in Forum, Kolkata, they do just about Rs 2.25 lakh a month."

Spotting the Market

The thumb rules to enter a market, however, vary from player to player. For instance, Shravan Shroff, who heads Fame Cinemas, a part of the established film distribution firm Shringar Films, relies on Shringar's experience in the film distribution market to guide his strategy for setting up multiplexes in new markets. Fame has taken over a theatre in Nashik and is "retrofitting" it for a three-screen multiplex and plans are afoot to launch a Fame Multiplex in Surat this year and then in Malegaon and possibly Kolhapur next year.

Malegaon is an interesting choice. For starters, no one seems to know of the town. But Shroff is convinced he knows the market. "We have a foot in the door with exhibitors in these markets and we have access to information as a result. Malegaon happens to have a sizeable Muslim population and as a community they are regulars at the movies." That kind of market information is hard to come by.

Others like Zenith or Siemens follow a more conventional approach while plotting the markets of choice. "A pc generally sees largest demand from the education sector so towns with major colleges become a natural choice," says Raj Saraf, CMD, Zenith Computers. Interestingly, he adds that the biggest growth for the pc is now coming from the sec B and C segments, unlike a few years ago when sec A was the logical target. The household income of the sec C segment would be about Rs 5,000 per month.

New opportunities: A customer checks out a new car in Moradabad

Siemens, on the other hand, is clearly targeting households with over Rs 5 lakh per annum in the towns for, what it terms, 'aspirational' goods in its basket of offerings. These would be high-end refrigerators, food processors, blenders and the like. "We clearly look at disposable income first and then the kind of industry or business driving the town," says Vipul Raval, MD, RBS Home Appliances, sole distributors for Siemens Home Appliances.

Retail coffee house brand Barista adopts its own set of rules to assess the market. "We first look at the Socio-Economic Class (SEC) 'A' consumer base in any town and then we also study the 16-30 age group in the population," says Brotin Banerjee, head of marketing and strategy for Barista. Mini-metros currently make up about 10 per cent of Barista's sales. Banerjee expects that to go up to 25 per cent in the next two to three years. Barista also plans to add 60-100 outlets by the year-end and is looking at mini metros and towns for expansion.

Online broker Sharekhan, however, is faced with a more fundamental problem whilst assessing markets. The prospect of 200 per cent growth in these towns comes with a caveat and that is infrastructure, more specifically internet banking and at another level Internet connectivity itself. "My criteria for going to a town are very clearly decent Internet connectivity and basic banking facilities. Infrastructure is the basic issue otherwise the potential is simply huge," says Sharekhan's Shah.

One retail brand that is playing its cards very carefully on its small town foray is fast food conglomerate McDonald's. "We have a different strategy to tap the class one towns. We try and capture two opportunities with the outlet, one is the potential of the town itself and another equally exciting proposition (of highways)," says Amit Jatia, McDonald's franchisee for western India. So while McDonald's has outlets in three towns already-Kalamboli on the Mumbai-Pune highway, Doraha near Ludhiana and Mathura-they are all strategically placed on national highways or at least close to them. "You would be amazed at the Panvel and Patalganga (townships near Mumbai) traffic that frequents the outlet at Kalamboli over the weekends," says Jatia, explaining the strategy.

"We try and capture two opportunities with each outlet: the potential of the town, and that of its highways" Amit Jatia Franchises, McDonald's India (Western Region)

The Rise of the Aspirational Class in Middle India

What is it about big brands that has caught the fancy of small town India in a uniform rush across the country? "First of all these are all aspirational brands and aspirations are valued most in small towns," states marketing and brand consultant Jagdeep Kapoor. "A small town buyer would think twice about paying Rs 30,000 for a washing machine since he doesn't need it but the same buyer would target a Rs 1 lakh home theatre system since the 'show off value' in the second category is very high, which is why products like Plasma TVs or Projection TVs do well in the towns," explains Raval.

D. Shivakumar, VP, Consumer Electronics, Philips India, confirms the trend. "There is a huge demand for high-end flat TVs, home theatres, DVDs and top end refrigerators. DVDs in particular are becoming a hugely relevant category," he says. "Earlier the smaller markets were insular, now the boundaries are totally porous so just any brand will not work, it will have to carry the proposition of acceptability. The television is a great fueller for brands," says Banga. On his part, Kapoor of Samsika expects apparel, food, books and music and pharma products to be the key product categories that will really take off in the smaller towns as retailers pitch their tents in these markets.

The other trend according to ICICI's Kochhar is one where consumption of high end products as well as houses is happening much earlier in the life of the consumer and the third trend is something she calls a behavioural change, wherein saving is not a habit any more. Borrowing and repaying is really the order of the day. Most of the 60-odd locations where personal loans were launched by ICICI Bank in the past year have been in class one towns, says Kochhar. She points to another interesting trend that is fuelling consumption in these towns. "There is a clear trend towards upgradation of consumption, where a chap with a two-wheeler is looking at a low-end car and the one with the low-end car is looking at a luxury model".

In sum, the aspirational class in the class one towns has arrived and fuelled by an explosion in products and services, that class is opening up a whole new world for marketers to tap.