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Demographic Segmentation

Demographic Segmentation

Have you ever shopped online or signed up for an organization's loyalty program? If your answer is "yes", chances are the organization has made a customer profile based on your demographic characteristics (age, gender, etc.) and your behavior (how often you shop, how much you spend, etc.). Organizations create customer profiles to better tailor their offerings to you as a consumer based on your wants and needs. Consumers are placed into groups with other consumers who exhibit similar characteristics and behavior. This is the basis of segmentation. Read along to learn more about how demographic segmentation differs from other segmentation types!

Demographic Segmentation Definition

Before we discuss the definition of demographic segmentation, 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.

The main task of segmentation is to find patterns and insights from different consumer groups. Demographic, geographic, psychographic, and behavioral are common forms of segmentation. This explanation will focus on demographics.

Demographic segmentation involves segmenting consumer groups based on demographic traits like age, income, and gender.

When done correctly, demographic segmentation can enable a company to maximize its marketing return on investment (ROI).

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. Figure 1 below shows popular demographic segmentation variables.

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.

Demographic Segmentation: 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.

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.

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.

'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

Demographic Segmentation: 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.

Demographic Segmentation: 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 Example

Before you go, let's look at an example of demographic segmentation.

Skincare manufacturer Dove segments its customers based on various demographic factors, including age, life-cycle stage, and gender.

A prominent example of demographic segmentation employed by Dove may be observed through their Dove Men+Care product line.

Demographic Segmentation Gender segmentation StudySmarterFig. 2. Dove Men+Care Products

The brand features a variety of personal hygiene products like shampoo, body wash, face wash, and deodorant, specifically designed to target men. These products use fragrances typically associated with men and are packaged in darker bottles. Contrarily, other Dove products use more fruity and sweet scents and are packaged in lighter and neutral colors, targeted at women. Dove has also run multiple campaigns to empower women through its brand. These types of marketing communications are effective at positioning the brand as an inclusive one.

On the other hand, Dove also segments its customers based on age. For example, Dove has a children's skincare brand called Dove Kids Care and one called Baby Dove, which is for even younger children. In this case, Dove differentiates consumer groups based on life-cycle, even though children are obviously not the ones purchasing the product.

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, sex, gender, income, occupation, religion, ethnicity, and life-cycle stage.

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

Demographic segmentation involves segmenting consumer groups based on demographic traits like age, income, or gender. Market segmentation is essential for firms as it helps them understand their customers better and cater their offerings and value proposition for interested consumer groups.

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

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. 

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. 

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. 

Final Demographic Segmentation Quiz

Question

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

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Answer

characteristics

Show question

Question

Segmentation means finding patterns and insights from different consumer groups.

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Answer

True

Show question

Question

________, geographic, psychographic, and behavioural are various forms of segmentation.

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Answer

Demographic

Show question

Question

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

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Answer

Demographic

Show question

Question

Segmentation is also part of the __________, which involves segmentation, targeting, and positioning.

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Answer

STP model

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Question

One of the so-called 'rules' of segmentation follows the idea that the difference within groups (segments) should be _______, i.e., consumers in a group should share similar wants and needs, and the difference between groups should be _______.

Show answer

Answer

low/high

Show question

Question

Organisations have limited resources; therefore they cannot create tailored offerings for each individual. 

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Answer

True

Show question

Question

Similarities within groups should be _______, and differences between groups should also be ________.

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Answer

observable, observable

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Question

What are the four characteristics of an appropriate customer segment?

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Answer

Customer segments should be differentiable, observable, stable, and substantial. 

Show question

Question

_______ is a basic form of demographic segmentation built on the assumption that society ages similarly, i.e., everyone ages.

Show answer

Answer

Age

Show question

Question

"A company specialising in selling technical SEO courses will likely target marketing professionals rather than nurse practitioners." This is an example of segmentation based on ______. 

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Answer

occupation

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Question

Which demographic factor might affect the types of products consumers purchase and the number of times they purchase a product?

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Answer

Income levels

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Question

Factors like family life-cycle and family size are considered as part of which type of demographic segmentation?

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Answer

Life-cycle stage

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Question

Marketers often assume that couples, families, and single people have similar purchasing patterns and behaviours.

Show answer

Answer

False

Show question

Question

Marketers try to create customer segments that are as small as possible.

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Answer

False

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