Consumers break class barriers

Sachin Tendulkar owns a Ferrari, and his million-dollar endorsement deals are a matter of widespread national interest. As a brand ambassador, he is a marketer's delight who has helped resurrect the flagging fortunes of several brands.

But many brands that he has endorsed in his 18-year career were never meant to be used by him. Tendulkar, who hasn't completed his graduate studies, would fall into what most Indian marketers recognise as socio economic classification (SEC) B - a category that is distinctly middle-class. Is that's a sureshot sign the two-decade-old demographic classification SEC, the Indian marketer's rosetta stone, is past its sell by date?

Increasing urbanisation, disposable incomes and attitudinal shifts among consumers have resulted in an explosion of consumer segments making it impossible for the classical SEC definitions to keep pace. “SEC is too crude. Consumption has become more refined in the country. The reliance on this model has meant that companies follow a price-based and linear segmentation,” says Future Brands CEO Santosh Desai.

“The classification on its own is perhaps too simplistic. We have been using psychographic and ownership data as surrogate data to go along with the SEC classification,” says Marico head of marketing Saugata Gupta. What Desai and Gupta imply is that today it would be misleading to categorise someone in a lower SEC category such as B or C merely using the parameters of education and occupation, and on that basis, target products and services which may actually not be intended for them.

The uni-dimensional way of looking at demographics is a key limitation of SECs. “Several layers of consumer segmentation need to be added on like psychographics, cultural clusters, and life stages to make a compelling basis for defining consumer segments,” says Marketgate founder and managing director Shripad Nadkarni.

The mobile handsets and automobile sectors best illustrate the changes in consumer segmentation. A decade back, in the case of the car market, bigger-sized cars were always perceived to be better and hence more expensive.

“Today a Swift competes outside its so-called category with bigger cars such as Esteem and Ikon. The consumer is willing to pay more for a smaller but better designed product. People are using brands to express themselves more than ever before. The size-price equation doesn't hold good here,” explains Desai.

Till some years back two-wheeler manufacturers classified their offerings into three broad pricing defined groups - entry level, deluxe and high-end. “We could do with a model each of these segments. Today, there are so many consumer segments, and choices so refined that we have to have at least three models catering to very different aspirations in every price point,” says Hero Honda VP, marketing and sales Anil Dua.

For instance, the pricing of Hero Honda's three top-end products may differ from each other only by around Rs 5,000 but the target group for Karizma (unabashed thrill seekers and power bikers) is vastly different from that for Achiever (design freaks who also value long commute comfort).

“An SEC B2 household in Punjab is vastly different from the one in Maharashtra. Classical market research would suggest that the 20 million new mobile users entering the market would be the ideal targets for no-frills, basic handsets. But the matrix is far more complex than that. The first-time users today are as demanding about features,” says Motorola India director marketing Lloyd Mathias.

“Marketers focus on product positioning but not segmentation. It is an under utilised strategic tool,” says marketing consultancy Samsika's MD Jagdeep Kapoor. No doubt, there is a lot of opportunity waiting to be mined if marketers pay more attention to changing segmentation.

Perhaps, the first company that has completely junked the SEC segmentation, and prospered nonetheless is The Future Group. The company has gone with its own market definition for all of their retail formats. “We have been maintaining that the SEC classification is not a true representation of Indian consumers for three-four years now,” says Future chairman Kishore Biyani.

The group has worked out a system where the entire set of Indian consumers is divided into three broad categories. India One or the consuming class, India Two or the serving class and India Three or the deprived class. Biyani's philosophy is simple.

India One consists of the 'consuming class' that makes up 16-18% of the consumers but account for 95% of the buyers. That is the core target audience that he is trying to capture. Also on Biyani's radar is a part of India Two, the group that serves India One, for instance, servants, watchmen and small grocers.

Consumer durables major Mirc Electronics, the maker of Onida brand, too decided to 'go directly to the consumer' to find who the buyers are, since they believe that aspiration values of lower SECs are much higher than their consumption level suggests. For instance, in smaller towns, it has been very actively undertaking exhibitions for selling flat-screen TVs and ACs.

“We sold 40 microwave ovens in Palwal, Haryana. Market research suggested it was a town that didn't spend too much money on durables, but it would been completely off the SEC radar,” says the company's VP (sales & marketing) Vivek Sharma.

Created in 1988, the SEC divided Indian households on the basis of the chief wage earner's education and occupation, SEC A1 to R4, covering all urban and rural areas. The direct correlation between a higher SEC and education was a result of the belief that a better educated person would have greater (organised) employment opportunities.

“There will be a consumer who will spend only Rs 30 on a Dove soap, which is a luxury product, but there will also be someone who will spend (merely) Rs 5,000 on a television. These two consumers can't possibly fall into the same SEC,” says Chlorophyll brand & communications co-founder Anand Halve.

A temporary solution was formed by splitting SEC A into two categories, A1 and A2. This led to a further division, as affluence rose in SEC A1 to an A1+, which was formed with a threshold of Rs 10,000 as monthly income. Yet, this has become dated, with nearly a decade since the idea of SEC A1+ was mooted. In fact, it's been a decade since any serious changes were made to classify consumers.

In 2002, Unilever devised its proprietary Living Standard Measurement (LSM) index as an alternative to SEC, which segments consumers into 18 LSM clusters on the basis of 25 parameters such as income, education, durables ownership, media consumption, entertainment preferences et al.

The Anglo-Dutch's Indian subsidiary, Hindustan Lever has been using LSM. Recently, AC Nielsen too came up with a model called 'Nupscale' (short for Nielsen Upscale), based on the usage of 12 consumer durable products by the consumers. Greater the number of products they used, higher they scored on a 15 point scale.

But ACNielsen's CEO Partho Rakshit contends that the inadequacy of SEC is evident only in the top 10% or the affluent consumer category. “The multi-layered segments are visible among the users of luxury and expensive products. At the bottom end of the consumer spectrum things are still the same,” he says.

He may be right, for there are big marketers who think along those lines. “We're using the (SEC) classification data, because it's the only data that we have. We do use it in tandem with additional data like ownership and consumption but there is no alternative to demographic data,” says LG Electronics marketing head Girish Rao.

But then, as the country's number one durable & electronics marketer shifts focus to high-value products, it will be interesting to watch whether SEC's limitation starts staring it harder in the face or not?

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