Socio-economic status and knowing people

The Gini co-efficient is a measure of the inequality in income levels. South Africa has a Gini co-efficient of 62, one of the highest in the world (Finmark, 2006).

As a result, measures of wealth are amongst the most ubiquitous of differentiators in South Africa - they are very good at differentiating between groups of people, a key marketing necessity. The most common measure is known as LSM (Living Standards Measure) - a member of the expenditure-based class of socio-economic status (SES) variables.

It is largely based on durable and infrastructural items in the home. Each item has a score so that individuals fall along a simple wealth continuum (insofar as durables in the home can be said to measure wealth) that is then split into ten segments.

SES measures are good predictors of many outcomes in a person's life, both from the point of view of consumer behaviour and from the point of view of social and health circumstances.

But whilst SES measures can give good insight into some aspects of lifestyle (insofar as they are affected by wealth), they fall short in truly understanding how people live - the realm of the broader concept of 'well-being' (in which SES is embedded).

Unfortunately, and this is not the fault of the measure, many market analyses in South Africa start and stop with LSMs, so they fall short of really getting to know the consumers in the marketplace.

This is because they fall under some key misapprehensions:

A myth - we can understand people's reactions to marketing interventions without needing to study their social, cultural and emotional states.

The truth - in their analyses most marketers stop at measuring wealth, race and language and key demographics. People's bodies, minds and souls also need to be taken into account - as well as their surrounding society and culture, however defined. These provide the contextual lens through which they view and interpret the world.

Implications - all these factors interact. We need to understand these interactions - together they make up the human condition - if we are to understand how people will react to marketing activities.

Understanding the human condition - the lens through which we interpret the world

There are three aspects to the human condition - people's sense of well-being and optimism; their surrounding society; and their cultural context.

A person's sense of well-being fundamentally affects how they run their lives. In general, people with higher levels of well-being make more use of 'fast and frugal heuristics' - unconscious decision-making. They are able to make decisions faster and more confidently than less happy people, who make greater use of cognition, weigh the facts more and take longer to make a decision.

As many as 30 per cent of South Africans are in the 'less happy' category, but 42 per cent are very much in the 'fast and frugal' domain. Optimism drives much of how we plan our lives, hence, the rise in interest worldwide in 'consumer' confidence measures.

In South Africa, 60 per cent of people are optimists - people who will make greater use of credit, buy more durables, plan holidays differently, view their investments in a different light.

Pessimistic people are more cautious financially - but will buy 'comfort' brands and indulgent snacks and sweets. These different people process ads differently depending on their sense of well-being and optimism, a key finding for today's marketers and advertisers.

This links into people's interaction with society. Happier, more optimistic people have larger networks in which they are more credible and visible. They give to and take cues from these networks more readily. Less happy people have smaller networks that they trust less.

This helps us to understand how brand messages are transmitted within social networks. Using the network size of different consumers, we can measure their credibility and role in their networks, their optimism and their sense of well-being, which allows us to classify them into one of our four Wildfire segments:

Igniters (who wield great influence in their interactions with their networks) can make a brand, so it is critical to know what they think about a brand. Smoulderers are close behind, while Damp Squibs and Burnt Outs have a different role to play and react to marketing activities differently from the other segments. Their role in society is also different.

Next we have to understand the role of culture, or better still, self-identity and worldview. This is about our consumers' sense of belonging in society.

In a world of rapidly increasing choice and opportunity, there is a growth in niche interest groups that are brand-centred, leisure-centred and value-centred. These are 'tribes' with which people identify and they become micro-cultures within broader social contexts.

This in turn means that we can no longer think of markets as consisting of a few (big, largely homogeneous) cultural groupings. A new appreciation of cross-cultural values and attitudes - better termed 'worldviews' - becomes vital.

One can identify a hierarchy of worldviews from macro-cultures to sub-cultures to mini-cultures to micro-cultures. From this emerges the concept of 'delta v' - the distance between worldviews.

What is an ad's delta v with respect to its target audience? For a rising middle class segment like 'Black Diamonds' in South Africa, for example, we know it can be huge.

What is our take-out?

SES measures are always a good starting point - if one sees them simply as indicating the affordability of a brand.

But nowadays you also need to look at people not just as consumers, but also as real people whose emotional baggage (well-being) affects how they make decisions and how they pay attention to ads. We need to know more about their health and stress levels - and therefore their emotional environment.

Further, you need to understand their social interactions - where they fall on the Wildfire Spectrum.

Finally, you need to understand much more about their worldview and how this interacts with the worldviews portrayed (perhaps unconsciously) by marketing messages, designed by people with their own worldviews.

It's not that socio-economic SES classifications of consumers are bad or even outdated. What is outdated is marketing thinking that stops there.