Post on 07-Jun-2015
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The potential market for different products, or for that matter, specific brands and offers within a product, may well be very different. The consumer class that you target as a marketer of Cheese would be very different form the one that you target as a marketer of Refrigerators and so on. Hence, the size and profile of the market (number of prospects) would change depending on the specific product offer. The final objective is to showcase through examples, ways of arriving at the target segment for a couple of products, using the consumer classes arrived at through this analysis. However, we shall come to that later. Letus first take a quick look at the current ways of segmenting the market.
Till now, marketers have used variables such as SEC,Income, Per Capita GDP, etc. to estimate the size and profile of various classes in India. However, there have been several debates on the very usage ofthis data.
Marketers have always maintained that income is a good classifier only if the data on income is closer to reality. Says Rama Bijapurkar, an independent market strategy consultant, "Survey income data is reliable and comparable qver time, but it is not the absolute truth on total income. Hence it should be viewed as a 'label of affluence'." Quite true. People are often not fully aware and are usually quite reluctant to reveal their 'actual' incomes. So,what a surveyor would typically get is an understated figure of income. The problem is that one cannot accurately determine the extent of the understatement. Since most surveys collect income details from the housewife, the basic assumption is that she is aware of the total household income. With the exception of the fixed income salaried class, a majority of housewives are not aware of the full income. Even for the salaried class, except for the monthly pay cheque, the rest is often unaccounted for. In many cases, the household expenditure is reported as the household income.
On SEC,the dissatisfaction raised by marketers is of a different type. SECbeing based on just two variables, marketers have felt that it is not adequate for finer definitions. (refer glossary for the detailed SEC grid). The concept of SEC that was derived about two decades ago, may not be as relevant in today's context where education and occupation
patterns have seen substantial changes. 'Almost everybody seems to be SECA' is what some marketers have to say. Evidently, it may not be a good enough discrimination any more. Further, consumerism in the country has developed to an extent that it does not take a person with a high profile education and occupation to own cars or other such expensive products. Also, since in the SECsystem we have different definitions for Urban and Rural India, marketers are unable to plan in a holistic manner. With rural incomes rising, SECis of limited use when it comes to overall consumer profiling.
It is to overcome these issues, that we have introduced a new way of classification: the Household Potential Index (HPI).
Household Potential Index (HPI) HPIattempts to assign a 'premiumness' value to each household. Here, premiumness has been defined as something that is 'wanted by many' but 'consumed by few'. Simply put, it is the inverse of penetration. For example, 41% of all homes in India have a Television, but only 2% have a Flat TV. Hence, homes with a Flat TV are considered to be more 'premium' in the HPI measure.
The concept of HPI allocates high scores for less penetrated products and services. On the other hand, lower scores are attached to higher penetrated or mass consumed categories. The Methodology and HPI scores The IRSdatabase covers a huge range of products and services. This allows us to allot HPI points to each household based on the consumption or ownership of a large range of products and services. A basket of 50 variables have been used for the calculation of the HPI scores. These include Durables, FMCG products, Services and Demographic variables (refer Table 1.1).
- -----~Categories 18 Durables 22 FMCGs 4 Services 6 Demographic Variables
Tablel.1: 50 variables used to construct the HPI Description ~ Entertainment 3 Transportation 2 Kitchen 7 Other Durables 6
Personal Care 8 Household Care 4 Food & Beverages 10 Telephone, C&S,Internet, Banking Education 3 House 2 Number of Working Members
Each variable is assigned a score depending on the penetration of that variable at the national level. Points are assigned for each variable consumed or owned by the household. The scores for each variables thus obtained, aFesummed up to arrive at a total score for the household. This score reflects the relative value of the household in terms of its use of products, services and other consumer evolution measures.
The year 2004 has been taken as the base year for this analysis. Over the years, you will be able to observe the progress of consumerism in any class, as this measure will provide a single index by which this movement can be judged. Advantages ofHPI The single largest advantage of using HPI over any other classification method is that the households that form the upper end of the HPI pyramid are truly the 'consuming/owning class'. Thus, ifwe are looking at the top 1 percentile homes, this set consumes/owns many more products/services as compared to households that fall in the 2nd percentile, and so on . Another important advantage of HPI is that it makes Urban and Rural households
THE GREAT INDIAN PYRAMID Given that HPI is a more direct indicator of 'consumption/usage', we have used HPI scores to construct the Pyramid of Indian Consumer Classes. The criteria used? The first class's average HPI score needs to be double (approximately) that of the next class. In other words, as we move up the classes, the consumption potential doubles with every subsequent class.
