All people who are gainfully employed in jobs, self-employment or business owners, by virtue of their earning an income and spending part of that disposable income to buy goods and services produced, ought to be measured by those producers, in terms of “targeting” them for specific goods and services.
Last week, a conversation was started by someone on social media, where they posed the following questions: “KFC are only setting up shop in the south of the capital (Harare) and not even venturing north? Someone care to explain their strategy here? Is it market based? Demand? Thoughts on what's going on here?” .
The responses were varied and interesting and some of the noteworthy responses were as follows:
- “The north are health conscious, not big on fried foods and $3 deals. KFC is a mass market. Am happy they've found their niche and following where their money is....South, and West.”E. M-T
- “It’s in the South, East and West. KFC is a mass market brand. I just don't understand why in Zim we try make it superior.” M. WC
- “Well this is very simple. The South is the ghetto and it's the same in Kentucky, Chicago, Dallas, Johannesburg cause that's a brand for the poor.” G.M. T
- “That looks like a general map of where the majority of people who can and cannot afford to eat at expensive restaurants frequently in Harare live and that alone gives a lot of clues as to why. Knowing your market is important.” S. M
- “The funny thing is KFC is being labelled junk cheap food for low income and Northern people eat healthy ….but here is SA it is everywhere. Even Chicken Licken that used to be the low end market, has now moved into our suburbs and its always full because who doesn't want hot wings!” M. WC
- “The north has too much competition in terms of fancy popular restaurant brands so it's a bit saturated from that perspective not to mention that it's Simbisa brands territory. In the South they tend to be strategically placed along highways ideal for capturing traffic on long journeys . They are a the premium brand in the South. J. M
- “Not an unusual pattern globally. Poorer communities are the market for fast food and in turn poorer lifestyle. Those who have better access better diet, better health and arguably have different knowledge, perceptions/attitudes to diet and nutrition. In public health terms this type of distribution of “affordable” processed food is one of the biggest contributors to better health.” F.P
- “That's how they operate, even here in Sweden. They open the chain in the outskits, not the city centres. In Berlin and cities in Poland it seems to be quite the reverse.” P. S. C.
- “KFC is junk cheap food that people of low income households usually go for. On the other side they can afford buying healthy foods and wouldn’t normally consume KFC. KFC know their market target.” F. F.
- “I remember at business school we had a case study on it and these results are as expected. It’s a mass market brand for low LSM households.”
There were over 140 comments on the thread raising all kinds of possible reasons for KFC Zimbabwe’s strategy. What caught my attention the most was the last commentary that used the terminology “low LSM households.”
Everyone who went to business school at some point in their lives learnt about the Living Standard Measure (LSM). Most of the commentary on the thread referred to the LSM without mentioning the terminology to which I replied, “the LSM concept in Zimbabwe is layered and must not be utilized irresponsibly.
How do explain CEOs of blue-chip companies, driving to a liquor store in Newlands at the end of the day, buying alcohol and drinking it in their cars, doors wide open, blasting loud music next to an LSM 1 car doing the same thing.
That CEO is exhibiting LSM 10 traits at home and at work, but socially and emotionally, he never left LSM 1. As they navigate from one LSM to the other, they ring fence themselves in that LSM momentarily. That is unprecedented.”
This brings us to the discussion of the benefits and concerns of LSM and why some organizations have started transitioning to Socio-Economic Measure (SEM)
- Why standards of living measurements are important
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Why is standard of living important?
SOL is a key measurement for any country because it assesses the general well-being of a society. When SOL is high, it is expected that there are better outcomes for that society in terms of life expectancy, wealth creation, leading satisfying lives, better health, etcetera. The opposite is true. In addition, SOL affects the productivity levels and general happiness of the population of that country.
