Join Doug Ladd for an in-depth discussion in this video Demographic segmentation, part of Marketing Foundations: Customer Segmentation.
- If you have children you've likely noticed that the promotional mail pieces addressed to you are different from those addressed to your children. I personally don't do a lot of shopping at Forever 21, but the marketing team there thinks my daughter should. You see, they're using demographic data to target their customers. Segmenting by demographics is the practice of dividing a market by factors such as age, sex, household size, income, education level, race, nationality, you get the picture.
By looking at these variables, you can get a more detailed image of the market, because people that belong to groups tend to behave in manners similar to others in the same group. It makes sense to look at the things the group members have in common and attempt to draw some insights from those commonalities. Let's dive into some of these groupings a little more deeply. Age is very commonly used as a segmentation variable because it is typically easy to gather information on the average age of consumers in a market, and it's a meaningful indicator of how consumers are going to behave.
Makes sense, right? Teenage girls are shopping for different things than 65 year old women in terms of products and services. Income is an important segmentation variable because it can be an indicator of not only what kinds of products and services a person or family will want, but also where and how they may purchase. Consumers in higher income brackets tend to shop for different products, and they have historically done more online shopping than those with lower incomes. A closely-related segmentation approach is to place people into life-stage categories.
As people grow older, they tend to move through phases of their lives that lead to changes in the amount of disposable income available, the types of purchase decisions they're making, as well as the products and services they need. I've included a life cycles stages handout in the exercise files that really helped bring this to life. This commonly-used model shows how consumers move from the bachelorhood stage to newly married couples. As children arrive, they move through a series of nest stages, and then into empty nest stages, and then finally back to a solitary stage.
You can appreciate how the amount of money a couple with young children differs from the financial means of a couple celebrating their entrance into the empty nest stage. For each demographic segmentation variable, there are differences in the needs, wants, habits, shopping styles, and purchasing processes for the people within the group. Being attuned to these differences may help you gain more and deeper insights. Imagine for a moment that you've invented a new watercraft that you've specifically designed to go as fast as today's jetskis, but it'll run more quietly.
and you've figured out how to keep the riders from getting wet. While jetskis are popular, not every person, or even every household in the U.S. owns one. Some research on the personal watercraft market indicates that the average owner is 41 years old and has an income of 94,000 dollars. 85 percent of them are male, 40 percent are college graduates, and 71 percent of them are married. So let's compare these to some national averages. The median age for males in the U.S.
during the 2010 census was about 36. The median income was about 53,000 dollars. 49 percent of the U.S. population is male. 30 percent are college graduates, and approximately 52 percent of American adults are married. Knowing these details will be helpful as you design your product, develop your pricing plans, and promotional strategies. The key is to figure out which demographic variables are important to your business. To help you do this, I've included an exercise file for you to complete.
This contains a list of demographic variables where you can begin to track the data that will matter most to you. I've used data from the U.S. market in this example, but the principles apply around the world. You can find demographic data on most countries at CIA.gov or worldbank.org. The national averages for some of the key components are already loaded for you. By doing some web searching, you'll usually find some data points to load into the next column labelled for the next market.
As you dig deeper or do more research on your own, you may find different subsegments. For example, if your company makes more than just personal watercraft, but also other types of recreational vehicles, you could create a column for your personal watercraft segment and another for the all-terrain vehicle segment of the market. A good way to get an appreciation for the power of demographics is for you to compare the data for the zip code in which you live to the national averages on this worksheet. Most states have the data for each zip code available on a website, take a look and then think about how your neighborhood is similar and different from the U.S. population as a whole.
- Segmenting by location
- Segmenting by demographics
- Segmenting by usage or other behavior
- Why segmenting is important
- Creating and using customer personas