Fig. 1.1THE GREAT INDIAN PYRAMID
Sampanna2%, 4 mn, HPI*484
Siddha3%, 6 mn, HPI* 235
Unmukh9%, 19 mn, HPI* 119
Saamaanya10%,21 mn, HPI*65
Legend for each Class: Name, % of Indian household population, No. of households, Average BPI score Refer to Appendix n for English translation of Indian Consumer Classes of Pyramid.
The illustration, Fig. 1.1, presents the structure of the Pyramid of Indian Consumers Classes. The entire country has been divided into 8 consumer classes based on their average HPI scores. If we look at Table 1.2, Samriddha I, which is the top 1 million households (0.5 percent of the population) has an average HPI score of 1997. Samriddha II, the next 0.5 % population percentile, has an average HPI score of 988. Samriddha I exhibits twice the consumption potential as compared to Samriddha II (average HPI score 1997 vs. average HPI score 988). A similar trend will be observed in the subsequent classes.
Value of Durables Owned in the Different Consumer ClassesThis classification concept has been validated using several other indicators. As an example, we present here a validation of the construct through a very robust variable: 'value of durables owned by the household'.
This analysis takes into account the average market value of all durables in a household, for more than 30 durables1 Every household in the 240 thousand sample of the IRSis asked about the ownership of these durables and based on the responses, the total value of durables owned by the household is arrived at. This value has been compared to the average HPI scores of each class to draw a parallel.-,'
, '--~"1,,'" ",,'"
durables durables Value of 'OOOs) \',+ "' the previous class as scores proportion ...... theAverageinownedof of proportion of Tablea 1.2 value HPI ~Rs. as a orevious class
1 '315 ! 116 68 0.513.6 (I) 0.50 0.22 36 235 65 66 15 0.4 197 0.6 484 0.5 119 32 0.5 Samriddha 1997 988 589 27
An average household in Samriddha I has an HPI score of 1997 and owns durables worth Rs. 580 thousand. The average HPI score of the next class is half that of the previous class. Similarly, the average value of durables owned in this class is almost half of that observed in Samriddha I. The pattern is more or less similar across all the classes till we reach the lowest Class. Ifyou notice, the proportion of average value of durables versus its previous class starts diminishing from the Saamaanya class downwards. Given that durable ownership in the household is a very good discriminator of consumerism, the bottom three classes (Saamaanya, Sangharshi and Nirdhan), though large in size, are very distinct from each other.
ank Account odles
CLASSES OF INDIA
Table 1.3 II 51-70% RubsFourBalms,MosquitoCleaner,Drinks,Rubs Washing Powder, Tea, Edible Whitener Talcum AC,Account,PressureTelephone, Powder, Fabric Whitener, >70%II InstantDeodorant,System,PCDeodorantCleaner,TVBalms, Motorised Transport Bank Biscuits, Toilet Milk, FlatToiletMotorisedMotorcycles,Camera &Shampoo,Vanaspati, CookerGhee Mosquito Fresh Ketchup,TV System TV, Wheeler,Washing UtensilAccount, & BankCleaner,Honey, Bank Camera, FloorPC,FoodMachine, Music Shampoo, Fresh Noodles,Repellent, Biscuits Wheeler, Music System, Talcum Milk Cake/Bar, ToiletFour FabricAccount,Music Cooker Vansapati,FabricFloorRepellent,Milk Cleaner,Repellent, Powder, Ghee, Telephone, Toothpaste, Mosquito PressureUtensil Cleaners, Toothpaste,Telephone,Cleaner Cleaners, Refrigerator,Machine, WashingTransport DetergentBleaches 30-50%
Toilet Soap, Hair Oil
Table 1.3 & Tables 1.6-1.9 (Pg. 21-24) help in profiling the 8 consumer their usage/consumption of various products & demographics,
classes based on
Nirdhan: This class comprises