Incidentally, the statistics from the World Happiness Report of March 2023, ranked Zimbabwe the fourth unhappiest country in the world. Apparently, Zimbabwe is only better than Syria, Lebanon and Sierra Leone, Sudan and Ukraine. Reasons for this unhappiness include economic mismanagement, leading to inflation, currency devaluation, shortage of jobs, lack of quality healthcare, education and basic amenities, lack of enabling environment for business, amongst other things, has taken a toll on the populace, affecting mental and emotional well-being, contributing to a sense of uncertainty and disillusionment, essentially diminishing the overall happiness and productivity of the population.
What is the measure
The Living Standards Measure (LSM) is a marketing research tool that is widely used to understand the social stratification of society in terms of SOL and disposable income. It provides valuable insights into the purchasing power, consumption patterns, and lifestyle preferences of different consumer segments.
Overview of categories of LSM
LSM categories are often determined based on factors such as income, education, occupation, and asset ownership, among others. These categories provide a way to understand and segment the population for marketing and research purposes. Below are some common categories that may be found in an LSM model:
LSM 1-3: These are the lower LSM categories, representing individuals or households with the lowest income and living standards. They often have limited access to formal education, basic services, and disposable income, and may struggle to meet their daily needs. People in these categories may be employed in low-skilled or informal occupations and have limited assets.
LSM 4-6: These categories represent the middle-income segments of the population. Individuals or households in these categories may have slightly higher levels of education, better access to basic services, and somewhat higher disposable income compared to the lower LSM categories. They may be employed in a mix of formal and informal occupations and have a moderate level of asset ownership.
LSM 7-10: These are the higher LSM categories, comprising individuals or households with relatively high income and living standards. They typically have better access to education, healthcare, and other essential services, as well as higher levels of disposable income. People in these categories may be employed in professional or managerial occupations and have a significant level of asset ownership, including property, vehicles, and other investments.
A word of caution
It's important to note that the specific criteria and thresholds for each LSM category may vary based on the version of the LSM model being used and the context in which it is applied. Additionally, researchers and marketers may customize the LSM categories based on their specific needs and the characteristics of the population being studied. In Zimbabwe the economy is distorted due to the prevailing economic realities. As a result, consumer behaviour adapts as a coping mechanism to deal with the fast paced changing economic environment. As a result the application of LSM in Zimbabwe needs to take into consideration these complexities.
Below is an exploration of the benefits and concerns associated with the LSM, highlighting its significance in market research and the potential limitations that researchers and marketers need to consider.
Understanding consumer behaviour: The LSM provides marketers with a comprehensive framework for understanding consumer behaviour across different income and social strata. By categorizing consumers into distinct LSM groups based on their living standards and disposable income, marketers can tailor their strategies to effectively target and engage specific consumer segments.
Segmentation and targeting: The LSM enables marketers to segment the market more accurately, allowing for targeted marketing efforts. By identifying the specific LSM groups that are most relevant to their products or services, marketers can create personalized marketing campaigns that resonate with the unique needs and preferences of each segment.
Product development and innovation: The LSM provides valuable insights into the needs and aspirations of consumers across different LSM groups. This information can be leveraged to inform product development and innovation, ensuring that companies are creating offerings that are aligned with the purchasing power and lifestyle choices of their target consumers.
However, concerns related to oversimplification, limited scope, potential stereotyping, dynamic nature of living standards, and ethical considerations highlight the need for careful interpretation and responsible use of LSM data in market research. By acknowledging these concerns and leveraging the benefits of the LSM thoughtfully, marketers and researchers can harness its potential to gain valuable insights into consumer dynamics and contribute to more informed decision-making in the marketplace.
Economic and social policy development: The LSM is not only valuable for marketing purposes but also for informing economic and social policies. Governments and non-governmental organizations can use LSM data to design and implement targeted interventions aimed at improving the living standards of specific socio-economic groups.
Comparative analysis: The LSM allows for comparative analysis of living standards and disposable income across different regions, demographics, and time periods. This can be instrumental in identifying trends, disparities, and opportunities for growth, both at a national and international level.
