Demographic segmentation is a very common approach to constructing market segments. However, it has a number of limitations on how effective it can be for marketing purposes.
Therefore, given the choice of potential segmentation bases, should you use demographic segmentation? While in most cases you should probably not use demographics in isolation, this article will explore the advantages and limitations of using this approach to segmentation.
Covered in this article…
- Introduction to demographic segmentation
- Advantages of using demographic segmentation
- Limitations of using demographic segmentation
Introduction to Demographic Segmentation
Demographic segmentation is dividing an overall market into smaller segments based upon identifiable characteristics of the population, such as age, income, and occupation, among many others.
As you most likely know from your study of marketing, demographic segmentation is just one approach to dividing an overall market into smaller segments. Different marketing textbooks will provide a slightly differing choice of segmentation bases, but will usually include:
- benefits sought, and
- hybrid (a combination of the above)
And remember that each of the above segmentation bases can be broken down further into smaller dimensions. For example, with demographic segmentation, we can drill down to:
- age or age groups,
- income level,
- highest education level achieved,
- religious group, if any
- family structure,
- size of family,
Demographic information is typically captured by a government conducting a regular census of the population. And many governments will release this information for free or at a limited cost to the marketplace. Governments use this information for infrastructure planning into the future.
However, marketers can also utilize this information to construct market segments and to identify potential trends in the marketplace.
Advantages of Using Demographic Segmentation
Easy to define and understand
When using demographic information, it is usually fairly easy to define the market segments and to allocate consumers accordingly. For example, if you use a simple age segmentation approach, then you know that all consumers in their late 20s belong to the 25-29 age segment.
It is also very easy to communicate demographic-based target markets across an organization, as every employee has a clear understanding of various demographic variables. This is opposed to when psychographic or behavioral segments may be constructed, which may not be able to be as clearly explained to non-marketing staff members as demographics can be.
Easy to measure, often via government sources
One key criterion that marketers look for with market segments is that they are measurable. Because demographic information is often obtained by the government using a country-wide census survey, it is very precise (as in theory it includes every member of the population).
This means that we have very precise and exact measures. For example, we would know that 4.34% of the population belongs to the 25-29 age group. And indeed, we can even combine multiple demographic variables and construct very precise measures down to individual numbers of consumers.
This is more powerful than other approaches to market segmentation, which often rely on marketing research surveys to estimate the numbers of consumers within each segment. When using a survey, we will not know exact numbers only an estimated approximation.
Usually free and quickly available
This will vary by country, but many governments will release key demographic information to the public and media for free, or potentially at a relatively low cost to a business.
The big advantage here is that a marketer can access detailed demographic information on a population at a very efficient cost, particularly in comparison to the cost of conducting a market research survey or purchasing third-party data from another company or organization.
It is also relatively quickly available. Some demographic reports can be downloaded from a government statistics website almost immediately. This means that a marketer who needs to construct market segmentation can have access to demographic data within minutes.
Again, in comparison to purchasing third-party data or undertaking a consumer survey, this approach is very time efficient.
Demographics can influence consumer behavior
When it comes to using demographics as segments, there is an underlying assumption that the demographic variable will influence consumer behavior. While this may/may not be true, in certain cases demographics will drive different purchase behaviors which are relevant to marketers.
For example, family structure and family size will greatly influence the purchase of housing, food, car or vehicles, use of home entertainment, fast food, and many other product categories.
Therefore, provided that the marketer can identify a logical reason why the demographic variables being used in the segmentation influences purchase consumption and behavior for their product category, demographics should be quite helpful for target market construction.
However, unless there is a logical and direct connection, sometimes demographic variables may only be weak indicators of likely consumer behavior.
Helpful for selecting media
When it comes to selecting suitable media channels to reach your target market, demographics may also be quite helpful. This is because many traditional media players (TV stations, radio, newspapers) have profiled their viewers/readers over time and have detailed demographics available on their audiences.
Likewise, digital advertising platforms (Facebook, Google, Instagram, etc.) are also able to capture or determine demographic information of their customers as well. In both cases, once a demographic segment has been defined, it should be relatively straightforward to identify appropriate media channels.
Can be used in combination to create “richer” segments
Although demographic variables only describe the consumer from a population perspective, we can also add depth and richness to our segments by combining demographic variables with other relevant segmentation bases.
For example, by combining demographics with psychographic variables (consumer lifestyles) and/or behavioral variables (how the consumer behaves as a consumer) we can build a very detailed and insightful view of the segment.
More helpful in profiling segments
Adding to the prior point, demographics are very helpful in helping to profile market segments. A segment profile is a detailed description of consumers in a segment. Adding demographics, such as age and occupation, will help build a clearer perspective and view of our target market consumers.
