In the 1980’s SAARF created the Living Standard Measure (LSM) as a way of classifying the South African consumer market. In its most common current form it is a segmentation that takes into account 29 factors, mainly ownership of major appliances and degree of urbanisation. The resulting classification distinguishes between 10 levels of consumer living standards, LSM 1 being the lowest and LSM 10 the highest. Since its development it has grown to be a regular way of describing target markets, as frequently referenced as sociodemographic attributes like age, race, income and location. The success with which the measure has assimilated into marketing strategies appears to be testament to a robust and useful tool. However, there are a number of problems with the nature and use of this segmentation that necessitates a reconsideration of its usefulness.
A first observation is that LSM is not related to any specific brand or even to a specific category. Because a general one-size-fits-all segmentation can never be as accurate as one designed for a given brand or category, examples of better measures are plentiful. For instance, financial services companies could be bettered served orienting their segments around income or financial product holding repertoire. Both of these are more predictive of category behaviours and attitudes. They also require far less effort for the respondent and researcher to derive. The same is true for media owners who could classify their markets by range and amount of media consumed. It’s important to consider that even when shortened ways of asking LSM are available the problem remains that it is less predictive of category behaviours and attitudes compared to custom segmentations.
A further drawback is the fact that LSM cannot accurately determine spending power, even though it is often confused with something that can. The LSM measure does not include income as an attribute in the calculation. This leads to situations where those with high spending power and few commodities will end up on the lower end on the LSM scale. Similarly those with many commodities, but little access to disposable income (e.g. pensioners) are classified as LSM 9 or 10. Most marketers understand the LSM spectrum to be positively related to spending power and understandably perceive high LSMs as highly favourable candidates for buying products. In my experience marketers are only interested in “living standard” if that living standard translates to buying power for the brands they represent. The truth is determining level of access to disposable income and propensity to spend is easy to do and more relevant than using LSM.
Despite its continued use, these problems have not gone unnoticed. To their credit SAARF have admitted to the measure’s shortcomings when used carelessly. In an article on their website former SAARF CEO Paul Haupt states “Unfortunately, it has become so relied upon that it’s very often being misused and has therefore become the victim of its own success”. As a remedy SAARF suggests it should be used alongside other tools to better describe target markets. However if these other tools are better ways of getting the job done, we are left wondering where LSM would fit into the picture.
Given these shortcomings, why then is LSM then still being used? Part of the problem may be awareness, many users are not informed of these drawbacks. They are also never challenged to prove the usefulness of LSM. Considering that many other factors influence the success of brands it is easy to see why a less-than-optimal segmentation would go unnoticed. A further challenge is habit. Once a method is entrenched there is a reluctance to change that ensures even ineffective practices persist. Whatever the reason, a better question is: should there still a place for LSM in the marketers’ toolkit? From my perspective, it is hard to justify the use of a measure that is often used incorrectly when superior tools are available.
About Dr Henk Pretorius:
Henk does, teaches and writes about marketing and psychological research. He co-founded Columinate and has lead it to become the leading digital research company in South Africa. Academically he holds a PhD in cognitive psychology from UCT. In 2014 he was featured in Survey Magazine as one of 20 “Researchers you should know” from across the world, in the category Future Leader. He also currently serves as head of measurement on the Brand Council of South Africa.