India is far too complex a market with multiple determinants of consumption behaviour, that no single consumer classification system works well for all kinds of product categories, and for all kinds of strategies. Income is one basic classificatory system which we have discussed earlier. The SEC (socio Economic Classification) system for classifying consumers is a favourite and, some would argue, more robust alternate system used by marketers and market analysts to classify consumers based on their propensity to consume. More robust because it is closely correlated with income, and easy to accurately elicit from respondents, no matter how poor or illiterate they are. The Urban SEC system (classes A to E) is based on the occupation and education of the head of the household, while the rural SEC (R1 to R4) system is based on the education of the head of the household and the type of house lived in.
There is however one problem with SEC classification that income does not have. In the case of income, it is intuitively easy to quantify the purchasing power of each income class; and, as discussed in the previous article on income, while this may not be a valid absolute measure of income, it is a very reliable measure of relative income across different classes, allowing us to compare them usefully. To compare the purchasing power of each SEC class by going back to income distributions of each social class member would defeat the purpose of having an alternate categorization method that was free of the problems of income measurement. Therefore, spurred by the core idea of socio economic classification that all variables used must be easy to elicit and easy to verify, the team at Hansa Research has developed two simple yet forceful constructs, one that works at an aggregate level and the other that works at a category level. Both use data from their IRS study. IRS is a twice a year survey conducted by Hansa Research for the Media Research Users Council, MRUC. IRS 2005 had a sample size of 2,42,118 households from an all India sample.
1. The aggregate level index called Households’ Potential Index (HPI),
HPI uses consumption / ownership of a whole host of durables, packaged goods, services and demographics, to construct a simple aggregate index of how much purchasing power a household exhibits. (See table). The concept underlying the index is simple – households owning or using a low penetration item or having a less popular demographic characteristic (like high education levels) get a higher score for that. The scores are then aggregated across all items and a HPI score arrived at
for the household. Thus in place of income, we have a sort of “consumption” / “ownership” / “characteristics” based index which is a measure of purchasing power. Again, the score for any category is simply done, eliminating all judgement. It is the reciprocal of the penetration of the category in the total universe. Thus if 70% have a television, then television ownership in a household generates a lower score on power / potential (1/70), but if only 10% have an air conditioner, then air conditioner ownership in a household gets a higher score (1 / 20). The raw scores aggregated across all items included in this index are then normalized on a 1 to 1000 scale. Further, within a broad category, premium versions of it as treated differently – example, a black and white TV, a colour TV and a flat screen TV.
Based on this HPI score, the relative purchasing power of each SEC is as below
For the first time, on a sensible common scale the rural SECs and the urban SECs have been compared. This eliminates the differences in how they think about income (since these types of income surveys measure respondent’s perception of their own income, without any cross checks).
The R1 social class, the top end of rural is between B2 and C of urban, closer to B2. therefore, we would say that there is one top band of purchasing power in India, Urban A1A2, comprising about a little over 6 million households; Then there is the next band, which we believe would qualify for the ‘middle class India” label, comprising B1R1B2C, between them, harbouring 30 million households; The ABCR1 target group which would form the broadest possible target group for most consumer goods is about 35.4 million households, and 132 million individuals over the age of 12. This target group grew 26.9% between the years 2000 and 2005. Then there is the lower middle, comprising DE1R2 which is about 37 million households, where we believe that most Bottom of the Pyramid activities should begin. The lowest income, are the E2R3R4 of 134 million households. These households, form the bottom 60% of the population by income, but account for an income share of 30%. Perhaps there is fortune, after all, at the bottom of the pyramid!
2. The measure of consumption evolution or sophistication of a SEC at an individual category level : For each category that one would like to examine, the overall penetration of the category is plotted against the share of ‘premium’ or ‘evolved’ or ‘sophisticated’ variants of that category. For example: penetration of all TVs vs. colour TVs; penetration of colour TVs vs. flat screen TVs. Penetration of any motorized transport vs. 4 wheeler ; penetration of all dental care products vs. penetration of tooth paste and so on. The positions of each SEC on this penetration – evolution graph provides a comparison of the relative sophistication of the SEC with respect to the category.
Relative Levels of Sophistication of Consumption across SEC
The charts 1 to 5 plot, for all the SEC classes, the relative sophistication of each SEC as described earlier i.e. a plot of penetration of the total category vs. the penetration of the premium or sophisticated variants in the category.
This has been done for the television category in charts 1 and 2 (all TVs vs. colour TVs penetration in Chart 1, all TVs vs. flat TVs penetration in Chart 2), personal transport in chart 3 (all motorized transport vs. cars penetration), for the oral care category in chart 4 (all dental cleaners vs. toothpaste penetration ), and the skin care category in chart 5 (all skin creams vs. specialized skin creams penetration).
One interesting finding is that the rural R1 on this criteria is equivalent to different catego ries of urban SEC, perhaps partly due to the intrinsic felt need of the category and partly due to the marketing effort aimed at it. In televisions, R1 is equivalent in sophistication to D and R2 to E1; in personal transport, R1 is actually equivalent to B2; in oral care and skin care, R1 is equivalent to C in consumption sophistication.
For detailed methodology and data, please contact Hansa Research, IRS team. Mr. Vineet Sodhani’s email id is
Vineet.Sodhani@hansaresearch.com
irsinfo@hansaresearch.com
Rama Bijapurkar is an independent market strategy consultant and Ashok Das is the Managing Director of Hansa Research
