Decoding Bharat
Assorted notes on the Bharat consumer and potential monetisation opportunities
This is the first in a series of articles that has been forming in the back of my head over the past 3 years. It’s an attempt at demystifying the Bharat user, with some focus on the potential monetisation opportunities for this audience. Caveat: These articles are more top down than bottom up, and draw a lot on anecdotes to paint a picture of a potential future which might or might not pan out.
Here’s the current narrative around the India consumer story.
There are possibly between 30 - 60 million Indians (depending on how you triangulate) who drive a large majority of the consumption in India.
Consumer tech companies in India today are very quickly hitting the limits of their growth within this subset of consumers.
It is extremely tough (and maybe impossible) to monetise consumers at scale beyond the 30-60 million transactors.
Screenshots taken from the Indus Valley Report by Blume Ventures.
I’ve found myself wondering quite a lot about the third point above - how do you monetise the non-Tier 1 audience in India?
Having worked at ShareChat and Apna and having seen some of these monetisation levers in action at scale, I thought it’d be instructive to put some notes together.
Here are some questions that I hope to answer this and following posts.
How do we personify users outside the top 30-50 million consumers? What do we know about them?
Can they pay? How much?
What entities have been successful in making them pay?
How do we build a framework on how to monetise this audience?
Let’s go.
How do we personify users outside the top 30-50 million consumers? What do we know about them?
As we have all grown up hearing, India is an extremely diverse country. 1.4 billion people, 22 languages, ~1000 ethnic groups ++. To try and summarise this into a ‘type of consumer’ is reductive, but for ease of understanding we will have to try and do it anyway.
Here are some bullets to start off with.
How many? Those who can transact online today probably number around ~200mn (UPI users minus Tier 1 users from the Blume report screenshots above).
Regional language first - The primary language of communication is not English. Instead these users think (this is important) and interact in one of 22+ regional languages and dialects.
Location - The Bharat consumer lives mostly outside Tier 1 cities, and the economics of living in a Tier 2 city like Meerut is very different from living in Delhi.
Consumption habits differ - Their habits of consumption differ significantly from both Tier 1 users and within themselves.
A native Marathi speaker living and working in Delhi, will consume very differently from a Marathi in Ratnagiri, who will in turn spend on very different things compared to a farmer in Punjab.
Some more examples of consumption habits (anecdotal, illustrative) - In Tier 2 cities groceries are bought daily, often on credit. Low ticket size purchases across food, clothing, repairs are common. Mobile phones run on pre-paid plans. There are micro localities within small towns which run their own informal self sufficient economies, providing products and services across commerce (kiranas and local shops for everything from food to clothing to furniture to electronics), finance (local kirana credit + unofficial seth/moneylender), primary healthcare (small clinics), and education.
Short term thinking dominates
This is interesting. I’ve always wondered why low income consumers buy obviously low quality items at a lower price point, when buying something which lasts longer at a higher price point works out much better from an ROI perspective.
To understand this, it’s important to illustrate how low income households allocate discretionary spending.
For a household of 4 earning 20k INR a month (3k USD per capita per year), after the basic expenses of food, rent, clothing, education, and electricity, there is probably very little left over. Let’s say there is 2k left over - and there is a choice between new footwear - one costing 200 rupees which will last 3 months, and another costing 800 rupees which will last 2 years (24 months). A rational consumer will pick the one that costs 800 rupees, because over 2 years he spends less overall. But a low income consumer invariably buys the item for 200 rupees. Why would this be the case? (Read The boots theory of economic unfairness)
The obvious reason is that there is not enough available discretionary income to allocate to a large ticket purchase. But over some conversations with my house help another slightly pessimistic reason emerges - consumers in this income range are not able to evaluate long term ROI. This is because they have not been brought up in a context where they can think beyond 6 months. (‘bhaiyya kal kya hoga kisko pata?’). There is no predictability in what tomorrow brings, and when you make economic decisions with this framing, short term thinking will dominate. This forces low / medium families into a negative cycle, where successive short term decisions dent their ability to allocate income in the medium term to grow their income, health, and education.
