There’s Life Beyond LSMs

Rethinking your approach to market segmentation

Market segmentation has been around for decades and is the most common way of narrowing a broad consumer market; it is the most effective way of targeting your products and services to specific customers. According to marketing writer Hitesh Bhasin (2018), “With the customer population and preferences becoming more wider, and the competitive options becoming more available, market segmentation has become critical in any business or marketing plan.” Market segmentation enables brands to determine consumers’ needs, wants and demands, thereby enabling them to gauge which consumers will prefer their products or services. 

There are various ways to perform market segmentation and for a very long time, the most common segmentation tool was the Living Standards Measure (LSM), which gained traction in the 1980s, having been established by the South African Audience Research Foundation. LSMs were conceptualised to segment the South African market and give marketers a tool to understand and reach their target market and offer products that would speak to their exact needs. Over the years, this approach has been criticised for being out-dated and racially biased. There have been calls to let go of LSMs and use targeting approaches that are more dynamic and truly reflect South Africa’s diverse and ever-changing consumer landscape. 

Why LSMs lost their staying power

Formulated in the 80s, the LSM was developed to help marketers reach consumers with specific needs and demands, and communicate with them more effectively. The market segmentation tool divides the population into 10 LSM groups based on “degree of urbanisation, and ownership of cars and major appliances.” Since the LSM was developed slap-bang in the middle of apartheid, black people were in the lower LSM groups while white people were grouped in the higher LSMs. This meant that marketing and advertising efforts were mostly targeted at and reached white audiences; this only added to an already incredibly divided society. As noted by Gavin Muller of the Publisher Research Council, “Given that the median age of whites is 39 and blacks 24, LSMs have been inherently racially biased as it takes about 15-20 years to accumulate all these durables and the white population have had an additional 15 years to do this. LSMs racial predisposition would thus skew advertising towards the white market.”

In addition to racial bias, LSMs have been found to be wanting in their ability to accurately reflect “the daily lifestyles of South Africans.” Since the establishment of the LSM, the South African consumer landscape has changed tremendously. The system is based on a heavy reliance on what people own rather than on how they live; the latter is most important when acquainting yourself with the consumer. Focusing more on consumers’ lifestyles will enable you to make better strategic marketing decisions and use your resources more effectively. 

Market outside the boxes

Behavioural and psychographic market segmentation approaches are the most relevant and effective way to group consumers. These two approaches look at consumer behaviour, decision-making patterns, and interests. For your marketing and communication efforts to bear much fruit, your approach to market segmentation must not be based on assumptions and static criteria—you need to consider the versatility of consumers; their lifestyles, identities, behaviours, needs and desires are constantly shifting. South African consumers are not monolithic, they are dynamic; their lifestyles comprise elements from various LSMs. A person can live in a township and not have a car (characteristics associated with a lower LSM) but shop in Sandton or eat at a high-end restaurant more often than traditional marketers assume. The opposite can also be true: a Sandton resident can have few appliances and spend most of their weekends at a shisa nyama in Soweto. 

Since there is a general consensus among most marketers that the LSM is a “reductionist way of forcing consumers into a category they, more often than not, don’t belong in,” now is the time to look at more dynamic approaches that take into account the current consumer landscape. The Socio-Economic Measure (SEM) has been touted as the best replacement for LSM. 

Developed by acclaimed researcher Neil Higgs, the SEM focuses more on how consumers live and what the structure of their homes looks like. According to OLE! Connect, “The SEM tool is a more accurate reflection of how South Africans live, and it provides marketers with better insight to solve technical and statistical concerns.” The idea of focusing on living conditions rather than ownership of items such as cars and appliances drives home the point that the latter can be easily obtained and discarded while a person’s ability to afford and maintain a residence is a more substantial lifestyle measure.

The best approach to reaching consumers with specific needs and wants is to consider lifestyle, behaviour and decision-making patterns; this will yield greater results than just focusing on where they live, what they own and how much they make. Since consumers are ever-evolving, your approach to market segmentation must be flexible enough to catch up. South African consumers are more multi-dimensional than the LSM depicts and to miss this is to undermine them and miss the opportunity to offer exactly what they want.

Businesses must resist the temptation to use a one-size-fits-all approach when targeting audiences. In-depth research of your current and prospective customers’ lifestyles will give you more accurate insights into how you can best communicate with them. Additionally, it will make sure that you target the right audience for your offerings, saving you both time and money.

References:

Bhasin, H. (2018). 4 types of Market segmentation and how to segment with them? Retrieved from https://www.marketing91.com/4-types-market-segmentation-segment/ 

Bizcommunity (2017). SEMs to Replace LSMs Over Next Two years. Retrieved from https://www.bizcommunity.com/Article/196/19/160511.html 

OLE! Connect (2018). WHY LSM is being replaced by SEM. Retrieved from https://www.oleconnect.com/why-lsm-is-being-replaced-by-sem/

Tembo, D. (2019). #BizTrends2019: The year we rethink segmentation. Retrieved from https://www.bizcommunity.com/Article/196/424/185600.html