Demographic Segmentation

Ever wondered how companies seem to know just what you want and need? The secret sauce behind their success is demographic segmentation!  We'll unravel the demographic segmentation definition, shed light on the ins and outs of demographic market segmentation, and navigate the intricate maze of demographic segmentation variables. Along the way, we'll help you understand this concept with real-life demographic segmentation examples and weigh the demographic segmentation advantages and disadvantages. You can truly grasp how this powerful tool shapes how businesses connect with their customers. Stay tuned for an informative and engaging, eye-opening experience for students like you!

Demographic Segmentation Demographic Segmentation

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Table of contents

    Demographic Segmentation Definition

    Demographic segmentation is the method of grouping people based on common characteristics like age, gender, or income, making it easier for businesses to cater to their customers' needs. By understanding these differences, companies can create products or services that appeal to specific groups of people.

    Demographic segmentation in marketing is the process of dividing a market or consumer base into distinct groups based on demographic factors such as age, gender, education, income, ethnicity, and family status, enabling targeted marketing efforts and tailored product or service offerings.

    Picture a futuristic robot-run restaurant in a bustling city. The restaurant's artificial intelligence uses demographic segmentation to serve the perfect meals for its diverse customers. It prepares quick, nutritious meals for busy professionals to fuel their hectic workdays. For college students, it offers affordable yet delicious dishes that suit their tight budgets. And for families, it creates shareable platters that cater to different taste preferences, ensuring everyone leaves the table satisfied.

    Let's examine why marketers segment markets.

    Market segmentation is essential for firms as it helps them understand their customers better and create more suitable offerings. Specifically, segmentation gives insights into customer characteristics, behavior, and preference. This allows companies to develop products that customers will appreciate. Segmentation is part of the STP model, which includes segmentation, targeting, and positioning.

    To learn more about the STP model, check out our explanation of Market Segmentation, Targeting, and Positioning.

    Demographic Market Segmentation

    It is unlikely for a good or service to appeal to all consumers. As a result, marketers segment the market to make their offerings as appealing as possible for specific customer groups.

    One of the so-called 'rules' in segmentation is that the difference within groups (segments) should be low (e.g. consumers in a group should share similar wants and needs), and the difference between groups should be high.

    Due to limited resources (staff, time, and money), it is difficult for companies to tailor their offerings for each individual. That is why marketers group customers with similar traits together and market to them as a whole. That said, some companies still make custom-designed products for customers, e.g., Chanel Haute Couture or custom cars.

    Let's take a look at the general characteristics of an appropriate segment:

    • Differentiable - this relates to the idea that each customer subgroup, or segment, should be different from one another. If segments all exhibit the same characteristics, it will not make sense to spend time and effort segmenting customers.

    • Observable - relates to the idea that similarities within groups should be observable and differences between groups should also be observable. Observable parameters can range from demographics, geographics, and behavior.

    • Stable - segments should make sense and be stable over time, i.e., unlikely that segment characteristics and behavior change within the foreseeable future.

    Consider a company that produces toys for children aged 4-6. The children currently playing with a particular toy will eventually outgrow it. However, there will always be younger generations of kids who will become interested in the toy. On the other hand, if a different company develops a digital version of the toy, children, in general, might become disinterested in playing with the original one.

    • Substantial - the segment should be large enough to be profitable for the business. If a customer segment consists of only a few people, it would be a waste for marketers to spend time and money on advertising to them as the returns they would be making are low.

    A segment of 10,000 people has a higher return potential than a segment of 50 people. Even if only 20% of 10,000 people purchase the product, the marketer would still make higher returns than if all 50 people bought the product. It would be a waste for marketers to develop and advertise a product for a few people.

    Demographic Segmentation Variables

    Now that we understand the goals of segmentation, let's take a closer look at the variables marketers might use to segment consumers based on demographics. Demographic segmentation variables are:

    • age
    • sex and gender
    • income
    • education
    • occupation
    • religion
    • ethnicity
    • life-cycle stage

    Remember that demographic segmentation is different in B2C and B2B environments. To learn more about demographic segmentation in the B2B environment, check out our explanation of Business Markets.

    Age

    First of all, marketers can segment their customers based on age. This is a basic form of demographic segmentation built on the assumption that society ages similarly, i.e., everyone ages. Age is a simple method of segmenting customers as consumer wants and needs can change significantly with age. Let's take a look at the examples of age demographic segmentation:

    For example, the pharmaceutical brand Nurofen segments its customers based on age. An ibuprofen-based painkiller in a liquid format is available for children between 3 months to 9 years old. There are also a variety of Nurofen medicines available for adults in capsule and tablet format. Nurofen does this as small children, of course, need a lower dose of ibuprofen as their bodies are significantly smaller than that of adults. Similarly, a flavored liquid is easier for children to take compared to a tablet.

    Sex and Gender

    On the other hand, certain companies might decide to segment their customers based on sex and gender to cater to different customer needs. Although this type of segmentation has become outdated for many product categories, it is still present in some cases.

    'Pink-Tax': The Gender Bias in Market Segmentation

    Have you ever heard of the term 'pink-tax'? Walking through supermarkets and drugstores, you might have noticed numerous products marketed to women. These products include deodorant, shower gels, razors, etc., often branded in pink packaging. The reason why it's called a pink tax is that these products are frequently more expensive than their non-pink substitutes. For example, a well-known shaving foam brand priced its women's shaving foam 2.15 times more expensive than its men's version - the only difference being packaging and branding.1

    Income, Education, and Occupation

    Another type of demographic segmentation includes segmenting consumers based on income and education level. Marketers might deem certain complicated and technical products more appropriate for people of higher education levels. However, this concept is also related to the occupation of the individual. For example, a company specializing in selling technical SEO courses will likely target marketing professionals rather than nurse practitioners.

    Similarly, a consumer's income level will likely impact their purchasing patterns. It may affect the types of products they purchase and the number of times they purchase a product. For example, a corporate CEO is more likely than a student to buy expensive holidays often. On the other hand, a student might be more likely to buy store-brand grocery products, and a homemaker might be more likely to buy grocery products in large quantities.

    Religion and Ethnicity

    Likewise, a consumer's religion and culture might influence the products they purchase. For instance, certain religious values may prohibit the consumption of caffeine, alcohol, tobacco, pork, or meat in general. As a result, marketers need to understand and consider religious differences when developing certain products.

    On the other hand, there are certain religious and cultural events that have recently attracted an increase in consumption during certain seasons. For instance, consumer spending on children's toys might increase during the weeks before Christmas.

    Life-cycle stage in demographic segmentation

    Finally, marketers may also consider life-cycle stages when segmenting customers. This form of demographic segmentation is similar to segmenting consumers by age; however, it may also consider the life stage the consumer is experiencing. As a result, factors like family life-cycle and family size are also considered.

    For example, many phone service providers offer family plans, making adding your children to your phone plan cheaper than purchasing a separate one. Similarly, grocery retailers often bundle products together in a family pack for larger households.

    Additionally, marketers often assume that couples, families, and single people have different purchasing patterns and behaviors. However, marketers need to avoid certain life-cycle and age-related stereotypes. An example is assuming that older people are not interested in new tech products. Although this might be the case for some, others might be happy to explore new tech gadgets and product developments.

    Demographic Marketing Strategies

    Demographic marketing strategies are essential for strategic marketing planning as they allow companies to identify individual members of their target audience based on certain features, wants, and needs. Demographic strategies also allow marketers to target their ads at customer groups that are most likely to buy their product, especially in digital environments. As a result, it enables businesses to cut down marketing costs.

    Demographic Segmentation Examples

    Discovering how businesses tailor their products and services to specific groups of people is essential for understanding the power of marketing. In this list, we explore some compelling demographic segmentation examples from well-known companies that use demographic segmentation to cater to the diverse needs of their customers.

    Apple demographic segmentation

    Apple uses age and income-based demographic segmentation to target its customers. They create high-end, user-friendly devices like iPhones, MacBooks, and iPads, which appeal to younger, tech-savvy consumers with higher disposable incomes. Apple's sleek designs and innovative technology attract these customers, who are willing to pay a premium for the latest gadgets.

    Amazon demographic segmentation

    Amazon employs various demographic segmentation strategies to cater to various customer groups. For example, they use age, gender, and interests to recommend products and services on their platform. By analyzing customers' browsing and purchasing habits, Amazon can offer personalized suggestions, making it more likely that users find items they're interested in and ultimately make a purchase.

    Airbnb demographic segmentation

    Airbnb uses demographic segmentation based on age, lifestyle, and travel preferences to target its customers. Younger, budget-conscious travelers often seek unique, affordable accommodations, while older or more affluent travelers might prefer luxurious, well-appointed homes. By offering a variety of lodging options and tailoring marketing efforts to different demographics, Airbnb caters to travelers with diverse preferences and budgets.

    Chanel demographic segmentation

    Chanel focuses on income, gender, and age-based demographic segmentation for its luxury fashion and beauty products. The company targets affluent, sophisticated women with a taste for high-quality, elegant designs. Chanel's marketing efforts emphasize the brand's exclusivity and timeless style, appealing to its desired customer base.

    BMW demographic segmentation

    BMW employs demographic segmentation based on income, age, and lifestyle to target its customers. The brand is known for its luxury vehicles, which are designed to appeal to high-income, status-conscious individuals who appreciate performance, comfort, and innovative technology. BMW also considers age and lifestyle when designing specific models, such as sporty coupes for younger, performance-oriented drivers or spacious SUVs for families seeking comfort and safety.

    Demographic Segmentation Advantages and Disadvantages

    Demographic segmentation plays a crucial role in helping businesses understand and connect with their customers. By analyzing factors such as age, gender, income, and education, companies can create targeted products and marketing strategies that resonate with specific groups. However, like any approach, demographic segmentation has its advantages and disadvantages.

