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Socio Economic Classification Grid of IndiaPaper presented byMurli Mohan Rao

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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 4

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Origins of socio economic classification (contd) …

• 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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Origins of socio economic classification (contd) …

• 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 9

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Urban SEC grid …

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CWE Education Code CWE Occupation CodeIlliterate 1 Unskilled worker 1Literate, but no formal schooling 2 Skilled worker 2School – upto 4th standard 3 Petty trader 3School – 5th to 9th standard 4 Shop owner 4SSC / HSC (10th – 12th) 5 Businessmen /

industrialist (no. of employees)

None 5Some college (incl. Dip) but not graduate 6 1 – 9 6Graduate – general – BA, BSc, Bcom 7 10 + 7Graduate – profess – BE, MBBS, Btech 8 Self-employed professional * 8Post Grad – general – MA, MSc, Mcom 9 Clerk/Salesman 9Post Grad – general – ME, MD, MTech 10 Supervisory level 10

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

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Urban SEC grid (contd) …

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Occupation of the Chief Wage Earner

Illiterate School up to 4th / literate but no formal schooling

School – 5th to 9th

SSC / HSC Some college but not graduate

Graduate / Post Graduate – general

Graduate / Post Graduate – professional

Unskilled E2 E2 E1 D D D DSkilled workers E2 E1 D C C B2 B2Petty traders E2 D D C C B2 B2Shop owners D D C B2 B1 A2 A2Businessmen / Industrialists with

Non D C B2 B1 A2 A2 A11 – 9 C B2 B2 B1 A2 A1 A110 + B1 B1 A2 A2 A1 A1 A1

Self employed D D D B2 B1 A2 A1Clerical D D D C B2 B1 B1Supervisory D D C C B2 B1 A2Officers / Executives – Junior

C C C B2 B1 A2 A2

Officers / Executives – Senior

B1 B1 B1 B1 A2 A1 A1

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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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EDUCATION OF CHIEF WAGE EARNER

PUCCA HOUSE SEMI PUCCA HOUSE KACCHA HOUSE

ILLITERATE R4 R4 R4SELF LEARNING (NO SCHOOL)

R3 R4 R4

UPTO CLASS 4 R3 R3 R4CLASS 4 – CLASS 9 R3 R3 R4SSC / HSC R2 R3 R3COLLEGE R1 R2 R3GRADUATION / POST GRADUATION – GENERAL

R1 R2 R3

GRADUATION / POST GRADUATION - PROFESSIONAL

R1 R2 R3

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Other interesting links …

• http://www.bijapurkar.com/demanddrivers/dsds_calibrating.php

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