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Principles of Marketing

Income vs. Socio-Economic Class

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First of all, there is income, which is a personal demographic factor, and then there is socio-economic class, which is a social factor. While these two may seem to refer to the same thing, they are quite different. Income is a factual number. It answers the question of “How much do you earn?” or more commonly among researchers, “How much is your household family income?”

On the other hand, socio-economic class or SEC is an indicator of the kind of group that a consumer feels he or she belongs to. It is a social factor in the sense that it reflects the consumption reality that the individual strongly believes in. For instance, those who belong to the country’s upper socio-economic classes may firmly believe that having a car is a non-negotiable necessity. But to those who belong to lower-income classes, this is not the reality that they see. Instead, a car is perceived to be a luxury.

Researchers refer to SECs as expenditure-based clusters because people belonging to the same SEC group tend to spend on the same things. This is why SEC then proves to be a better indicator of what a consumer may tend to buy.

For the longest time, socio-economic classes have been typically defined as follows:

A Primethe wealthiest class
ABupper-income class
Upper Cupper middle class
Broad Cbroad middle class
Lower Clower middle class
DElower classes

In order to understand how SEC reflects relative reality, here are some examples on how the different socio-economic classes typically behave and how products and services adapt to them:

  • The wealthier the SEC class, the greater the need for personal space. Larger houses, less crowds, and greater appreciation of open spaces and “negative space” (blank areas) characterize the more premium clients. Malls are therefore designed according to their target SEC market. Malls that attract upscale shoppers offer spaciousness and lots of walking space. Malls that attract lower-income groups, on the other hand, encourage very high traffic because they make money through volume rather than through high-profit margins.
  • Products that target the broad market are advertised in Filipino, while products that cater to the more upscale markets are in English. Among other reasons, this is because upscale markets typically include consumers that have studied abroad or in exclusive schools, as well as expats.
  • For fast-moving convenience goods to reach the mass market, distribution channels have to be extensive and neighborhood-driven, as well as focusing on public markets and convenience stores. To reach the higher-income markets, however, large supermarket chains are preferred. This is because the mass market prefers convenience and the ability to buy in small quantities, whereas upscale markets buy in bulk and appreciate the larger shopping carts and wider aisles that large grocers provide.

In 2012, the Marketing and Opinion Research Society of the Philippines (MORES) endorsed the migration from the previously mentioned letter-based classifications for SECs (that has been very commonly used in industry) in favor of a new model that classifies Philippine consumers into nine classes, from 1 (lowest spenders) to 9 (highest spenders). The model reveals the Philippine population distribution by spending class as follows: (Bersales et al. 2013)

Distribution of Philippine Households by SEC Clusters

Under this new classification, E will approximately correspond to class 1, while D will approximately correspond to classes 2 and 3. The middle classes take up the bulk of the scale, with Upper C being approximately class 8 while class 9 approximately corresponds to the traditional AB market.

This new scaling, however, does have its limits. For one thing, it does not (yet) segregate the “ultra rich” from the “rich” in class 9, whereas the behaviors of these two groups are very different.

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