Quite helpful for retailers
Some retailers are reliant upon in-store sales and employee salespeople to interact with potential customers. Using demographic variables to select the target market is helpful for salespeople to identify these customers in-store.
For example, if a salesperson is told that the best target market for a product are males aged between 40 and 60 who work in an office environment – then it is relatively easy for a salesperson to identify them when they walk into the store.
This would be opposed to a behavioral form of segmentation, where the target market might be defined as “brand loyal, price insensitive, heavy users” – as they cannot be identified on sight, unlike some demographics.
Limitations of Using Demographic Segmentation
Only describes a population characteristic, with limited information about them as a consumer
An obvious limitation of demographic segmentation is that it is reliant upon a population characteristic only. This means that we have limited insight to the person as a consumer. While we may know their age group, occupation, or ethnic background, we do not necessarily know anything about their lifestyle or consumer behavior – other than relying upon assumptions.
This means that while demographics can be a helpful starting point, there is limited market insight into consumer behavior and needs. This makes it quite difficult to construct a suitable marketing strategy and marketing mix to meet their needs – simply because we do not know what they are.
Relies on an assumption that consumers with similar demographics have similar needs
This point builds on the prior limitation. For demographics to be an effective form of market segmentation, we need to make stereotypical assumptions based upon the person’s demographic variables.
For example, if we are a fast-food company targeting people aged in their early 20s, then we need to make the assumption that they all have similar needs and preferences when it comes to our product. As you know, this is unrealistic as many people in the same age cohort will have different needs and preferences.
Potential incorrect assumptions
Again, building upon the prior two limitations, we have the risk of imposing incorrect assumptions on the basis of a demographic variable that we choose to use for market segmentation purposes. This creates the potential for a poor understanding of the consumer’s needs and then a poor design of strategy and poor execution of our marketing mix elements.
For example, if we are a chain of fitness centers, we could make the assumption that people aged 60 years of age are unlikely to go to a fitness center. Or if they do, they all have similar needs, as they are older and more likely to have health issues. However, is this the case? Many older people have good health, are quite fit, and participate in active sports such as skiing and long-distance running.
Overly used (because they are easy), resulting in simplistic and generic segments
Demographic segments are commonly used. This is because they are simple, quick, and low cost to use, as well as being very measurable. This means they have natural advantages in overall “ease-of-use”.
However, the counterargument to this is that we end up with quite simplistic and generic segments. For example, to segment the market based on age groups is quite simplistic and does not tell us much about each segment.
This is because the segment is quite broad, we have limited insight to the consumer and their actions, and we also need to assume that everybody in the same age group (or other demographic variable) has the same needs and preferences and acts the same way in the marketplace – which is very unlikely.
Potentially similar segments to competitors
One of the purposes of market segmentation, in addition to identifying suitable target markets, is to derive market insights and greater understanding of consumers. This happens as we work through different configurations of market segments.
However, the adoption of fairly simplistic demographic segments will mean that we are unlikely to generate any new market insights on consumer behavior. And in addition, we may end up with fairly similar segments as compared to our competitors.
Structuring a unique approach to segmentation can help us develop a competitive advantage in the marketplace through market insight and through unique thinking about our target market consumers.
If we opt for age groups or something similar, we may end up with a similar segmentation approach to our competitors and therefore end up with a similar marketing mix offering.
Most likely will need to segment the market further, using another base to get insight to them as consumers
As mentioned above, as a standalone segmentation base, demographics will fail to provide any insight to the segment from a consumer behavior perspective.
Therefore, in order to get better value from the segmentation construction, no doubt it will be necessary to add another segmentation base – most likely psychographic or behavioral – in order to have a better understanding of the segment.
An older/dated segmentation method
In some organizations, demographic segmentation will be seen as an outdated form of segmentation. No doubt, in the past, prior to firms having access to such rich customer data as they do today, many firms relied upon demographics to construct market segments.
However, given the extent of data that is available both internally and through third-party sources, much of which that pushes into psychographic (lifestyles and interests and activities) and behavioral aspects (responsiveness, loyalty, usage levels), it would be seen by some managers that demographic segments have “had their day” as a standalone segmentation base.
Obviously, demographics have significant value in adding to an overall segmentation process particularly building out segment profiles. But in isolation, they may be viewed by some organizations as too outdated for use.
A Summary Video outlining the Advantages and Limitations of Demographic Segments
- The advantages and limitations of geographic segmentation
- The advantages and limitations of psychographic segmentation
- The advantages and limitations of behavioral segmentation
- The advantages and limitations of benefits sought segmentation
- The advantages and limitations of hybrid segmentation