Career Development

What Is Demographic Segmentation and Why Is It Beneficial?

February 22, 2021

Effective marketing combines many different tactics to pinpoint an audience, learn about their behaviors and determine how best to reach them. Demographic segmentation is one of the most popular, accessible and successful ways to break up the market into digestible pieces of information to build a target audience.

With this audience, companies can figure out how to tailor marketing campaigns to them, build a deeper connection with them and improve products to better serve them. In this article, you will learn what demographic segmentation is, common segment variables used and its benefits for marketing.

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What is demographic segmentation?

Demographic segmentation divides the consumer market into smaller categories based on common demographic factors. These smaller segments help companies understand their prospective market better, allowing them to utilize their resources and time more efficiently. Studying how different demographics behave toward products and services helps companies evolve with changing consumer markets.

Related: Marketing's Promotional Mix: Definition and How to Use It

Common variables for demographic segmentation in marketing

Companies look at several variables to pinpoint their target consumer base. They study these variables, then adapt their marketing and production to them. These are the most common variables used for demographic segmentation in marketing:

  • Age
  • Gender
  • Income
  • Occupation
  • Ethnicity and religion
  • Family structure

Age

Age is the most simple but one of the most important variables. Consumer preferences change with age, and different age groups consume and respond to advertising differently. The age variable has three categories :

  • Age range: This could be two- to four-year-olds, 13- to 15-year-olds and so on. This is commonly used for clothing marketing.

  • Life-cycle or life-stage: These stages may include infants, children, adolescents, adults, middle-aged adults and senior citizens. The housing market may use cycles and stages, as well as educational institutions and the personal care industry.

  • Generation-based: This breakdown defines age by generation such as baby boomers, Generation X and millennials. Although generations differ slightly in age, they tend to share characteristics and often have similar viewpoints and ideas.

Gender

It's important with this variable not to assume gender stereotypes, but generally, men and women have different likes, dislikes and needs. They also tend to perceive the market differently, which requires companies to manufacture products and offer services that cater to each. Within gender comes further subsets of people.

For example, women's clothing manufacturers may choose to cater to a more feminine style, but they may also choose to target a certain body type or be more inclusive. Auto manufacturers targeting men may market a truck to an outdoorsman, but market their luxury sedan to a businessman.

Income

Income tells companies what the buying power of their target consumer base is. The average income of a demographic determines how a company will price its products and services. With income data, it can find out how its audience spends money on the high and low spectrum. For example, luxury car brands cater only to the high-income segment, while common retail stores provide options for low- and middle-income segments as well. Other companies create tiered options for the same product to cater to multiple income segments within their target audience.

Occupation

Occupation targeting allows companies to focus their resources on specific industries and job titles. This is beneficial for companies with account-advertising because they can target at the account level, which holds the highest revenue potential. Occupation segmentation can also help divide groups of people into specific locations such as cities, suburbs and rural areas and is sometimes combined with income segmentation.

Ethnicity and religion

With a wide variety of ethnicities and religions in the United States and an increase in international business, it's important to segment these groups. Each culture has different interests, preferences, beliefs and attitudes that can impact buying habits and marketing responses. Some companies that market internationally change their advertisements based on ethnicities, religions and cultural differences throughout their consumer base.

Family structure

Family structure plays an important role in family needs and desires. Large families may prefer low-cost, bulk products, while singles may spend more money on themselves. Changes in family dynamics then lead to changes in those needs and desires. Newlyweds, newly divorced, newly widowed and couples having their first child will likely show a change in how much they are willing to spend and what types of products they buy.

Benefits of demographic segmentation

The demographic segmentation of consumers is one of the most commonly used practices because the data is easy to collect and it's one of the most inexpensive ways to divide the market. Here are the main benefits of demographic segmentation for marketing:

  1. Readily available information
  2. Increased ROI
  3. Customer retention and loyalty
  4. Improved products and services
  5. Optimized marketing strategies

1. Readily available information

Pulling census data to determine the target demographic is very simple. Analytics software and consumer reviews are easily obtained and provide valuable insights into the consumer market. This helps businesses determine who they want to market to, where those people are located, what marketing they respond to and what they are willing to pay.

2. Increased ROI

With demographic segmentation, companies are better able to market directly to their target audience in ways consumers respond well to. This greatly increases revenue, especially from email campaigns and new product launches, without increasing expenses.

3. Customer retention and loyalty

Because companies focus more on their customers' desires and needs, customer retention and loyalty increases. Through personalized marketing strategies, companies can reach customers on a more human level, which creates a deeper connection. When customers feel taken care of and important they will likely stick with a business longer.

Related: Understanding the Basics of Strategy Development

4. Improved products and services

Knowing consumers on a deeper level means companies can adjust and improve their products and services to better meet consumer needs. With improvement comes greater retention and an increased ROI.

5. Optimized marketing strategies

Segmenting the market also allows companies to get more creative and specific with marketing. When they know exactly who their audience is and what they want, they can clarify their message and future advertising plans. This saves time, resources and money.

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