A Dummy's Guide to NCCS

New Consumer Classification System (NCCS) is the new tool for classifying consumers in India. The methodology will be used by the Broadcast Audience Research Council in its soon-to-be-launched TV audience measurement system. A look at few basic questions that will help understand the NCCS better.

It was almost three decades ago that socio-economic classification (SEC) was introduced in the country to classify consumers into different groups. Over time, flaws were noticed in the system. That's when the industry decided to revise the consumer classification system and introduce the New Consumer Classification System (NCCS), which, in many ways, is better than the SEC.

While the Indian Readership Survey (IRS) has already started using NCCS since early 2014, BARC (Broadcast Audience Research Council) is working on the system for its soon-to-be-launched audience measurement currency.

afaqs! looks at few basic questions that will help understand the NCCS better.

What is NCCS?

NCCS is used to classify households in India. It was co-developed by Market Research Society of India (MRSI) and Media Research Users Council (MRUC) and classifies households on two variables - education of the chief wage earner and the number of consumer durables owned by the household from a predefined list.

Why is it used?

NCCS is used to discriminate between households and define the entire consumer behaviour of a household - what will his family aspire for, gender ratio or life expectancy of a family member. It is used by IRS and will even be used in the soon-to-be-launched TV ratings methodology from BARC. It is similar to SEC but here, the attempt is to understand the behavioural variables of a consumer as well.

How different is SEC from NCCS?

SEC is an urban-only system while NCCS is national.

SEC classifies consumers on two variables - education of the chief wage earner and his occupation and is linked to one individual. It doesn't use household parameters to classify the households, which NCCS does.

The classification of occupation was urban-oriented in the case of SEC. When SEC was launched, the interest in the rural consumers was very low. It did not include the conventional rural occupations. So, there were two different classifications. One for the rural system wherein the Rural SEC Grid used education and type of house (pucca, semi-pucca, and katcha) as measures of socio-economic class, and segmented rural India into 4 groups (R1, R2, R3, R4) and the other for urban - SEC A1, SEC A2 and so on.

What were the shortcomings of SEC?

NCCS is a far more dynamic classification showing that households are aspirational today and are not stuck at one place as they are in SEC.

Also, as mentioned earlier, SEC is linked to just an individual. It does not capture the affordability of a household adequately, which NCCS does. It is static and neither variables (education of the chief wage earner and occupation) changes significantly over time. So, mobility across segments was difficult in SEC, while it constantly keeps changing in NCCS.

How is the data for NCCS collected?

The IRS is the primary source of information about the dispersion of NCCS segments in different geographical units, from individual metros and Class I towns to village classes taken as groups at a state, socio-cultural region (SCR) or district level.

Marketers and researchers need to project their research findings back to the population of the geographic unit they are investigating. To enable this, they must incorporate the entire NCCS module into their research questionnaire and classify the output within the NCCS framework.

This is not discretionary any more as the MRSI mandates incorporation of the module into all studies conducted by its members. As more and more commercial market research uses NCCS and projects study results to populations, it will test the robustness and predictive power of the system. A classification system will only succeed if it is consistently able to produce reliable projections and predictions.

How is NCCS better than SEC?

NCCS is linked to the household and captures their affordibility quotient. NCCS' classification is a dynamic one and has the ability to change over time. Here, if one has 0 items right now, next year he can have one, then three and so on. It accepts, and can correctly represent, the dynamics playing out in India. As the country distributes more prosperity to more people, those people should rise. One must see a re-classification of the same family year after year. There might be a very spartan household that may remain spartan but then that's where they belong. They are not going to be great consumers.

The classification system is also about the likelihood of consumption. It must correlate back to behaviour. If there is a family that doesn't believe in having all the material goods, they are never going to. Even if they have all the money, they still choose to live life in a spartan way. On the other hand, aspirational people will keep climbing. It reflects the correct behaviour and that's how the consumers should be classified.

In NCCS, the number of variables owned by a household matter. A family which is fairly rich and is living a simple lifestyle - owns just five of these products - can fall in the lower side of the NCCS chart. And that is the fair classification because the number of variables is also correlated to how many one will be inclined to own in the future.

Also, the classification curve should follow the normal curves of distribution of the population. There should be a few people in the both ends and more people in the middle (the bell curve). All this is reflected in the NCCS.

NCCS helps picture a consumer better than SEC. NCCS has a more secular approach in its approach to classification. It is easier from the marketing, strategy and planning point of view as here the officials can visualise the consumer behaviour better. Most importantly, it is a system that reflects a dynamic rise in a person as she or he works through their aspirations and keeps moving up.

Also, there is a cost associated with any classification. One has to invest in it so that it can happen in the marketplace and then to adopt the classification is also a cost. It's easier for BARC to use it because when one is at the cusp of something brand new, it can adopt something new. BARC is an all new system, and the industry doesn't have an option but to accept the NCCS.

When was NCCS actually launched in India?

NCCS was launched in 2009. The reason why it was not being used till now is believed to be inertia. When this was launched, people hesitated to use the data. They were used to the SEC system and didn't want to move out of the comfort zone of their understanding. So, both the seller and the buyer were stuck.

What are the 11 consumer durables listed in NCCS? Why only these 11?

The 11 durables (as on date) are Electricity Connection, Ceiling Fan, Gas Stove, Refrigerator, Two Wheeler, Washing Machine, Colour TV, Computer, Four-wheeler, Air Conditioner and Agricultural land (in rural areas). Research showed that it is an adequate classification. This list will be relooked after a certain period of time.

Is there any drawback?

The list of durables will become less discriminating over a period of time as more people acquire more durables. The list has to be changed from time to time - in another few years probably all of them will have gone. For instance, mobile is not one of the discriminating goods because today almost everyone has it.

The MRSI and the MRUC and anybody else who is interested in NCCS like BARC will have to keep revisiting the durables list to ensure that the durables list is adequately able to give texture in the data.

Is it a paid service?

MRSI does not charge a fee for the usage of the NCCS. Indeed, all joint industry bodies involved directly or peripherally with consumer research and insight are now keen to promote its usage. All that is required to use NCCS is to ensure that the NCCS classification (technically called taxonomy) module - that queries respondents about education of the chief wage earner and ownership of list of durables - is administered to every sample point in the study. The ownership of the classification vests in the MRSI and any future amendments to the system, for instance any amendments in the durables list, will be done solely at its behest and discretion.

With additional inputs from Paritosh Joshi, chairman, TechCom and board member, MRUC and member, TechCom -BARC.