Demographic Segmentation

Abhijeet Pratap

December 28, 2023

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Today’s business landscape has grown highly competitive and dynamic. It is more critical than ever for businesses worldwide to know and understand their target audiences. Segmenting your buyers helps understand them and their buying patterns which helps with creating innovative products, efficient marketing and gaining higher brand loyalty.

While there are several bases for segmenting your target audience, one of the most popular ones is demographic segmentation. The demographic segmentation approach involves dividing your market into various subgroups based on demographic factors. Demographic segmentation offers several advantages including more targeted marketing campaigns which can maximize a firm’s reach and impact.

In this post, we will discuss demographic segmentation, key demographic factors and the benefits of demographic segmentation.

Key Demographic Segmentation Variables Factors:

1. Age:

Age based segmentation is among the most common forms of segmentation used by companies worldwide to categorize their users. In most cases, it is easier to classify people into different segments based on age and this data is also easy to obtain. Moreover, people can be classified on the basis of age easily to understand their needs and preferences.

People across the same age group generally have similar needs and buying preferences. While there are a lot of factors at play in terms of buying and consumption, age is still a significant factor affecting consumers’ choice of products and brands.

Users or buyers can also be segmented on the basis of generation. While some brands and products appeal better to the Baby Boomers, the others target the millennials or the Gen Z. Consumer behavior varies across generations. Age becomes an important factor affecting common buying decisions of a person throughout his life.

Moreover, in some cases, it is an essential base for segmenting buyers. For example, a video game maker will target the people in the 15-35 age group mainly.

Demographic changes in the global population have affected businesses worldwide. Companies that had been targeting Baby Boomers for years, are focusing more on making products for the millennials since they now constitute the largest part of their customer segment.

Understanding how age affects buying behavior and consumption patterns helps marketers make products that better fulfill their customers’ needs.

According to a survey in the United States, average annual spending varied by age and among all the generations the one that spent the most in a year in 2021 was Gen X.1 The Gen Xers were followed by millennials and Baby Boomers in terms of annual spending. Moreover, the spending of different generations on different items can vary wildly according to the survey.

2. Gender:

Gender is another common basis for segmentation. Even if not in all cases, companies need to target the two genders separately in most cases. For them, it is important to know which gender they are targeting. Segmenting consumers on the basis of gender makes it easier to answer several questions related to marketing and customer experience.

Marketers often subdivide consumers from both the genders into more subsegments. For example, women can be subdivided into smaller segments based on their age, education, marital status, income, occupation etc to know which one of the segments is more likely to spend on their products.

Gender based segmentation also allows marketers and brands to develop strategies that resonate with the unique interests and priorities of each. In some cases, a brand may sell products for both the genders and target each one differently. There are several such brands that make products for men and women and target them through different campaigns and sometimes using the same methods.

For example, Nike makes products for men, women and kids. However, when creating campaigns, it uses both male and female athletes in its ad campaigns to target both genders efficiently. Some of its promotional videos may be targeted at women exclusively while some at men, but in terms of branding, it targets the two genders together as a single class of physically active or athletic people.

3. Income:

Income and other economic factors play a crucial role in terms of consumer behavior. A brand might consider to target the millennial generation and the Gen Z but it might change its decision if it learns that the consumers that spend the most are the Gen Xers.

What if the same brand knew that most of the wealth in the US was concentrated in the hands of the Baby Boomers? Would it change its decision? According to the federal reserve’s data in the last quarter of 2022, the Baby Boomers held around 50% of the total wealth held by the US citizens.2

Income becomes a significant factor when businesses want to select the right customer demographics or the most profitable customer segment. If a business has already selected a target segment, its pricing strategies must align with the financial capacity of that consumer segment.

Income may become an important basis of segmentation for several classes of products. For example, automobile businesses selling high end cars will target the higher end segment of consumers. In a large number of cases, the income level of a person also reflects his education and social class. The brands that make upscale products like high end fashion brands, high end watches like Rolex, etc. target the higher income consumer segment.