    Table. 1 - Advantages and Disadvantages of Demographic Segmentation
    AdvantagesDisadvantages
    Targeted marketingOversimplification
    Efficient resource allocationStereotyping
    Better product developmentIgnoring psychographic factors

    Advantages of demographic segmentation

    Main advantages of demographic segmentation are:

    Targeted marketing

    Demographic segmentation enables businesses to craft marketing messages that appeal to specific consumer groups. For example, a cosmetic company may create advertising campaigns featuring age-appropriate models to target different age segments, making the products more relatable and attractive to potential buyers.

    Efficient resource allocation

    By understanding the needs and preferences of different demographic groups, companies can allocate resources more effectively. For instance, a car manufacturer might focus on producing more eco-friendly vehicles for younger, environmentally-conscious buyers, while continuing to develop luxury cars for high-income consumers.

    Better product development

    Demographic segmentation helps businesses design products tailored to the needs of specific consumer groups. For example, a fitness brand could develop workout apparel in extended sizes to cater to a broader range of body types, meeting the needs of a more diverse customer base.

    Disadvantages of demographic segmentation

    Main disadvantages of demographic segmentation are:

    Oversimplification

    Demographic segmentation might lead to oversimplification, as it doesn't consider individual preferences or behavior. For instance, not all millennials are tech-savvy or environmentally conscious, and relying solely on demographics might lead to missed opportunities.

    Stereotyping

    Relying on demographic segmentation can sometimes result in reinforcing stereotypes. For example, a toy company that markets dolls only to girls and action figures only to boys may be perpetuating gender stereotypes, limiting their potential market.

    Ignoring psychographic factors

    Demographic segmentation does not account for psychographic factors like personality, values, and attitudes, which can also significantly influence consumer behavior. For example, a travel agency targeting luxury-seeking consumers based on income alone may miss out on budget-conscious consumers who value experiential travel.

    In summary, demographic segmentation offers valuable insights for businesses to create targeted marketing, allocate resources efficiently, and develop better products. However, companies should also be mindful of its limitations, such as oversimplification, stereotyping, and the importance of considering psychographic factors. By striking a balance and using demographic segmentation alongside other strategies, businesses can better understand and cater to their customers.

    Demographic Segmentation - Key takeaways

    • Market segmentation is essential for firms as it helps them understand their customers better and cater their offerings and value proposition to interested consumer groups.
    • Organizations have limited resources; therefore, they cannot create tailored offerings for each individual.
    • Demographic segmentation involves segmenting consumer groups based on demographic traits like age, income, or gender.
    • Customer segments should be differentiable, observable, stable, and substantial.
    • The primary demographic segmentation factors include age, gender, income, education, and life-cycle stage (family status).

    References

    1. Richa Bhargava and Raahat Tara. Pink Tax: The gender bias in product recommendations and corporate social responsibility. LSE. https://blogs.lse.ac.uk/humanrights/2022/04/29/pink-tax-the-gender-bias-in-product-recommendations-and-corporate-social-responsibility/
    Frequently Asked Questions about Demographic Segmentation

    What is demographic segmentation?

    Demographic segmentation in marketing refers to dividing a market or consumer base into distinct groups based on demographic factors such as age, gender, education, income, ethnicity, and family status, enabling targeted marketing efforts and tailored product or service offerings.

    What type of segmentation criteria are included in demographic segmentation?

    Some of the segmentation criteria included in demographic segmentation include factors like age, sex, gender, income, occupation, religion, ethnicity, and life-cycle stage. 

    What scenario best represents an example of demographic segmentation?

    Let's examine an example of demographic segmentation through the pharmaceutical industry.  The brand Nurofen segments its customers based on age. An ibuprofen-based painkiller in a liquid format is available for children between 3 months to 9 years old. There are also a variety of Nurofen medicines available for adults in capsule and tablet format. Nurofen does this as small children, of course, need a lower dose of ibuprofen as their bodies are significantly smaller than that of adults. Similarly, a flavoured liquid is easier for children to take compared to a tablet. 

    How can a market be segmented using demographics?

    Segmentation means finding patterns and insights from different consumer groups. Demographic, geographic, psychographic, and behavioural are various forms of segmentation. Demographic segmentation involves segmenting consumer groups based on demographic traits like age, income, gender, or life stage. 

    How is demographic segmentation used in consumer markets? 

    Demographic segmentation in consumer markets is similar to demographic segmentation in business markets, only the variables and factors differ. For example, rather than looking at the size of an industry or the number of employees in a company, marketers observe the age or occupation of consumers. 

    What are the five main different segments for demographics?

    The five main demographic segments are age, gender, income, education, and family status (or life stage).

    Why is demographic segmentation important?

    Demographic segmentation is important because it enables businesses to understand their customers better, create targeted marketing campaigns, and develop products that appeal to specific consumer groups.

    What companies use demographic segmentation? 

    Most companies use demographic segmentation including global brands like Apple, Amazon, Airbnb, Chanel, and BMW.

    Test your knowledge with multiple choice flashcards

    Segmentation allows marketers to understand customer ______, behaviour, and preference.

    Segmentation means finding patterns and insights from different consumer groups.

    _________ segmentation involves segmenting consumer groups based on demographic traits like age, income, or gender.

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