In this post, I would like to introduce a new method of Market Segmentation – the Living Standard Measurement or LSM.
Pioneered by folks over at Nielsen in 2006, LSM is the new classification method to segment the customer base. It is being used by many companies in India and abroad. HUL is one prominent example of the same.
So, what is LSM, how is it different from systems like SEC (Socio-economic Classification) and how are the two methods different in terms of classification?
SEC is a tool for demographic segmentation, focusing on the education and occupation of the customer to segment him/her into one of the segments from SEC A to SEC E (this is for the urban populace. For rural populace, it uses education and the type of house – kaccha, pucca etc). It uses parameters which are more quantizable in nature, or easily measurable
On the other hand, LSM is more of a mix of behavioral and psychographic segmentation. As the name indicates, it is an indicator of the Lifestyle of a consumer. LSM classification ranges from 1 to 10, with LSM 8-10 reflecting affluent customers. LSM, hence also helps guage the affluence level of consumers.
Let us compare where we would need LSM over SEC and vice versa:
For a lifestyle brand, something which is not sold on concepts of utility, but rather on its show-off value ( take a Harley Davidson for instance), LSM is a better tool than SEC. Given the more ‘academic’ nature of the SEC, it is not able to guage better the lifestyle-associated tendencies of customers.
To clear a confusion before it arises, LSM is NOT about luxury products only (because thats an immediate association one tends to make as soon as ‘lifestyle’ is mentioned). LSM can be as easily used for selling FMCG goods as well.
A crude differentiation line between SEC and LSM could be framed as such “ SEC will tell you whether a customer has the ability to buy your product, while an LSM can tell you whether (s)he will be inclined to buy it “
How to evaluate LSM:
LSM is evaluated based on the ownership of certain facilities/conveniences by the customer, such as Television, DVD Player, iPod, Laptop, DTH etc. Obviously, the parameters vary across geographies and cultures. For instance, VCR as a facility is out-dated in India, as well as developed nations, and is therefore not used as a parameter. Similarly, Hot running water is not an amenity in India (more like luxury), than, say, in the US.
Accordingly, weightages are allotted to such paramters, and based on the calculated scores, LSM value for a customer between 1 and 10 can be defined.
Hence, LSM is just a different, but quite useful method of segmenting your market, before targeting the specific segments.