All brands do not target the higher income segments of consumers since income does not always reflect who is going to buy your products. Some brands may also target middle income segments. Some brands that generally make higher end products like Mercedez and Jeep have also released a few models that are priced quite affordably to target the middle income segments.

4. Ethnicity:

Ethnic segmentation means segmenting consumers by their ethnic backgrounds. Ethnicity affects consumer behavior and which ethnic background somebody comes from affects his/her purchasing decisions and behavior.

The United States continues to grow more and more ethnically diverse and it was found out in the 2020 census that the US was much more ethnically diverse in 2020 compared to 2010.3

Ethnic groups were once overlooked in terms of targeting.

However, since culture, language, ethnicity and other related factors affect consumer behavior, companies are considering ethnicity as an important basis of segmentation to target various ethnic groups and market to them more efficiently. People from diverse ethnic groups may have diverse needs and preferences and addressing them can make a firm more successful than its competitors.

Brands are targeting various ethnic groups in the US. For example, they are targeting African Americans and Asians. If Asians are more enthusiastic about new technology and technological products, the technology companies will target them mainly. If African Americans have higher purchasing power, some firms use more targeted techniques to reach this consumer segment.

However, targeting only on the basis of ethnicity may prove inefficient since you may find several differences in terms of choices and consumer behavior in the same ethnic group. So, you cannot broadly classify people into various segments on the basis of ethnicity since you will have an incomplete picture of the various customer segments.

For example, Hispanics may speak Spanish but trace their origin to different regions like Mexico, Central America, South America and the Caribbean. Similarly, all Asians belong to a common race but do not share the same language. This is where subsegmenting various ethnic classes proves useful for marketers.

However, ethnicity, culture and religion are still important demographic variables that can provide important insights into consumer behavior or help marketers craft the right messages that will appeal to the cultural and religious values of these segments.

5. Family Life Cycle:

Consumers can also be segmented into various groups on the basis of the stage in the family life cycle. As the family life cycle stage changes so does people’s buying behavior since their needs also change. New parents may need to do a lot of buying for a child’s products.

If you have young children, your need for pediatric services may be high since children frequently fall sick. On the other hand, if you do not have children your demand for such services might be low or none. Parents may need several products for young children like clothes, educational products, toys and other entertainment and learning related products and so on.

Another key segment of consumers can be grandparents who do not regularly buy products for children but might buy gifts occasionally for their grandchildren.

Some firms target the events in people’s lives. For example, marriage is such an event in a person’s life and there are a lot of products and brands targeted at the specific occasion. Think of all the products and brands targeted at brides. There are fashion products and gift products that mainly target the bride and groom or broadly the occasion of marriage.

These businesses are using online channels like websites, blogs and social media channels to target their consumers and sell marriage related products. Think of those several TV programmes and shows targeted at the bride and the depiction of grand marriages in movies.

Similarly, there are a large number of resorts that target family vacationers. Some of them target newly married couples without children while some target families with children. However, while one can isolate customer segments based on family life cycle they cannot make assumptions about what a particular segment will buy since just like demographic changes, people’s tastes and preferences can also change. In some cases however, it is still predictable. For example, a small family might look for a small home rather than a large mansion.

6. Education and Occupation:

The type of work someone does can also influence their purchasing patterns. Businesses also target people in specific occupations through their market messages to target their unique needs and preferences. In several cases, the occupation of a person is a reflection of education and income also.

For example, there are a wide category of products that are going to be bought by specifically people engaged in a particular occupation. Several businesses also segment consumers based on occupation to target their lifestyles. Some may broadly segment professionals in various income brackets into specific segments.

Fashion businesses often target office goers with specific fashion products and marketing messages that are crafted to meet the unique needs of office goers.

Occupation is a reflection of income and therefore an important variable for segmenting consumers since several businesses target consumers mainly on the basis of their income.Moreover, since occupation is a reflection of education, some products may be tied to the education level of consumers. For example, there are several types of technological products and services that are aimed at mainly developers, programmers and web designers. Some products in the PC sector are targeted at gamers. Gaming products like gaming PCs and accessories target the gamers.