This is also why formal micro credit is so important for this consumer. It effectively enables them to smooth over economic shocks, and trade off short term survival decisions for something that brings them ROI in the medium term. (In the boots example, consider if a low ticket loan enabled the consumer to buy the high quality item, simplistically he would have money saved over to repay the loan because he is not spending on boots every 3 months)
This line of thinking is not new in the world of developmental finance, but might be new to builders and product managers. And micro finance is of course is big in this audience that has been around for a while - Mohammad Yunus, Nobel Prize, father of microfinance.
What efficiencies could tech enable in micro credit for this audience? Could it be better underwriting with more data? Better models for joint liability for self help groups? Could it be access at scale? Or could it just be partnering with existing micro finance institutions to enable efficiencies (current microfinance loan portfolio in India is ~35bn USD)?
PS: I have left out some interesting UX interaction patterns that dominate in this user base for another post, which might interest designers and PMs more than this top down analysis.
It’s clear by now that this audience is very different from the average Koramangala-Indiranagar-HSR based tech person. The ecosystem in India is an echo-chamber of the habits of the top consumers - who think in English, live in cities, and operate on very different economics. So it’s not a surprise that a majority of the large consumer business that have been built so far focus on the Tier 1 user and their habits (food delivery, e-commerce, credit ++) which are visible and easier to understand for the average Bangalore based builder.
(Narrative violation - Paytm and Vijay Shekhar Sharma, who is unfortunately not an investor in this newsletter. I’m a big, big fan of the Paytm Soundbox).
Of the few that reach beyond the Tier 1 user cap of 50 million (ShareChat, Dealshare, Animall, Citymall, Meesho++) none are sure shot successes today, but have definitely found an audience and a product that works. The scale and monetisation question, however, still remains unanswered.
Before we move to the next section on assessing the potential to pay for this audience, a quick sidebar.
Sidebar: Building for the Bharat user
The best products come from deep insight, and deep insight does not come easily. As a founder/builder/average tech person, how do you build for a user you don’t identify with and, for all practical purposes, is from a different country? (location, income, language, culture, lived experience?).
It’s not easy, but I have a couple of ideas.
Idea 1: Talk to your panwari. This link will take you to a LinkedIn post which talks about identifying a pioneer user in this audience who you might have access to and talk to them about changing habits. Pioneer users usually straddle both worlds (Tier 1 + Bharat), are upwardly mobile, and are the early adopters of tech in the Bharat audience, while being available in a context (location, language) which allows easy access.
Idea 2: Explore content platforms outside your comfort zone. Marketplace PMs know this - the way to identify a marketplace ripe for a vertical product is to look at Craiglist and unbundle the ones with most traffic. Taking a similar analogy - content is the first frontier of interaction with the internet for a lot this audience. So to understand their wants/needs/emotions, it is instructive to dive deep into platforms like ShareChat (for example, the reseller behaviour pioneered by Meesho was visible on niche fashion hashtags in ShareChat), and Facebook Groups (want to build a product for truck drivers in India? Find a group of truck drivers on Facebook and observe what they talk about). If you spend enough time looking at the content that this audience engages with, you will be able to build better empathy for the user and identify where their attention lies. It’s also a great place to strike up unfiltered conversations in comments and chat which are great to get insights.
Side note: In face to face research conversations the average Bharat user will give you incorrect signals because of the perceived power imbalance. This person is aspirational, and wants you to like them. It’s easy in such a context for them to nod along and agree to whatever you say as a designer or a product manager. Beware of this trap - you might just be confirming your own biases.
Now back to regular programming.
How much can the Bharat user pay?
This is a tricky question to answer. The quick triangulation is to look at GDP per capita. Here are the numbers from the Indus Valley report (again).
The top 120mn in India have GDP per capita of 12k USD, and the next 100mn have a GDP per capita of 3k USD.
What’s the first question that you would ask in the root cause analysis part of your product interview after looking at these numbers?
Are these numbers correct?
Maybe not. Some characteristics of the Indian economy are: a large % of informal business, a low direct tax base, and a large % of the population engaged in agriculture (who don’t have to pay tax on income). Consequently, the official GDP estimates might be off by some % (this report suggests ~18% in 2015, i.e. the actual GDP was higher by 18%). Given how the economy is disproportionately informal and agricultural in Tier 2 cities and beyond, it is likely that GDP is relatively more under-reported for the Bharat consumer.
