Socio economic classification system in india

Socio Economic Classification Grid of India
Paper presented by
Murli Mohan Rao
Private ... restricted circulation
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What is socio economic classification?
Refers to a method by which the general population is divided into segments basis their social and economic status
An effective socio economic classification system helps us in achieving the following:
Targeting the right segments for a given product category, especially in the launch phase
Conducting marketing research activities with the most appropriate consumers for a given category or brand
Designing differential marketing strategies for different segments
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Origins of socio economic classification …
Till mid 80’s, marketing research agencies and clients used the income based classification method
A set of bands were identified (which in itself varied between companies and clients) and basis incomes stated by a respondent, they were classified into segments such as:
Below poverty line
Poor
Lower middle class
Middle class
Upper middle class
Affluent / rich
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Origins of socio economic classification (contd) …
However, this method of classification had several shortcomings:
Credibility issues …
In India less than 2% of the earning population pay taxes … while this can be largely attributed to financial constraints, it is also true that many people hide or mask their actual incomes to escape tax. Hence, in a typical market research scenario, very few people actually reveal their true income
Difficulty in tracking over a period of time …
Due to inflation and other issues, the value of a particular salary band keeps on changing. For e.g. the Rs. 10000 of today may be equal to Rs. 8000 of tomorrow
Inability to indicate purchase potential …
Merely having money may not necessarily be the best indicator of purchase potential especially because many affluent people in India lead spartan lives
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Difficulty in comparing geographies …
Incomes used to vary considerably by the geography that one belonged to given a host of conditions … thereby making it impossible to compare and assess different geographical locations
Ignorance about actual income …
In case of blue collared workers and below, there is a great chance of people not even knowing about their total income as their income is susceptible to vagaries … i.e. daily income as against a regular salary, several days in a month where they cannot find work, seasonal incomes, especially in businesses such as agriculture
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Hence, there was a need for a:
System that was based on credible information
System that stood the test of time
System that helped in reasonably determining purchase potential
System that was relevant across the length and breadth of the country
System that worked across various cross sections of the society
With these objectives, industry stalwarts came together and designed the modern socio economic classification system
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Modern socio economic classification …
The modern socio economic classification method uses two major variables to classify the population at large i.e. EDUCATION and OCCUPATION of the chief wage earner
The Chief Wage Earner is defined as the person who contributes the maximum to the total income of the family. This was relevant for the Indian condition, as the main contributor to income usually had the maximum say with regards to purchase decisions in the family
Basis various combinations of these variables, consumers can be classified into different socio economic classes … A1, A2, B1, B2, C, D, E1 and E2 (in that order … from affluent to deprived)
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Modern socio economic classification (contd) …
It addresses many of the issues that otherwise existed with income based classification:
It now stands the test of time … as respondents evolve in financial and educational status, their SEC changes accordingly
It is more credible … as most people will not have any issues in sharing their educational and occupational background
It is true for pan India … as it bypasses the vagaries that are otherwise associated with income based classification, which is usually geography dependent
It estimates purchase potential with reasonable accuracy … as it relies on the two most relevant contributors to evolution in individuals i.e. education and occupation
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Modern socio economic classification (contd) …
The modern socio economic classification system has two versions:
The urban version and The rural version
The urban version uses variables as indicated in the previous section i.e. INCOME and OCCUPATION … the rural version on the other hand uses EDUCATION and TYPE OF HOUSE, as occupations can be almost similar across most Indian villages
Pucca(means house with concrete and steel)
Kaccha (means thatched houses or huts)
Semi Pucca (means a mix of concrete and thatched houses)
The next couple of slides detail each of these grids
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Urban SEC grid …
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I have below a list of educations and occupations … can you please indicate the education levels and occupation of the person who contributes the maximum to family income? (CWE – Chief Wage Earner or the person contributing the maximum to family income … may not always be the highest earning member in the family

Urban SEC grid (contd) …
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Urban SEC Grid (contd) …
The SEC grid too has its share of problems, as it clubs rich Industrialists like Anil Ambani in the same bracket as a senior corporate professional
Hence, in such cases, wherein we need to focus on super affluent, we use additional filters (outside the SEC grid) in research assignments … consumer ratings on these filters help us in estimating their extent of affluence / evolution … for e.g.
Number of international trips in a year (non business)
Number of durables owned
Area of residence
Club membership
Type of credit cards owned
Kind of house and so on …
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Urban SEC Grid (contd) …
Interestingly however, agencies and clients over the years have tried to get an income angle into the standard socio economic classification matrix … while there have been many conservative estimates, the following appears to be closest to the reality of what I have observed and understood over the years
SEC A1+ (affluent, senior most staff, senior businessmen, CEOs …)
30000 + MHI (MHI means monthly household income from all sources)
SEC A1 (educated, senior managers …)
20000+ MHI
SEC B1
14000+ MHI
SEC B2
10000+MHI
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Rural SEC Grid …
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Other interesting links …
http://www.bijapurkar.com/demanddrivers/dsds_calibrating.php
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Socio economic classification system in india

by Murli Mohan Rao

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