To understand what can be achieved by using the SAARF LSM as a marketing segmentation tool, you need to know why it was created. When thinking about any population, it is important to understand that although people are very diverse, they do have certain commonalities. What is required from a market segmentation tool is to create an index that will differentiate between people with different behaviour patterns and group together those people with similar behaviour.

The development of the LSM Index was stimulated by a series of events; the most important being that the then commonly used market segmentation tool of 'urban/rural' was losing its power as a differentiator. The gap between the urban and rural markets was narrowing and the habits of both markets were becoming increasingly similar.

To counter this, SAARF introduced a new grouping according to community size, namely "metropolitan", "cities/large towns", "small towns/villages" and "rural". This was an attempt to further segment the market by level of sophistication so that marketers could better define their markets. It was just another demographic however, and it was soon realized that what was needed was a set of descriptors based on more than one variable, which would provide a more powerful segmentation tool than any single variable on its own.

At the time, the late Eddie Schulze had been working on a system of classification for Unilever, based on whether people shopped at a supermarket or not, and then going further, to split the supermarket shoppers into those who owned commodities such as cars, television sets and radios. From this thinking, emerged South Africa's first multivariate market segmentation index - the LSMs, which in addition was also a move away from segmentation based purely on demographics.

In the new SAARF Universal LSM®, the population continuum is divided into ten groups, from 1 at the bottom end, to 10 at the top. The LSMs are calculated using 29 variables taken directly from the SAARF All Media and Products Survey (AMPS®).

# The 14 new variables that appear in the 2001 SAARF Universal LSM®

SAARF 2004 SU-LSM Descriptors

Four variables of the 2001 LSM descriptors were excluded and four new variables were included, indicating development and a changing market place i.e.

The full list of AMPS 2004 LSM descriptors are as follows:

1. Hot running water
2. Fridge/freezer
3. Microwave oven
4. Flush toilet in house or on plot
5. VCR in household
6. Vacuum cleaner/floor polisher
7. Have a washing machine
8. Have a computer at home
9. Have an electric stove
10. Have TV set(s)
11. Have a tumble dryer
12. Have a Telkom telephone
13. Hi-fi or music center
14. Built-in kitchen sink
15. Home security service
16. Have a deep freeze
17. Water in home or on stand
18. Have MNet and/or DStv
19. Have a dishwasher
20. Metropolitan dweller
21. Have a sewing machine
22. DVD player
23. House/cluster/ town house
24. 1/more motor vehicles
25. No domestic worker
26. No cell phone in household
27. 1 Cell phone in household
28. None or only one radio
29. Living in a non-urban area

Some users still think LSMs are the 'polite' way of talking about race. However, this was never the aim and race has never been used as part of the LSM at all. It is true that initially LSMs did correlate highly with race, with most blacks falling into LSM 1 to 6, and the higher LSMs being multiracial. This, however, is because LSMs reflect the reality of South Africa - they weren't created to obscure it but to reflect it. As South African society corrects itself post 1994, race's impact, as a differentiating variable, will decline, as will its correlation with LSMs, as is already evident.

Another misconception is that LSMs can be used as a psychographic or attitudinal measure. LSMs can tell a marketer that those in LSM 10 for example, have more commodities than others. It doesn't tell you their income, or whether they are predisposed towards spending money. To say that a product is being targeted at LSM 10 is to miss the point.

The SAARF Universal LSMs® are thus not an alternate label for income. Income is actually very often a misleading variable on which to base a marketing strategy, especially if the predisposition of the person towards spending is not known. A miserly businessman who earns a fortune may sleep on a mattress on the floor and warm up TV dinners in the microwave. A pensioner may have all the "modcons" which place her household into LSM 10, but whether she has a high disposable income or a propensity to spend is not a given.

SAARF regularly receives phone calls from people who say 'My target market is LSM 9 and 10 - please tell me who they are?' This is enough to make you cry! The SAARF Universal LSM® should not be used in isolation. Human beings are much too complex to be described using a single differentiator such as LSMs. Users of AMPS data know that when combining LSMs with other descriptors such as language, income, life stage and so on, powerful segmentation of the market can be achieved.

Some users also complain that the groupings are too wide. They don't realise that there's nothing stopping them from re-segmenting the LSMs to suit their markets. They could further segment LSM 6 for example, just as SAARF used to split the old LSM 7 and 8 into sub-groups to help users who found these groups too large to handle.

Whether the 1993, 1995 or the 2000 weightings are used, the LSMs are no more or no less useful. They are all accurate but different from each other. Users must just be aware that they can't do trending from the one set of weightings to the other.

A large part of the marketing and advertising industry tends to use LSMs as the alpha and the omega of determining target markets. Of course it would have been nice if the LSMs could have been as important as that - as unequivocal. But the reality is that they are only one possible descriptor of market groupings, and to use them as the be-all and the end-all of market segmentation does more damage than good to the tool. In short, as with any research, a bit of common sense is called for.

Following extensive analysis of its much-used LSM during the latter half of 2000 and the first half of 2001, SAARF decided on the creation of an improved Living Standards Measure and simultaneously with the release of AMPS 2001A, launched the new SAARF Universal LSM®.

The new SAARF Universal LSM® is similar to the older version, but starts out with 10 groups. As South African society develops, the SAARF Universal LSM® has the ability to be extended beyond group 10, and 11, 12, etc. will be added as time goes by.

Key Issues to Remember