Demographic Segmentation

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.

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.

• 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.

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

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:

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 Although this type of segmentation has become outdated for many product categories, it is still present in some cases.

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.

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 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.

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.