A reference group is a group to which an individual or another group is compared.
Sociologists call any group that individuals use as a standard for evaluating themselves and their own behavior a reference group.
Reference groups are used in order to evaluate and determine the nature of a given individual or other group's characteristics and sociological attributes. It is the group to which the individual relates or aspires to relate himself or herself psychologically. It becomes the individual's frame of reference and source for ordering his or her experiences, perceptions, cognition, and ideas of self. It is important for determining a person's self-identity, attitudes, and social ties. It becomes the basis of reference in making comparisons or contrasts and in evaluating one's appearance and performance.
Reference groups provide the benchmarks and contrast needed for comparison and evaluation of group and personal characteristics. Robert K. Merton hypothesized that individuals compare themselves with reference groups of people who occupy the social role to which the individual aspires.
Reference groups are groups that people refer to when evaluating their [own] qualities, circumstances, attitudes, values and behaviors.-- William Thompson & Joseph Hickey, Society in Focus, 2005.
Reference groups act as a frame of reference to which people always refer to evaluate their achievements, their role performance, aspirations and ambitions. A reference group can be either from a membership group or non-membership group. An example of a reference group being used would be the determination of affluence. An individual in the U.S. with an annual income of $80,000, may consider himself affluent if he compares himself to those in the middle of the income strata, who earn roughly $32,000 a year. If, however, the same person considers the relevant reference group to be those in the top 0.1% of households in the US, those making $1.6 million or more, then the individual's income of $80,000 would make him or her seem rather poor.
He developed a theory of the reference group (i.e., the group to which individuals compare themselves, which is not necessarily a group to which those individuals belong), and elaborated on the concepts of in-group and out-group. For any group of people there are always other groups whom they look upon to and aspire to be like them.