Demographic characteristics and market segmentation

The priori approach has been the traditional method of selecting a basis for segmentation. However, it has the serious potential limitation that the marketer may not have sufficient information in advance to select the best segmentation basis. Unless one is fortunate enough to begin the process by correctly identifying the most useful basis for segmentation, a less than optimum segmentation of the market is likely to occur. The clustering method presents an alternative that addresses this potential limitation of the priori method. In this approach, rather than selecting a basis for segmentation in advance, the researcher first attempts to see how a sample group pf consumers may form their own groupings based on a variety of description variables, such as needs, attitudes, benefits sought and lifestyle variety of descriptors. Then, usually with computer based groupings methods, the researcher attempts to find how consumers may cluster together on the basis of these measures. Such an approach is said to allow consumers to form “natural” groupings, instead of forming only those pre-established by the researcher when the a priori method is used. If such natural groupings are identified, the next step will be to determine what descriptor or set of descriptors may be associated with, or explain, these groupings. This information will then be used to form the basis of bases for segmentation.

The remainder will examine a number of popular segmentation bases in more detail. It should be noted again, however, that no one basis will be appropriate for all marketing decisions: in fact a combination of approaches may lead to much better information for decision making.

Demography is the study of human population statistics, including size, age, sex, race, location, occupation, income and other characteristics. It is essential for us to review these general patterns of the American consumers market and of some of its major segments. Only with a clear understanding of major consumer characteristics can we begin to appreciate the implications of environmental and individual determinants of consumer behavior. Hence much of this will be devoted to isolating the most significant demographic characteristics and trends of American consumers and discussing their relevance for developing segmentation strategies. We will also expand on these approaches by incorporating more advanced segmentation concepts

It is often said that a market consists of people with purchasing power and the willingness to buy. That is:

Market = people x purchasing power x willingness to buy

Consequently, if we examine these three elements of the consumer market, we will obtain useful insights for segmentation decisions. We will begin by studying the first element in our definition of a market people. The people who make up the US consumers market may be segmented along a number of demographic dimensions. This section discuss the major demographic characteristics with the reader should be familiar.

US Population Growth:

It is helpful first to examine the overall size and growth patterns of the population in the United States, even though the population as a whole does not represent a “segment” of interest to most firms. In 1990 the population stood at over 250 million. Tracing the history of our population growth since World War II, we find that major distortions have occurred: the “baby boom” and the “baby bust”.

Baby Boomers:

The baby boom, which began in 1946 and lasted until the early 1960s, generated approximately 4 million births annually. Baby boomers have bee a prime marketing target over the last decade and are destined to assume even more importance through the year 2000.The following factors characterized their significance over that time:

1) The 35 – 50 age group will account for over 70 per cent of household population growth between 1985 and 2000 and will jump in size from 44 to 64 million.
2) Buying power will almost double, representing almost half of all households earning $50,000 or more by 2000.
3) Many will inherit substantial wealth.
4) Average income of today’s 30 – 40 year old families is 50 per cent higher in real dollars than that of comparable families in 1950.
5) The proportion of college-educated men and women is twice that of 30 years ago.
6) Forty percent of women aged 25 – 30 re not yet mothers, twice the arte of 30 years age.