Irrespective of any play in the numbers, the Bharat user is obviously not as large an addressable market. This, combined with the challenge of delivering products and services across a very heterogenous customer base, generally means that the chances of failure are high.
Where does this leave us in terms of the “How much can the Bharat user pay question”?
My opinion is that fundamentally, there are still large businesses that can be built by focusing on this audience, but they are much much tougher to build. The tech builder and funder ecosystem doesn’t understand this user yet. Sure there are projections of TAM and GDP and hypothesis, but there should be a lot more bottom up insights. Consequently, we are likely to see a higher failure % in products being built for this audience early on. However we should be careful not to extrapolate this to a lack of potential for success, because, actually, there are businesses/entities that have managed to get this user to pay today.
What entities have been successful in making the Bharat user pay for goods or services?
The tech ecosystem, constrained as it is by its geographical and TAM concentration, is enamoured with ‘micro payments’, and the potential they have to get Bharat consumers to pay. However, micro payments are only a mode of payment (and not something this audience is new to). Tech products still have to solve a problem for the user which can get users to complete a ‘micro payment’. Two current examples of consumer tech products utilising micro payments are ShareChat (Audio chatrooms) and Pocket FM (coins to unlock chapters of books), but these are just early examples of the great monetisation potential at the bottom of the pyramid.
Outside of tech of course, there are lots of examples of people using micro payments for products they actually want.
The OG is FMCG.
Popular lore credits HUL as being the pioneer in introducing shampoo sachets at Rs 1 in the 90s, but here is another interesting anecdote I found in this article from The Print.
Cuddalore is a small port town located in the southern Indian state of Tamil Nadu. Before the British renamed the town, it was called Koodalur, meaning ‘confluence’ in the Tamil language. It was the meeting place of four rivers. In the eighteenth century, Cuddalore was also the scene of intense action between the British and French forces, both on land and at sea. Chinni Krishnan was a farmer-turned-entrepreneur in Cuddalore who dabbled in pharmaceuticals and FMCG in the first few decades following independence. Sometime in the late 1970s, a few years before his demise, he came up with the idea of selling products in small sachets. In those days, talcum powder and Epsom salts were sold in tin containers or glass bottles, and the minimum quantity was nearly hundred grams.
He noticed that these products were not bought by the workmen in the farms and factories or the other low-income communities he had known so well, because they were considered expensive. In a bold move, he made a call to change the packaging and began selling talcum powder in twenty-gram packs and Epsom salt in five-gram sachets. He soon realized that even liquid products could be packed in sachets. The idea was a huge success. After seeing people who had never used a product before experiment with it because of the affordability of a small pack size, he was convinced that sachets would be the future.
Readers might not recognise the name Chinni Krishnan, but will definitely know Cavinkare, the company started by Chinni’s son CK Ranganathan, and a large FMCG player.
FMCG is the pioneer of getting people to use micro payments and also why I consider FMCG marketers to be the best at understanding the pulse* of Bharat at scale. Helps that they have to do a sales stint in the hinterlands when they start off their career. There clearly is no better way of generating insight than lived experience.
*(interestingly there is also a great story of how the raw mango flavoured Pulse candy became a behemoth in the super competitive sugar candy space)
Now let’s talk a bit about Salman Khan? I remember there was a time almost 2 decades ago, when a movie called Tere Naam starring Bhai and Bhumika Chawla took north India by storm. Within a month of its release, Sallu Bhai’s hairstyle was adopted by every blue blooded 18-25 year old out there, with the middle parting long hair becoming a mainstay in barber shops. It was almost like there was a mini Salman production line. 15 year old me was flabbergasted, but 20 years on, Salman Khan still has an almost vice like hold on the average Bharat mid 20s male audience.
Which brings us to movies. If there are 22 languages, there are almost that many different ‘woods’ producing movies that reflect Bharat’s local aesthetic and culture. Here’s chatGPT helpfully listing them (hopefully it hasn’t hallucinated much)
The average tech person in Bangalore might not have heard of Kannada actor Dr Rajkumar, or indeed know that his busts dot traffic signals and intersections across Bengaluru. Or that there are registered fan clubs for movie stars in South India (of the order of ~1000 just in Tamil Nadu with ~500k members).
