Socio-economic Classification - Are we (in) SEC C?

Acknowledgements for this entry go to the interviewers in my last mock-interview, who asked my about the SEC bands and specifics!
SEC, i.e. Socio-economic Classification is a classification made in the urban and the rural sector, to identify the consumption pattern and the household purchase behavior. Based on education levels, occupation, type of household, etc. the population is divided into separate bands, called the Socio-economic Classes.

The Urban Sector is divided into SEC A1, A2, B1, B2, C, D, E1, E2
(Calculated as a function of Educational qualifications of the CWE* and his occupation)

The Rural Sector is divided into SEC R1, R2, R3, R4
(Calculated as a function of Educational Qualifications of the CWE* and the type of the household he stays in – Pucca, Semi Pucca or Kaccha)

Following is the exact division in the Rural Sector:


(Source: Ficci Press Release)

Unfortunately, I have still not been able to find out the exact details about the urban classification.

But According to an article “Targeting New Customers”, the Urban Indian households have broadly been classified as

- ‘high’ socioeconomic class referring to SEC A & SEC B
- ‘mid’ socioeconomic class referring to SEC C, and
- ‘low’ socioeconomic class referring to SEC D & SEC E.

The analysis adds that this classification is pertinent as compared to an income-level based classification, since lifestyle reflects the consumption patterns more closely than the income levels.

Though this might not be the best time to counter this new concept, but supposedly, Socio-economic Classification is not fool-proof, as is elucidated in an article in Exchange media

“SEC is an indicator or a pointer towards the “likely to consume” set but often defies the reality of not pointing clearly towards the “consuming class”, which is the purpose of any targeting by any marketer. The drawback of using Monthly Household Income (MHI) lies in the difficulty of capturing the correct data, as the respondents are hesitant to disclose the correct MHI.”

There is more subjective perspective to the calculation of SEC than an objective one and so is a debatable classification.
An alternative to this approach is the concept of HPI, or Household Potential Index
HPI enables a direct comparison of urban and rural on the same scale. An interesting inference from this classification is that the analysis “indicates that SEC R1 is close to SEC B2 and SEC R2 is close to SEC D of urban.”

It divides the population into 3 classes:
a) Upper most segment of the consuming class (the lakhpathis or crorepathis who also spend and consume)
b) Middle segment which is the core target for growth of very many categories
c) The lower most segment, which is the “volume generator” for many FMCG categories and lower end durables and services

A nice concept of “Premium” goods - Something that is “wanted by many” but “consumed by few”. If the penetration level of a good is low, it commands a higher premium.
This ‘premiumness’ in turn should be factored in deciding the classification, which is catered in HPI calculation, but not in SEC method. If penetration levels are low, a high value is given to the corresponding HPI, and mass products have a low HPI.

Such a method can be spanned across diverse households, and therefore obviates any distinction to be made between rural and urban households.

From a Marketer’s perspective – SEC entails understanding the “potential” of markets, whereas HPI indicates the “consumption intensity” of markets, calculated by the average scores of a household.

More on this later..

*CWE = Chief Wage Earner and is the person who contributes the most to the household expenses