Why target lower LSMs? They offer potential for growth

November 17, 2016

As businesses go through peaks and troughs, and industries experience highs and lows, or businesses simply look for growth, entrepreneurs tend to look for vertical markets for existing products or services. But where to look?

An area of particular interest should be the lower LSM (Living Standards Measure) category. If you’re not familiar with the term, it is the most widely used marketing research tool in Southern Africa and divides the population into 10 groups.Created by the South African Audience Research Foundation, it segments the South African market and cuts across race and other outdated forms of categorisation, and groups people according to their living standards, using criteria such as degree of urbanisation and ownership of cars and major appliances.

Many businesses enter emerging markets, but if you look at the potential ease at accessing South Africa’s lower LSM markets you can grow your business, it could be your step to even out your troughs.

So:

  • Can your product or service be delivered, easily and in numbers to the lower LSM households and consumers?
  • Can you produce variations of your product and service, at more affordable rates to cater for these potential consumers?

As we know the large majority of South Africa’s population falls into the 0 to 4 LSM range. However, more and more South Africans are moving into the 4-6 level, thanks to a surge of young black individuals making this shift.

Consider finance products

Speaking from experience, the financial services area is one segment that can quite easily generate rather large, new business in the lower LSM segment. The reason being, the product is often intangible. Being intangible, the benefit lies in its low distribution costs, which makes it easy to sell with low margins and high volumes; a huge benefit to entrepreneurs.

The cost to originate, collect, maintain and service a financial services client base in rural communities or dwellings in townships, has become increasingly inexpensive. This in turn has opened the door for businesses to make huge in-roads in capturing this waiting consumer base.

With innovative tech companies delivering, often disruptive, technologies, entrepreneurs should align themselves with these tech providers quickly to deliver value.

The key is not just to deliver a range of simple products and solutions for the lower LSM market, but to ensure they are engaged to retain your market share. Loyalty in this space is very low so you need to ensure you and your business remain relevant, offer great service and products, and possibly tie into loyalty and voucher schemes to keep the market and your consumers interested.