Demographic segmentation

For many products, geographic considerations are less important than other variables. In the cereal market, for example, where a person lives has little bearing on the buying decision, but age is a key factor. Kids like sugar-coated cereals; adults generally prefer unsweetened varieties. For other products, the most important factor in segmenting the market might be buy­ers' gender, race, religion, education, occupation, or income. Such factors are the subject of demographics, or the statistical analysis of population. Demo­graphic research is one of the basic sources of marketing information.

DEMOGRAPHIC SEGMENTATION IN CONSUMER MARKETS Marketers are especially aware of factors like age and income, which influence a consumer's desire for certain products and ability to pay for them. Of particular interest is disposa­ble personal income, the money that a family is free to spend after taxes have been deducted from total earnings. All families must spend a certain percent­age of their disposable personal income on such necessities as food, clothing, and shelter. But the higher a family's income, the more discretionary income it has to spend on nonessentials, such as entertainment, vacation travel, weekend homes, and restaurant dining.

Three market segments defined by age and related demographic charac­teristics are of particular interest to marketers:

Teenagers. The 26 million Americans in the 13-to-19 age bracket are an im­portant marketing target, even though their numbers are dwindling. Collec­tively, they spend over $45 billion per year. Furthermore, this group is just establishing its brand loyalties: A teenager who chooses Crest toothpaste today may continue to use it for the next 65 or 70 years.

Where do teenagers get all their money? Most receive an allowance ranging from $12 to $24 per week, but wages are also an important source of teen income. Some 67 percent of teenagers hold jobs; many earn $30 per week or more. Because most of a teenager's living expenses are covered by the family, this money is all available for consumption. And teenagers also spend their parents' money. According to one estimate, teenage girls take care of 40 percent of the family's food shopping, spending $16 billion a year in supermarkets.

Among the industries courting this age group are automakers, food producers, cosmetics firms, clothing manufacturers, computer firms, and credit card companies. General Motors, for example, has launched an advertising campaign aimed at the newly licensed driver. "The young person's first car is an important purchase because he always remembers it," explains Charlene Currey, national advertising manager for Pontiac.

Baby boomers. Another "hot" marketing target is the group of 76 million Americans born between 1946 and 1964, a diverse group that ranges in age from 21 to 40.They include the young marrieds who buy houses, cars appliances, and all the other products needed to run a household and raise a family. They also include the young unmarrieds, a group that has grown steadily as an economic and social force. At the upper income level of this group are the 4.5 million Yuppies (young urban professionals), who make $35,000 a year or more and who set trends in everything from eating pat­terns to car purchases. Although not all baby boomers are affluent (30 mil­lion of them make less than $15,000 a year), they dominate the American economy by the sheer weight of their numbers.

Marketers view this generation, particularly the 25- to 34-year-olds, as a new breed of consumer. For one thing, they are the most educated buying group in American history. Almost half have been to college, and a quarter possesses degrees. Sports are an important part of their lives, as is physical fitness — a trend reflected in the emergence of such publications as Jogging magazine. The baby boomers were raised in the TV generation and are par­ticularly susceptible to broadcast advertising.

One of the things that makes this generation different from its parents is the fact that many more of the women are in the work force. This has cre­ated new demands for goods and services. Pressed for time as they try to juggle families and careers, this group is attracted to time-saving devices, such as food processors and microwave ovens. Although many of them can­not afford the home they would like, even on two incomes, they indulge in such affordable luxuries as expensive frozen foods and restaurant meals.

They are eager to live the good life now, while they're young enough to enjoy it. Expensive stereos, VCRs, color TVs, and vacation packages are among their favorite purchases. Because they often buy on credit, baby boomers' spending habits have contributed to a decline in the national savings rate and a rise in total consumer debt.

Over 50s. Another age group currently receiving plenty of marketing atten­tion consists of people over 50. During the next fifteen years, this group will account for an increasing share of the population, as the oldest of the baby boomers mature and as average life expectancy increases.

The 60.2 million people in this category are surprisingly affluent. 77 percent own their own homes; collectively, they control roughly half of all discretionary income available in the United States for nonessential purchases like travel, top-of-the-line merchandise, and finan­cial investments. Unlike the baby boomers, this group has relatively mod­est day-to-day needs. Their mortgage payments are lower or nonexistent; they have already purchased major appliances and furniture; in many cases, their children are out of college and living away from home.

Many companies are reformulating their products and readjusting their advertising to appeal to those over 50. The cosmetics industry is a case in point. Well-known companies are flooding the market with skin-care formu­lations designed to counteract the effects of aging, and they are using older models in their ads. One cosmetics company, Germaine Monteil, conducted a nationwide search for a model who could convey the message that older women are glamorous, exciting, and interesting. Their "discovery" was Tish Hooker, a silver-haired interior decorator who is actually under 40.

DEMOGRAPHIC SEGMENTATION IN INDUSTRIAL MARKETS In industrial markets, such demographic characteristics as the customer's industry may be a useful basis for segmentation. For example, both hospitals and automobile companies buy computers, but they need different types of systems. Insurance compa­nies and retailers both buy computer software, but their applications differ. By segmenting the market along industry lines, a computer or software manufacturer could selectively target industries in which it might achieve a competitive advantage.

The customer's size might also be a key demographic factor in industrial market segmentation. For example, a small supplier of industrial chemicals might decide not to bother marketing to large companies whose volume requirements exceed its own production capacity.