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Demographic Segmentation

Demographic Segmentation

A demographic analysis of your Target Market will identify the outward characteristics of your best customers. Typical examples include age, sex, income, occupation, education, marital status, household formation, ethnic background; and physical characteristics.

You might think you intuitively know all you need to know about your customers’ demographics, and you could be right to some extent but markets are typically more complex than they first appear. The fact is, it's just not possible to make informed decisions by guessing. That's not to dismiss the gut instinct that an entrepreneur needs to have to build his business that's important too but there's enough guess work in business without adding to it unnecessarily. No matter how intuitive you are, your business will benefit from this kind of information.

How will your business benefit? In many ways. First of all, when combined with geographic information, demographics can help you to locate and contact your Target Market. For example, if you find that many of your best customers are physically active, you might want to get a hold of a fitness magazine subscription list.

Additionally, monitoring demographic information can help you to anticipate shifts in your Target Market. If your market is growing, for example, you can gear up to take advantage of the additional business, and if your market is aging, you can adjust your marketing strategy to compensate for your market's changing needs.

Furthermore, demographic information will give you the opportunity to tailor your business more closely to the lifestyles of your customers. Suppose, for example, you discovered that many of your customers worked full time. You might want to consider staying open later in the evening. Or suppose you discovered that many of your customers were mothers with young children. You might want to consider adding child minding facilities to look after the kids while their mothers shop.

A gardener was noticing his shrubs weren't looking as healthy as they should be. he stopped in at a gardening supply store and the salesman offered him a great deal on some top soil fertilizer. The gardener asked the salesman if the shrubs really like this fertilizer. The salesman replied, "I don't know, I don't sell to shrubs."

Specific demographic information can even help you market more effectively to individual customers. If you know when your customers have their birthdays, for instance, you can send a card or if you know that they just had a child, you can recommend products or services that are tailored to their needs. As you can see, the value of demographic information is limited only by your imagination.

Go through the following list and pick out the demographic market segments that might help to identify your Target Market(s). Note any thoughts or particulars that relate to your situation.

Age (and other factors relating to the life cycle) - People tend to have different consumption patterns at different stages in their lives. For example, people tend to dress more conservatively as they get older.

Gender — In many cases, men and women have different needs and wants. Even when a product is identical, men and women often perceive its value very differently. For example, in response to their customers, many fitness clubs have created “women's only” areas, while few, if any, have created “men's only” areas.

Income (and other monetary factors) - Income has a direct influence on consumption patterns. More expensive products, for example, tend to be purchased by those with more disposable incomes while those with a smaller incomes may be more attracted to sales and discounts.

Employment Status — This is often, connected with income. Money can come to people from a variety of sources. Typical market segments are “employed” or “unemployed,” but one could also be more specific. For example, unemployed people could be categorized as “retired,” “on sabbatical,” “on strike,” “on maternity leave,” or “on medical leave.” A simple example would be targeting maternity wear to women on maternity leave.

Occupation (including employees, homemakers, entrepreneurs, consultants, and volunteers) - Work has huge impact on lifestyle. As a result, people with similar occupations often have similar consumption patterns. It's also true that people who work together often socialize together. Certain financial services such as business loans or credit lines, for example, might be targeted toward business owners.

Education — This can include formal education, such as university or college degrees, as well as informal education, such as first-aid or fine arts courses. Self-education may be relevant in some instances as well. For example, individuals with certain university degrees may be an ideal target for a recruiting company.

Marital Status — Typically, these are single and married/common-law market segments but they can also include never married, married, single, divorced and widowed. Timing may also be a factor here. For instance, depending on the economy and the location, newlyweds may be more likely to rent condominiums, while those who have been married for several years and have children may be more likely to purchase houses.

Household Formation — Once again, you can be as detailed as necessary here, but some basic market segments include “single people,” “single people with children,” “couples,” “couples with children,” and “extended families.” For example, a grocery store might prefer to target larger families due to their greater consumption rates.

Type of Dwelling — People who live in condominiums, for example, tend to use laundromats more often than those who live in single-family homes.

Home Owner/Renter — For example, homeowners tend to buy more gardening and hardware supplies than renters.

Ethnic Background — Cultural and language differences between ethnic groups have an effect on consumption patterns. Marketing strategies that work well for one culture may not work at all for another. For example, certain ethnic style restaurants may choose to target certain ethnic groups as customers. In this case, language, visual cultural references, and even music may be geared toward a particular ethnic culture.

Physical Characteristics — Specialty clothing stores, for example, may choose to target a market segment of full-figure or petite customers.

Social Class — The consumption patterns of an individual are influenced by others in his or her environment. Social class influences everything from where a person dines to how a person dresses. For example, people who feel they are, or aspire to be, members of a particular social class may prefer to wear designer clothing. Be aware that “social class” is also a product of perception and may not be directly related to income.


Business to Business Segmentation

If your business deals with other businesses rather than individual consumers, you'll need to collect demographic information on the business as a whole as well as on the individuals making the buying decisions. Following are some additional considerations when your client is another business.

Type of Business — Certain industries or types of businesses may be more inclined than others to purchase from you. If you manufacture gardening products, for example, you will likely include plant nurseries and retail garden stores in your Target Market.

Company Size — Is your market limited to larger or smaller businesses? Even if you sell to all types it may be useful to know where the bulk of your profits come from. Company size can be identified by sales volume, gross income, number of employees, number of outlets, number of factories, or number of offices. For example, an accounting firm might find that smaller businesses are underserved in their area, making small business an ideal market segment to target.

End-use Application — It may be useful to consider how your market uses your products or services. For example, you will sell more building supplies to someone building an apartment building than you will to someone renovating a house.