What’s it: Demographic segmentation divides the population in a market into segments based on variables such as age, education, income, and occupation. Then, the company associates these variables with consumer tastes and purchasing behavior.
Demographic segmentation is one of two other types of segmentation, geographic segmentation, and psychographic segmentation. The process is relatively simple because companies can easily get demographic data.
How demographic segmentation works
Segmentation is about breaking the population into smaller segments. Consumers in one segment have homogeneous characteristics regarding their needs, tastes, and marketing mix responses. Meanwhile, consumers between segments are heterogeneous.
One of the basics of market segmentation is demographic variables. Companies link variables such as gender, education, occupation, and income to each individual’s consumption behavior. They then develop an analysis of what motivates consumers to buy products.
Demographic segmentation is important because several variables directly influence demand. Take income, for example. It is the primary determinant of consumer purchasing power.
Also, purchasing behavior varies among income groups. Wealthy individuals are usually more concerned with quality than price, whereas others are more concerned with price.
By breaking down consumers into homogeneous groups, companies gain deeper insights into consumer behavior. They then select the targeted market segment and devise the right marketing mix.
With more targeted marketing, the chances of generating sales are higher. Also, companies can focus their resources so that their allocations are more efficient.
Demographic segmentation variables
Demographic segmentation divides the market based on the characteristics of a population. Among the commonly used variables are:
- Age: children, adolescents, adults, senior adults
- Gender: male, female
- Life cycle: school children, adolescents, young couples, adults with multiple children, elderly people.
- Family size: only couples, small families with 1-2 children, large families with more than 3 children
- Education: primary education, secondary education, college, or based on academic and professional degrees.
- Occupation: blue-collar, white-collar, professional, or by economic sector
- Income: rich, middle, poor
- Social class: upper class, middle class, lower class
- Religion: Islam, Catholicism, Christianity, Buddhism, Hinduism
- Generation: baby boomers, generation X, generation Y, and generation Z
Age segmentation may include categories:
- Child (0-12 years)
- Youth (13-18 years)
- Adult (19-59 years)
- Senior Adult (60 years and over)
Some companies target products in the above categories, such as toys for children and retirement plans for senior adults. Meanwhile, car companies target the market for people aged 17 years and over.
Furthermore, some other companies may break the above categories into more specific segments. For example, producers of milk for children split the market into two categories for ages 12-24 months and for ages 2-5 years, based on consideration of their nutritional needs.
The gender variable is important because many products and services are targeted only at men or women. They vary in their likes, dislikes, needs, and thought processes. For example, the make-up business is more targeting women. Specifically, companies usually market to women aged 19–35. Women also do not wear boxer shorts and do most of their household grocery shopping.
For example, let’s say we divide the population according to the number of members: only a couple, families with three members, three to four members, and more than four members. The number of families affects the size of demand and the frequency of purchases.
For example, a Pizza restaurant might consider families’ average size in an area before deciding on a sales location. With a larger family size, the owner hopes to sell at a higher volume.
Education segmentation may group target markets into the following categories:
- Primary school
- Junior high school
- Senior high school
Apart from the education level category above, companies can also divide the market by field of study, academic degree, or professional title.
This segmentation assumes education affects a person’s standard of life and lifestyle. For example, we might associate media consumption with a person’s education level. For this reason, media owners try to match their content to the educational profile of their audiences.
Income is the primary determinant of purchasing power. High-income individuals have high purchasing power. They spend more money on certain goods and services than lower-income consumers.
McKinsey provides a good example for categorizing consumers. For example, for consumers in China, this consulting firm categorizes households based on their annual disposable income:
- Affluent (over $34,000)
- Mainstream (between $16,000 to $34,000)
- Value (between $6,000 to $16,000)
- Poor (less than $6,000)
The social class combines several socio-economic variables, such as occupation, income, education, and family background. The three-class model divides consumers into three categories:
- Upper class: They are wealthy individuals, usually from established and influential families. Their education is usually high too. They usually own various businesses or become wealthy investors.
- Middle class: This group usually refers to white-collar workers. They have relatively high incomes thanks to the support of good education and jobs.
- Lower class: This group usually refers to people who are low income and usually work as laborers or as unemployed. They have low economic and educational access.
Luxury products target the upper class rather than in the other two classes. Upper-class consumers are more tolerant of prices because of their high purchasing power. They are more concerned with quality, prestige, appearance, and self-esteem in buying products.
Advantages of demographic segmentation
Many companies use demographic variables as the basis for segmentation because of several advantages.
First, the consumer wants or needs usually fit into a demographic category. Therefore, demographic variables are the most popular basis for dividing the market.
Take income, for example. Economists use it as the primary determining variable of the demand for an item. No income means no demand.
Consumption behavior usually varies according to the income range of each individual. The decadent love luxury and branded goods. And, it is not for needy individuals who cannot pay.
Second, the variables are also measurable. Companies can get some data easily, for example, from government institutions. Central statistical agencies usually provide population data by age, income, or occupation.
Third, marketing is more targeted. This is a common advantage of market segmentation. The company develops specific marketing strategies and marketing mix for target segments. It gives them a more precise direction on marketing planning, such as advertising, resource allocation, and budget.