The New Middle

Based on research by Wagner Kamakura and Jose A. Mazzon

• A new strategic marketing method uniquely measures socioeconomic status across all income and social class strata.
• It is highly practical, especially for emerging markets.
• Applying this method to data about consumers in Brazil, it pointed to a sizable growth opportunity targeting lower-middle strata consumers, not wealthy ones.

Global marketers often assume that they can’t make much money from the masses in emerging markets, which leads them to focus on affluent consumers who they think offer better returns. While this might be the right strategy for categories where spending is concentrated among the wealthy minority — think travel or recreation — it’s not such a good idea for products sold by packaged goods manufacturers. After all, most any consumer — from the masses to the elite – would need to buy products such as food and cleaning supplies. So why do so many think that it’s better to enter a market “fighting from the high ground” by focusing almost exclusively on affluent consumers?

First off, in order to take advantage of an opportunity you have to see the opportunity, and it’s much easier for the average marketer to see the money associated with affluent consumers. Also, segmentation methods commonly used to assess consumers in emerging markets tend to yield more insight about those in the higher social strata than the masses. And despite all the talk of an emerging middle class in the BRICS nations (Brazil, Russia, India, China, South Africa), marketing researchers have only a vague idea of what defines this class and the consumption habits/priorities they exhibit.

Wagner Kamakura, Professor of Marketing at Rice Business, and his co-author, José A. Mazzon of the University of Sâo Paulo, set out to address this conundrum. In a study, they developed a new socioeconomic stratification method that they tested in Brazil – after the nation had undergone dramatic socioeconomic shifts triggered by new social programs implemented in 2001. They used census and expenditure data from almost 49,000 households in 2003 and 56,000 households in 2009 that was collected by a government-sponsored agency in Brazil.

What sets their method apart from all others? For starters, it’s well grounded in social and economic theory. It relies on the concepts of social class and socioeconomic status (SES) to recalibrate the stratification process used by researchers. Traditional stratification approaches focus on current income as an indicator of status, but rarely is current income alone the best indicator of one’s status. Think about it this way: Educational attainment is a key driver of your occupational status that, ultimately, affects your income. So a robust measure of your SES should capture a complex set of measures that indicates your status. In this spirit, Kamakura and his co-author define SES based on indicators of not only permanent income, or wealth (e.g. number of consumer durables owned, employment of household help), but also social class (e.g. educational attainment, occupation of the head of household, access to public services).

The new method also reigns supreme in terms of practicality. For example, marketers like to deal with segments of consumers, or else why would they go through the trouble of mapping households on multiple dimensions and often force-fitting a holistic interpretation in order to develop segments? The new method short-circuits this cumbersome process by classifying consumers directly into so-called “latent classes.” These distinct latent classes, or segments, occur naturally (i.e. not artificially created via researcher interpretation) and are ordered hierarchically based on the SES indicators. To boot, this method can accommodate data from multiple sources and yields reliable results, even when there’s missing data. This is welcome news even for the most experienced marketing researchers. The robustness and practicality of Kamakura and Mazzon's proposed socioeconomic stratification system was very appealing to Brazilian marketers; it was scheduled for adoption by the marketing research and media industries in that country by the end of 2013.

Findings from the study of Brazil illustrate how the new stratification method, as compared to traditional methods, provides marketers valuable consume insights. First, the resulting stratification scheme yielded greater balance and insight across the strata (rather than insight only about the higher strata). It revealed a clear shift of consumers toward higher strata from 2003 to 2009, when over 20 million Brazilians climbed out of poverty. Second, differences in consumption across strata are due mostly to differences in consumption priorities rather than budget size. So if lower strata consumers increase their budget, they would spend a greater percentage of that budget on products/services they prioritize (e.g. cleaning products), rather than products/services that are prioritized by the wealthy (e.g. housing). Finally, the concentration of spending on products often sold by packaged goods manufacturers (e.g. dairy, bakery, beverages) varies little across strata. Collectively, these findings point to a large and growing market for products targeted toward consumers in the middle/lower strata of emerging markets such as Brazil. Even if it means reconfiguring current offerings to produce just “good enough” products/services, the size of opportunity with an emerging middle class could be worth it.

So while it’s much easier to follow the money associated with affluent consumers, consider being a savvy marketer who is willing to explore the advantages of the new SES-based stratification method. Sharper socioeconomic stratification methods that are practical and flexible can be useful in revealing untapped marketing opportunities, over time, in emerging markets.

Wagner Kamakura is the Jesse H. Jones Professor of Marketing at the Jones Graduate School of Business at Rice University.

To learn more, please see: Kamakura, W. A., & Mazzon, J. A. (2013). Socioeconomic status and consumption in an emerging economy. International Journal of Research in Marketing, 30(1), 4-18.