Over the years, companies have gained experience in the market. They recognized that they cannot target all consumers at the same time, or in the same way.
Thus, they focus on the markets they can serve best and generate the most profitability. They conduct marketing programs or develop products that meet the needs of that particular market.
- Demographic segmentation is based on population criteria such as age, gender, income, occupation, stage of the life cycle, etc.
- The segments selected should be internally homogeneous, but heterogeneous among themselves.
- In addition to being able to segment the consumer market, the business market can be segmented. In turn, each segment must meet requirements to be viable.
Everything you need to know about demographic segmentation
Demography is a science that studies the characteristics of a population. Therefore, demographic segmentation is based on dividing the population according to these characteristics. In this way, smaller groups with common characteristics are obtained.
What is market segmentation?
To better understand what demographic segmentation is, first of all, we must know what market segmentation is. Basically, to segment means to divide. Therefore, segmenting the market means dividing it according to different variables.
Now, although in this article we will talk specifically about demographic segmentation, there are more variables in which markets can be segmented (1):
|Demographic segmentation||Geographic segmentation||Psychographic segmentation||Behavioural segmentation|
|Function||Divides the market based on age, gender, life stage, education, etc.||Divides the market according to geographic units such as nations, regions, municipalities, cities, neighbourhoods, etc.||It divides the market on the basis of characteristics such as personality, lifestyle or social class||It divides the market according to their knowledge, attitudes or usage rate concerning a product.|
What is demographic segmentation?
Demographic segmentation divides the market according to consumers’ personal variables. These can be age, gender, life stage, income and other characteristics that refer to aspects of the population.
The needs and wants of consumers can vary greatly according to different demographic criteria. And a company’s products or services may not be developed to meet all of these needs indiscriminately.
Why is demographic segmentation important?
Demographic segmentation is the most basic and fundamental segmentation for companies when selecting which market to target. According to Schiffman and Kanuk (2), it is crucial because:
- This one is the easiest and most logical of all the forms of segmentation. In addition, it is most accurate.
- The costs to reach this information, locate and reach these consumers are lower than in other types of segmentation. For example, data can be accessed through population data from the country’s census.
- This data allows new business opportunities to be found according to changes in age or income.
- Many habits, attitudes and media consumption patterns are directly related to demographic information.
However, it should be clarified that it is also fundamental for finding the most profitable market that can be better served. In addition, to establish the right way to communicate with that audience. So that they are not only informed about the characteristics of the products, but to reach them from an emotional place that allows a loyal and lasting relationship.
Basics of demographic segmentation
Within this segmentation, multiple variables can be used to select groups of people with common characteristics. It is essential to correctly define who companies want to target with their marketing strategies. If you choose the wrong segment, you would be wasting both resources and time.
According to different authors, these variables differ slightly. However, Kotler and Keller (3) define the following:
Age and life cycle stage
Age is usually the first variable that comes to mind when the word demographics is mentioned. It is particularly important to define the age group at which products or services are targeted. It is important to note that this variable can be very precisely detailed. For example, a diaper brand divides its market according to month ranges.
However, the life cycle stage is also included in this variable, but what does it refer to? Well, with this concept the authors refer to the “psychological” age that some consumers have and how they perceive themselves. For example, an older adult who feels young.
Within each generation or cohort, important differences can be found. However, they can be taken into account when targeting the audience you want to reach. These are identified by movies, music, events and politics of the time. In addition to being able to use them to identify the needs of these target groups, you can use, for example, iconic images of the time for communication.
The generations are as follows:
|The year they were born||Characteristics|
|Silent generation||1925 – 1945||They are at an advanced age. Many of them do not “feel” how old they are chronologically and perceive themselves to be younger. Many lead very active lives.|
|Baby boomers||1946 – 1964||Motivated to do their own shopping. Willing to try new products. Enjoying their retirement, they are targeted for various vacation travel deals.|
|Generation X||1964 – 1978||Known as “impulsive” or “casual”. Cautious with false advertising or speeches that do not show value clearly. Believe fundamental to self-reliance and problem-solving skills.|
|Millennials (Generation Y)||1977 – 1994||Digital natives. Prone to own multiple digital devices and perform various activities while online. Have a high level of social awareness.|
The life cycle stage should not be confused with the life stage. The last of these refers to what is most important to the person at the time, or their greatest “concern”. Throughout the life cycle, people experience key situations such as marriage, divorce, becoming parents, etc. These entail a modification in their lifestyle and therefore in their needs and desires.
Another classic variable is gender. Many companies have a target audience of only women or only men and, based on this, develop their strategies. Both are very different from each other, from their genetics to their way of thinking, and this has an impact on the way they communicate. For example, women remember more information from their immediate environment, while men tend to focus only on information that will help them achieve their goals.
Despite this, the differences between the two are becoming smaller due to social development. Also, as the new genres are being included in marketing strategies, these developments should not be overlooked.
Revenues were used for many years to seek market segmentation. Despite this, they are not sufficient to fully define who the best customers are. This is because consumers (mainly middle class) continuously migrate to both discount and luxury products.
On the part of companies, they sometimes target lower-income audiences directly with discounted prices. This attracts greater consumer loyalty or less competitive pressures. In other cases, they target consumers with high purchasing power by selling products at high prices.
How to segment companies demographically?
The consumer market is not the only one that can be demographically segmented. While some companies sell to individuals B2C (business to consumer), others sell to businesses. This is called the B2B or business-to-business market. While there are different types of business segmentation, as in the consumer market, demographic segmentation is the most important (3).
How do you do demographic segmentation?
Knowing who to target is as important as how to do it. The goals of the organization should never be forgotten. Much less target segments that are considered “easier” to reach.
There are the steps for performing a correct demographic segmentation:
- Identify current and potential market desires.
People may have desires that are readily apparent and others that are less so. Or a group of consumers may share a desire for a specific product, but each wants it for a different function. By recognizing these desires and grouping them into smaller groups, you will begin to identify possible segments.
- Identify what characteristics distinguish the segments from each other.
In this step, you establish what characteristics consumers have in common, such as habits or behaviours. This will help to establish possible marketing mixes for each segment.
- Determine the potential of the segments and the degree to which they can be satisfied.
Finally, it is necessary to analyse which segments are most apt to be exploited. This is done by calculating the demand represented by each segment, the urgency of the need detected and the strength of competition in the market (6).
Requirements for good demographic segmentation
Not all identifiable segments will be suitable for consideration. To identify which ones may be viable, a list of requirements that a segment must meet is detailed:
- Identifiable. To correctly identify needs or characteristics, these characteristics must be easy to identify. Particularly in demographic segmentation, this requirement is easily met.
- Sufficient. This requirement refers to size. The segment must be large enough to be profitable.
- Stable. They must have a certain level of stability in lifestyle and consumption patterns. In addition, they must be likely to grow, which would generate even more stability in the future.
- Accessible. The segment must be attainable by the company in a cost-effective manner. A cost-effective way of communicating with them should be found that does not entail excessive expenses.
- Congruent with the company’s objectives and resources. Companies may not be interested in, or able to, target all available segments if they do not resonate with the company’s objectives (2).
Demographic targeting in Google Ads
Performing market segmentation and targeting correctly is necessary both in the offline and online world. In digital marketing, this tool is not left out. Targeting the right ads to the right people is neither chance nor internet magic.
When developing Google Ads campaigns and ads, you can establish, among other things, to whom the ad will be shown. This segmentation works as a limiter. That is, it prevents people who do not meet the selected characteristics from being shown the ad. If you work in the digital area, you will know that there are different types of campaigns. However, the demographic variables that can be determined are the same for all of them (4).
There are cases where some people’s demographics are not available for Google to consider when displaying the ad. Or there are “display networks” that do not allow the use of this demographic targeting. So in cases where you use this method, remember to select the unknown category to have your ad shown on these sites (4).
Demographic targeting in Facebook Ads
As in the previous case, Facebook Ads (social media ad generator) also allows audience targeting to display ads. Both Facebook and Instagram have the audience that brands want to promote their products, services, events, etc. In addition, they achieve a great advantage in the ability to segment audiences.
The social network has a large amount of stored user data. These are then used for a detailed selection of profiles according to what each advertiser wants to reach (5).
Examples of demographic targeting
To better understand the concept we will show you some examples provided by renowned authors that will surely help you better understand everything explained:
- Honda launched a new car model aimed at a young market segment. They established it as a “college dorm on wheels” and the advertising was based on young people having fun. However, against all odds, baby boomers were so taken with the product that the average age of sales ended up being 42. What happened here? Well, what’s called the life-cycle stage came into play, and the older ones were perceived as younger (3).
- Whirlpool launched a line of luxury washing machines, at a high price point, aimed at the more affluent consumers. However, sales to less affluent consumers were twice as high as predicted. It turned out that middle-class customers who decided to replace their appliances had chosen to buy higher-priced ones (3).
Consumers are becoming more demanding every day according to their needs and desires. In addition, they generally have many options to choose from and who to buy from. That is why it is essential to reach them correctly and tell them how and why the brand will help them with their problems.
Market segmentation is only one of the tools you need to use to achieve this, but it is fundamental. For if we don’t talk to the right person, in the right way, we don’t talk to anyone.