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What Are Demographics?
Demographics are statistics that describe populations and their characteristics. Demographic data is socioeconomic information regarding employment, education, income, marriage rates, and birth and death rates that are expressed statistically.
Governments, corporations, and non-government organizations use demographics to learn more about a population’s characteristics for many purposes including policy development and economic market research. A company that sells high-end RVs might want to reach people who are nearing or at retirement age and the percentage of those who can afford their products.
Key Takeaways
- Demographic analysis is the collection and analysis of the broad characteristics of groups of people and populations.
- Demographic data is very useful for businesses to understand how to market to consumers and plan strategically for future trends in consumer demand.
- The combination of the internet, big data, and artificial intelligence is greatly amplifying the usefulness and application of demographics as a tool for marketing and business strategy.
- Market segments are often grouped by age or generation.
- Demographic information can be used in many ways to learn more about the generalities of a particular population.
Investopedia / Paige McLaughlin
How Demographics Work
Demographic analysis is the collection and study of data regarding the general characteristics of specific populations. It’s frequently used as a business marketing tool to determine the best way to reach customers and assess their behavior. Segmenting a population by using demographics allows companies to determine the size of a potential market.
The use of demographics helps determine whether its products and services are being targeted to that company’s most influential consumers. Market segments might identify a particular age group with specific buying patterns and characteristics such as baby boomers who were born from 1946 to 1964 or millennials who were born from 1981 to 1996.
The advent of the internet, social media, predictive algorithms, and big data has had dramatic implications for collecting and using demographic information. Modern consumers give out a flood of data, sometimes unwittingly. It’s collected and tracked through their online and offline lives by myriad apps, social media platforms, third-party data collectors, retailers, and financial transaction processors.
Important
This mountain of collected data can be used to predict and target consumer choices and buying preferences with uncanny accuracy based on their demographic characteristics and past behavior.
Types of Demographic Information
For corporate marketing goals, demographic data is collected to build a customer base profile. The common variables gathered in demographic research include age, sex, income level, race, employment, location, homeownership, and level of education. Demographic information makes certain generalizations about groups to identify customers.
Additional demographic factors include gathering data on preferences, hobbies, lifestyle, and more. Governmental agencies collect data when conducting a national census and may use that demographic data to forecast economic patterns and population growth to better manage resources.
Fast Fact
You can gather demographic information on a large group and then break it down into smaller subsets for a deeper dive into your research.
Special Considerations
Most large companies conduct demographic research to determine how to market their product or service to the target audience. It’s valuable to know the current customers and where potential customers might come from in the future. Demographic trends are also significant because the size of different demographic groups changes over time due to economic, cultural, and political circumstances.
Demographic information helps a company decide how much capital to allocate to production and advertising. Each market segment can be analyzed for its consumer spending patterns. The aging U.S. population has specific needs that companies want to anticipate. Older demographic groups spend more on healthcare products and pharmaceuticals. Communicating with these customers differs from doing so with their younger counterparts.
Why Do Demographics Matter?
The term demographics refers to the description or distribution of characteristics of a target audience, customer base, or population. Governments use socioeconomic information to understand the age, racial makeup, and income distribution in neighborhoods, cities, states, and nations so they can make better public policy decisions.
Companies look to demographics to craft more effective marketing and advertising campaigns and to understand patterns among various audiences.
Who Collects Demographic Data?
The U.S. Census Bureau collects demographic data on the American population every year through the American Community Survey (ACS). It does so every 10 years via an in-depth count of every American household.
Companies use marketing departments or they outsource to specialized marketing firms to collect demographics on users, customers, or prospective client groups.
Academic researchers also collect demographic data for research purposes using various survey instruments.
Political parties and campaigns collect demographics so they can target messaging for political candidates.
Why Do Businesses Need Demographics?
Demographics help identify the individual members of an audience by selecting key characteristics, wants, and needs. This allows businesses to tailor their efforts based on particular segments of their customer base. Online advertising and marketing have made enormous headway in using algorithms and big data analysis to micro-target ads on social media to very specific demographics.
How Are Demographic Changes Important for Economists?
Economists recognize that one of the major drivers of economic growth is population growth or decline. There’s a straightforward relationship when identifying this: Growth Rate of Gross Domestic Product (GDP)=Growth Rate of Population+Growth Rate of GDP per capita where GDP per capita is simply GDP divided by population.
The more people, the more available workers there are in the labor force as well as more people to consume items like food, energy, cars, and clothing.
Demographic problems lie on the horizon, however, such as an increasing number of retirees who are expected to live longer lives even though they’re no longer in the workforce. Unfortunately, the number of births seems to be too low to replace these retirees in the workforce.
The Bottom Line
Demographics and demographic analysis are used to describe the distribution of characteristics in a society or other population to make policy recommendations and predictions about where a society or group is headed in the future.
Demographic data can come in many forms but it most often describes the distribution of characteristics found in populations such as age, sex or gender, marital status, household structure, income, wealth, education, and religion and to see how these are changing over time. Birth and death rates are also used to understand if a population is growing and how this might affect economic growth, employment, and government programs like Social Security.
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