Educational services like MBA programmes target people with the necessary level of education or who have graduated and are working but want to develop their career further through an MBA. In this way, education and occupation can also help marketers segment consumers in various groups and target them more effectively through their marketing messages.

Benefits of Demographic Segmentation:

1. Precision Targeting:

Demographic segmentation offers several advantages for businesses and marketers. However, its most critical advantage is the effective targeting of customers. Today, the trend is towards precision in terms of targeting. You do not want to waste your marketing dollars and precious time targeting just anyone. You want to attract the right customers who are more likely to buy your products.

It can be made to happen when you use effective targeting methods and marketing material to target the right segment. To do that you must have all the knowledge regarding your customers’ needs and preferences. A knowledge of demographic variables and how they affect people’s interests, opinions and values proves critical to targeting customer segments with higher precision.

2. Customized Messaging:

Personalization is now an essential component of marketing communication and customer experience. When you are trying to attract customers and build a customer base, you target the segments you think would be interested in buying your product. However, attracting and retaining customers requires a focus on engaging customers which is possible through more personalized and relevant marketing communication and by tailoring products, marketing material and customer experiences to specific segments.

Demographic segmentation does not help you only target your customers, it also helps you do more relevant and effective marketing which will engage customers depending on the segment they belong to. Some user segments may be focused on one attribute and another user segment may like another attribute of the product. By segmenting your consumers you know which attributes to be highlighted before which customers to attract and retain more of them.

3. Resource Optimization:

Demographic segmentation can also help with optimizing your marketing efforts and growing the effectiveness of your marketing, sales and service strategies. While demographic segmentation helps you understand the needs and expectations of particular segments better, it also helps develop products that will appeal more to those segments.

For example, a brand developing a product for the millennial generation, will mainly focus on digital marketing tools, and channels. It will use communication methods and content that resonate with this generation’s values rather than any generation.

Demographic segmentation helps the brand focus on the product attributes that will appeal more to the targeted consumer segment and create the right product for it. Tailored product features appeal more to the modern generations including Millennials and Gen Z.

Another important benefit of demographic segmentation for marketers is the optimization of marketing and promotions budget. Moreover, demographic segmentation helps firms refine their distribution strategies to grow their reach among the targeted segments while spending less.

4. Market Expansion:

Demographic segmentation can help you generate critical insights into overlooked or untapped market segments. Sometimes, it can help you find and target new customer segments which may also be interested in your product or service or just find a segment for which you can develop a new and highly attractive product.

Sometimes, you can also find overlapping customer segments while analysing demographic data. This analysis helps you better understand how to target such segments more effectively to grow your reach and expand your customer base.

In this way, demographic segmentation can help businesses generate new revenue streams by tapping into new market segments, identifying unique needs of existing segments and developing products that serve the needs of those segments efficiently.

Sometimes, demographic segmentation also makes it easier to enter new markets or position new products in the market.

Conclusion:

In a hypercompetitive and fast changing business environment, it is critical for firms to develop the ability to understand their customers and connect with their audience efficiently.

Segmentation is a critical first step in this direction which helps you understand your customers and identify any disconnect that exists between your products or brand and your customers. Suppose, you are targeting children aged 5 to 9, you will be able to analyze how to create a product that appeals more to this segment based on demographic data.

Age is usually an important factor related to consumer behavior and so are income and education. By having the demographic data related to their target audience, marketers can have a significant advantage in terms of product development, marketing and sales.

Demographic segmentation offers a strategic advantage for businesses allowing them to align their marketing efforts with the diverse needs and preferences of specific consumer groups.

Firms can embrace this approach to improve customer engagement, drive higher brand loyalty, grow sales and achieve sustainable growth in various markets. While demographic variables are critical in terms of consumer behavior, sometimes relying solely on demographic data for segmentation is not enough and marketers must combine it with other segmentation methods like behavioral and psychographic as well as geographic to generate better results.