For marketers across the globe, understanding target audience and their consumption pattern is one of the essential tasks. It not only helps marketers make targeted marketing decisions but also help in reaching their TG more effectively and meaningfully.
Since the mid-80s, Indian marketers had relied on a socio-economic classification (SEC) system as an important aid in helping them decide on marketing strategy and budget allocations.
The SEC’s main aim: To segment consumers based on the education and occupation of the chief wage earner in the household. Marketers were left with eight classes of urban and rural consumers. As these classes had varying spending habits, it served as a good barometer for companies that had goods and services to sell.
But in the post-liberalization years, the consumer landscape started to change dramatically and it increasingly became clear to the marketing fraternity that education and occupation were often not the best indicators of income. And this old socio economic classification (SEC) system eventually gave way to the new consumer classification system (NCCS).
Here, all households—urban and rural—are being measured using the same yardstick; the education of the CWE and the number of durables owned. There is a pre-decided list of 11 items that a household can own and households are mapped from SEC A1 to E3, across India.
While NCSS was developed to overcome the SEC’s limitation, experts are still split on which classification is better. Here’s a break-down on both the classifications:
Socio Economic Classification (SEC)
Ratified by Market Research Society of India (MRSI), SEC classifies the affluence of a household using occupational and educational parameters. It classifies rural and urban households differently. The urban classification is a function of the chief wage earner’s educational qualifications and occupation, while the rural one is based on occupation and type of house (pukka, semi-pukka, etc.). Urban households are graded from SEC A1, A2, B1, B2, C, D, E1 to E2. The rural sector is divided into R1, R2, R3 and R4.
Socio-Economic Classification (SEC) Table – Urban
Socio-Economic Classification (SEC) Table – Rural
Here, ‘high’ socioeconomic classes refers to SEC A&B, ‘mid’ socioeconomic class refers to SEC C and ‘low’ socioeconomic classes refers to SEC D&E. For instance, a premium car brand may only target the top SEC A category and if it’s a mass brand, they target the lower SECs—C, D, etc. in their advertising campaigns
What it lacked?
As per many reports and opinions, the SEC classification was representative of the earlier economic reality, which has changed drastically today. With the booming economy and abundance of opportunities, occupation could not be the only criteria to give a clear representation of the social strata. For instance, unskilled labourers like carpenters, construction contractors, etc., have seen a wage explosion, whereby their aspirations and awareness could be similar to much more educated and skilled workers. Their kids can go to the same schools and influence parents to buy similar products as higher SECs. Besides, there was a need for greater discrimination amongst top tier consumers. For instance, a marketer looking to sell a Mercedes would often find a potential Vento buyer grouped under the same class as a potential Mercedes buyer.
Other than this it was felt that SEC discriminates between the uppermost and lowest levels, and isn’t representative of the situation on the ground. With increasing media penetration the urban-rural divide is narrowing.
In fact, today, rural areas are driving a large proportion of growth; they are becoming a driver for financial services as well. Therefore, experts believed that there should be one classification for both urban and rural (areas) optimized for wealth/affluence of consumers. It would also indicate the propensity to spend beyond the current income.
New Consumer Classification System (NCSS)
The NCCS model, on the other hand, looks at education and ownership of durables and related items instead of occupation. There are 12 new classifications: A1, A2, A3, B1, B2, C1, C2, D1, D2, E1, E2 and E3, in descending order of affluence. The list of possessions include air conditioners, cars and/or other vehicles, computers, liquefied petroleum gas cylinders, stoves, colour television sets, ceiling fans, agricultural land, refrigerators, electricity connections, etc that can be changed over time as per the growth of the economy . Additionally, there are no separate classifications for rural areas.
Classification of a household under NCSS
Classification of a household under NCSS
What it lacks?
The most important drawback of the new SEC model is that it doesn’t allow brands to make long-term historical comparisons. Since under this system, the list of durables will be updated every two years the brands will be unable to make historical comparisons. Where the last system allowed companies to do a 10-year comparison but the new system does not allow it as 10 years later the gadgets might change.
While brand marketers have different opinions about the old and the new SEC classification, some of the pragmatic marketer’s have customized the classification. For instance, Hindustan Unilever has developed an in-house system to understand consumers. Its ‘Living Standard Measurement’ (LSM) segments customers into 18 LSM segments on the basis of 25 parameters such as income, education, durables ownership, media consumption, entertainment preferences, et al. Unilever now uses this system across the world.