But all of these are just indicators of the hold the Indian film industry has on the hearts and minds of the Bharat user, and which is why FMCG knows, if you want to sell something, put a movie stars photo on it.
Why? A starting hypothesis is how movies give the audience an escape from reality, which is even more valuable when your reality isn’t that great.
Further thinking is left as an exercise for the reader because Substack has just informed me that I am reaching the email length limit, and I have a couple of more things to talk about.
Switching gears - time to invoke God. Because if you’re in India religion is an omnipresent part of any conversation, and also something people open up their wallets for almost without question. (Indian religious and spiritual market is 40b USD in 2020, which is almost definitely underreported by a large factor.) Micro payments make an entry here as well, the donation boxes in temples well designed to deprive you of your loose change, and the offerings starting at conveniently low price points, promising access to the almighty. If you do spend the last bit of your diminishing wealth, no-one in society will berate your for spending in on God. Apps like Sri Mandir are the latest in a series of attempts to try and cash in on this market, but a Devotion market deep dive is something we will attack later.
And last but not the least, closer home in the tech world, the Paytm Soundbox makes an entry. 6.8m devices deployed and 150m USD made in 3 months of FY 2023. Link
A Paytm spokesperson told Rest of World that in the third quarter of the 2023 financial year, the company’s gross revenue from Paytm Soundbox subscriptions touched 1,197 crore rupees ($150 million). The company has 6.8 million devices deployed across the country.
What a fantastic product! You know how PMs always talk about the a-ha moment? Well the first time I heard the robotic voice in Hindi when I was paying my local sabziwala, all sorts of bells started ringing in the PM part of my brain, screaming ‘a-ha! a-ha!’. This is what pure insight looks like - combining the fact that Bharat consumers don’t trust digital payments easily, and that reading English UX and performing complex operations like ‘checking balance’ are out of scope for the average user. The numbers speak for themselves.
* the more pedantic among us might argue that the soundbox is a product for merchants and not consumers per se, but imo that’s just nitpicking. the average kirana owner is not really a merchant, his profile looks more like a typical consumer.
Phew. If you’re still with me, then together we have put a few hundred words between the top of this email and here. In that time, we’ve gone through data, anecdotes, stories, sidebars, and hopefully created a better perspective on who the Bharat user is, how much they can potentially pay, and who has actually gotten them to pay so far. (and in all of this I hope I managed to keep you engaged). I would venture that the average Bharat user can be monetised, and there are products and businesses that have managed to get the user to pay at scale, but for the tech ecosystem to get there is going to take some time, understanding of the real user with inputs from beyond tech, and a lot of failures.
The question that is still left to answer is: for a potential founder, what is a good framework to think about monetising this user? Substack will not let me type any more without spilling outside of your inbox, and so that will have to be left for the next edition.
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I had slightly different view point on the "Boot theory" part. There are reasons beyond the long term thinking capability to why tier-2 users prefer cheaper and short-lived products over the expensive and long-lasting ones.
1. Expensive products also come with their own burden of maintenance and liability. E.g.: I had a choice to pick a smartphone between one that cost 25k and another that cost 50k. I can afford to pick either but I still went with the cheaper one knowing very well that the expensive one has better features overall. And the reasons: if the phone ever gets stolen/breaks, I would be unhappier in the case of expensive phone than the cheaper one. And there's good likelihood that expensive phone would also come with a higher maintenance cost.
2. There's a limit to how much I spend on what category. A 800 pair shoe would make up a much higher % of the family’s total income than the 200 pair. Everyone wants to save as much as they can for the unknown that the future brings. The 200 pair fits their level of expectation from a shoe and hence there is marginal return for them in spending any more than this.
A well written article.
Would like to add, India runs on ABC --> Astrology, Bollywood & Cricket. You covered Religion (astrology) and bollywood, would have loved if cricket was also included given Dream11 and other such apps have been able to monetize the audience beyond the top 5%-10%.