These days in business, a one-size-fits-all approach to customers often just doesn’t cut it.
It may appear cost-effective on the surface, but it neglects all the nuances of customer segments with varying needs and wants.
Once you identify the need for customer segmentation, the next step is to decide how deep to go.
Another type of segmentation is demographic segmentation, which allows you to identify a new layer of meaningful differences.
This post will cover what demographic segmentation entails, why it is important, what it looks like, and different ways to do it.
What is Demographic Segmentation
At its core, demographic segmentation is about identifying and leveraging differences between demographic groups within your customer base.
Personal characteristics (i.e., age, gender, race/ethnicity) and lifestyle characteristics (i.e. income, education, occupation, marital status, family size) may be indicators of preferences for products, services, and marketing messaging.
The process of demographic segmentation involves accumulating insights for segments within each demographic group. The idea is to know what is more likely to resonate with one segment over another.
For even deeper levels of segmentation like psychographic or behavioral, read more here about the steps to conducting a comprehensive segmentation survey.
Demographic Segmentation Vs. Customer Segmentation
Demographic segmentation and customer segmentation are both valuable strategies used by businesses to better understand and target their audience, yet they differ in scope and focus.
- Demographic segmentation involves dividing the market into groups based on demographic variables such as age, gender, income, education, occupation, marital status, and geographic location.
- Customer segmentation goes beyond demographics to consider behavioral, psychographic, and other characteristics that influence purchasing decisions and preferences.
An example using demographic segmentation would be a skincare company might target women aged 25-40 with higher disposable incomes living in urban areas who are interested in anti-aging products.
Where as, an example of using customer segmentation would be a beauty brand segmenting its customers based on their skincare concerns (e.g., acne-prone, sensitive skin) or purchasing behaviors (e.g., frequent buyers, occasional shoppers) to offer tailored product recommendations and promotions.
Why Demographic Segmentation is Important
What makes demographic segmentation worth your time and investment? There are several key benefits depending on your business and customers. Here are a few:
- Understanding Customer Needs: Demographic segmentation can be a simple way to discern preferences of customers. Every customer is unique, and catering to demographic segments offers a nice balance between feasibility and personalization.
- Targeted Marketing: Identifying significant differences between demographic subgroups ultimately helps you increase the relevance and effectiveness of marketing to customers. Demographic segmentation will help boost the return on investment for every dollar spent on advertising.
- Product Development: When launching a new product or adjusting an existing one, demographic segmentation allows you to understand what each segment hopes to see in the final product. This insight can help you decide what features to include, how many products to offer, and how to present the products to customers.
- Market Expansion: Segmenting by demographics can also inform you where your business may be under-serving different groups of customers. The cross-section of customers with high interest and low prioritization can lead to growth opportunities.
- Competitive Advantage: Optimizing your products, services, and marketing to specific demographic groups may give you a leg up against industry competitors. Knowing what resonates with customers of certain personal or lifestyle traits could be the differentiating factor for winning over customers.
Examples of Demographic Segmentation
There are many options when it comes to demographic segmentation, each with a chance to reveal overlooked differences between customers.
Below are common examples of demographics used for segmentation:
- Age: Splitting customers up by their age allows you to understand distinctions between generations or customized ranges specific to your objectives. You may notice contrasting preferences and behaviors between Baby Boomers and Millennials, for example.
- Gender: Segmenting customers by their gender identity is a frequent and easy method to determine underlying differences. This customer data is among the most accessible, offering businesses a great starting point for demographic segmentation.
- Income: Because customers are almost always purchasing a product or service, it can be helpful to understand the unique qualities of low, middle, and high household income segments. If your typical customer skews toward one end of the income spectrum, consider using a more narrow range of income levels for comparison.
- Education: If you have education data at your disposal, you can search for variations among customers at every level of schooling. This may include less than high school graduation, high school graduation, some college, an associate degree, a bachelor's degree, a master’s degree, or doctorate degree.
- Occupation: Employment is another useful demographic for segmenting customers. You have the ability to look at customers by overall employment status (full time employed, part time employed, self employed, retired, unemployed, etc.) or industry (business, manufacturing, healthcare, retail, etc.).
- Marital Status: You may find unique needs and preferences based on the marital status of customers. This could include customers being married, cohabitating with a partner, separated, divorced, widowed, or single.
- Family Size: You can often learn something about your customers by the makeup of their household. A popular demographic cut is households with children under the age of 18 versus households without. You can also pinpoint differences between households based on the total members (1, 2, 3, 4 or more).
- Race / Ethnicity: It is important to recognize distinctive experiences of customers who come from diverse cultures and backgrounds. Race, ethnicity, nationality, and language spoken all may be worth a deep dive among your customer base to understand how to best meet their needs.
For a list of even more demographic question examples and how to ask them, read here.
How to Segment Customer Demographics
When it comes to sourcing the right information for demographic segmentation, there are several approaches you can consider.
1. Customer Surveys
If there is no existing or reasonable way to find the demographic data you need, a customer survey may be a worthwhile methodology.
Surveys are a form of primary research to collect and analyze new information among your target audience.
This approach allows you to ask current customers many different demographic questions as well as key metrics like satisfaction, likelihood to recommend, ease of use, product preferences, or marketing preferences.
You can then cut the data on the backend by demographics to reveal notable differences between segments.
2. Market Analysis
A market analysis is another style of conducting demographic segmentation that focuses on the market as a whole for your products or services.
Here you may conduct research to shed light on the competitive landscape and brand equity related to your business.
Consumers in your target market can be analyzed by their demographics to hone in on potential opportunities and threats.
There are also demographic reports you can access based on geographic locations, including data from the U.S. Census.
3. Website Analytics
When a business is trying to learn more about its website traffic, website analytics offer a practical method for integrating user demographics.
Google Analytics is one of the more prominent tools that businesses can use to track user behavior and characteristics on their official website.
Depending on availability, the captured data may include demographic information like age and gender. This allows you to filter the data and add valuable context to the traffic information.
Contact Us to Conduct Demographic Segmentation
Drive Research is a national market research company located in Syracuse, NY. Our team has the knowledge and tools to design a robust market research study such as demographic segmentation, should it be the right fit for your business.
Interested in learning more about our market research services? Reach out through any of the four ways below.
- Message us on our website
- Email us at [email protected]
- Call us at 888-725-DATA
- Text us at 315-303-2040
Tim Gell
As a Senior Research Analyst, Tim is involved in every stage of a market research project for our clients. He first developed an interest in market research while studying at Binghamton University based on its marriage of business, statistics, and psychology.
Learn more about Tim, here.