Concerns of the LSM
Simplification of Social Stratification: While the LSM provides a useful framework for understanding social stratification, it is important to recognize that people's living standards and disposable income are influenced by a multitude of factors beyond what the measure captures. This includes access to education, healthcare, housing, and social capital, which are not fully reflected in income-based measures.
Limited scope of measurement: The LSM primarily focuses on income and material possessions, potentially overlooking other dimensions of well-being such as health, education, and social inclusion. As a result, it may not fully capture the complexities of a person's standard of living and overall quality of life.
Potential for stereotyping: There is a risk that the use of LSM categories may lead to stereotyping and oversimplification of consumer segments. Marketers and researchers need to be mindful of the diversity and individuality within each LSM group, avoiding assumptions based solely on income and living standards.
Dynamic nature of living standards: Living standards and disposable income are not static and can change over time due to various factors such as economic fluctuations, employment opportunities, and life events. The LSM may not always capture these dynamic shifts adequately, leading to potential inaccuracies in long-term trend analysis.
Ethical considerations: The use of LSM data raises ethical considerations regarding privacy, consent, and the responsible use of consumer information. Marketers and researchers must ensure that the collection and utilization of LSM data adhere to ethical standards and regulations, safeguarding the rights and interests of consumers.
The LSM is a valuable marketing research tool that provides insights into social stratification based on standard of living and disposable income. It offers numerous benefits, including a deeper understanding of consumer behaviour, targeted segmentation and product development, and informing economic and social policies.
Transitioning from LSM to SEM
The LSM has traditionally served as the accepted audience measurement benchmark for many years. However, Proactive a leading market research company in South Africa is upholding new industry standards by moving towards SEM in its research and analysis, which is becoming more widely used.
This shift reflects a growing recognition of the limitations of the traditional LSM approach and the need for a more comprehensive and nuanced understanding of the socio-economic landscape in South Africa.
The SEM represents a more holistic and multidimensional approach to understanding consumer behaviour and social stratification. Unlike the LSM, which primarily focuses on income and material possessions, the SEM takes into account a broader range of factors, including education, employment, access to basic services, and quality of life indicators. This transition is significant as it allows for a more accurate representation of the complexities of socio-economic status and living standards, particularly in a diverse and evolving society such as South Africa.
Benefits of the SEM:
- Comprehensive understanding: The SEM provides a more comprehensive understanding of socio-economic status by incorporating a wider range of indicators beyond income and material wealth. This allows for a more nuanced segmentation of consumer groups, enabling marketers to tailor their strategies more effectively.
- Improved targeting and inclusivity: By considering a broader set of socio-economic factors, the SEM facilitates more accurate targeting of diverse consumer segments, including those who may have been overlooked or misclassified by the traditional LSM approach.
- Policy relevance: The SEM's multidimensional approach provides valuable insights for policymakers, businesses, and social organizations, enabling them to address socio-economic disparities and design interventions that are more aligned with the diverse needs of the population.
Socio-economic measure concerns:
- Data complexity: The SEM's multidimensional nature may introduce data complexity and challenges in data collection, analysis, and interpretation, requiring robust methodologies and tools to effectively capture and utilize a wide array of socio-economic indicators.
- Interpretation and standardization: With an expanded set of indicators, there is a need for clear guidelines and standardization to ensure consistent interpretation and application of the SEM across different research studies and industry sectors.
- Ethical considerations: The use of sensitive socio-economic data raises ethical considerations related to privacy, consent, and responsible data management, highlighting the need for ethical guidelines and regulations to safeguard the rights and well-being of individuals.
Lessons for Zimbabwe
Zimbabwean market research companies should transition from the LSM to the SEM in order to gain a more comprehensive understanding of consumer behaviour and social stratification. The SEM considers a broader range of factors beyond income and material possessions, including education, employment, and access to basic services, providing a more nuanced and inclusive framework for market research.
This transition will enable companies to better target diverse consumer segments, address socio-economic disparities, and design interventions aligned with the diverse needs of the population, ultimately leading to more effective marketing strategies and informed policy decisions.
