What are Demographics?
Demographics refer to the socio-economic characteristics of a population that businesses use to identify the product preferences and purchasing behaviors of customers. With their target market’s traits, companies can build a profile for their customer base. They can determine their key customers or target market and create marketing materials.
Demographics also affect other business factors such as pricing, packaging, and service offers. When marketing campaigns are aligned with the demographics of customers, sales will likely increase.
What are the traits that make an impact on a business strategy? Here are some of the demographic variables used by businesses regardless of industry:
1. Purchasing Power
In general, different products and services appeal to different income groups, and value is a critical deciding factor on which products to buy or services to avail of. High-end dining establishments cater to customers with higher incomes, while those with lower incomes, and hence less disposable income, most likely go for affordable restaurants.
If your business is selling budget-friendly clothing items, it is best to target people that have lower incomes through discount shops and wholesalers. Your business will not be as successful selling to boutiques and specialty retail shops where people with higher incomes go.
2. Geographic Region
Geography also affects buying preferences and behaviors of customers. Companies that want to grow sales and profits need to understand how geographic regions impact consumer preference.
For example, a downhill ski and snowboard retailer should place store locations near mountains and hills and in colder climates to meet the needs of local customers. Putting a store or their products in stores in hot cities such as Singapore or Dallas will generate fewer sales.
Products and services appeal to different age groups. For instance, millennials or people who are 35 years old and below are early adopters of new gadgets such as the latest models of phones and laptops.
The baby boomer generation, which refers to people who were born between 1946 and 1964, are in a different stage of life and tend to spend their money more on vacations and health care. If your products are designed for millennials, make sure to offer them in communities or areas where there are a lot of young people.
4. Family Status
Is the community composed of a lot of families with children or young professionals who are not yet married? Family status is a critical demographic variable that exerts a significant impact on a business strategy. Companies need to understand the overall status of the population in a specific area to determine if their products or services will appeal to them.
How to Obtain Demographic Information
Demographics play a significant role in the success of a business, but how can you obtain the relevant information? One of the best ways is to conduct market research surveys. Whether through email, phone, or face-to-face meetings, a market research survey is a great tool to get as much demographic data as possible. Often, demographics-related questions are included on post-sale feedback forms in establishments and online. Data from the questions help businesses know more about their customers.
If you need more demographic data, you can visit the website of the Census Bureau, where you can find information about customers on a state or county level. Trade associations and local chapters of different industries also provide demographic data that you can use for your business strategy.
CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)® certification program, designed to transform anyone into a world-class financial analyst.
To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below: