Effect of demographics on consumer behavior


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Effect of demographics on consumer behavior

  1. 1. Effect of demographics on consumer behavior Group 10 10 – Komila Harry 14 – Aparna Kanchugar 24 – Shailaja Menon 34 – Anish Patel 61 – Vinay Shriyan
  2. 2. Intro to demographics w.r.t consumer behavior What is a demographic? A demographic is a group of consumers that share a collection of market-relevant attributes. This group can be any number of people across the same time frame. Market-relevant attributes can include any number of shared values, physical attributes, experiences, beliefs, environmental conditions, cultures, or political or financial elements that can be used to increase awareness, loyalty, sales, or product improvement. Generally, enough of these attributes are combined together to form a concise image of the demographic group: this forms a demographic profile. An example of this would be a: single, working-class, male, 18-24, with a high school education. Several profiles may then come together to determine subgroups or subcultures in overall populations. These profiles also display the characteristics of a typical member within these subgroups/cultures. This allows the development of a marketing strategy: providing the foundation for a solid marketing plan. What are the pros and cons of targeting specific demographics in a campaign? Demographic research is a powerful and functional tool that can personalize marketing campaigns, increase interest and loyalty, as well as provide improved functionality and efficiency - with minimal or no loss of time and efficiency. However, no marketing technique is flawless; by generalizing a group a risk is taken with it's exceptions. By discovering, learning, then understanding, in greater detail, the pros and cons of using demographics we can emphasize those respective pros and minimize those respective cons. The more refined or detail rich the demographic, the smaller. Using smaller demographics may require a more detailed marketing plan, however, a solid marketing plan should make room for any marketing strategy. With a solid marketing plan any number of demographics should only require marketing elements, and with a solid marketing strategy should require a nominal addition of said marketing elements. A generational cohort is a demographic [group] that experiences the same event[s] at the same point in time. With generational cohorts a variety of emotional, cultural, instinctive, and judgmental commonalities and similarities can be identified between and within demographics.
  3. 3. The Five Common Attributes of Demographics • Age • Ethnicity • Gender • Level of Income • Race How do I select the best demographic for my campaign? In short, there is no best demographic for any campaign. Depending on the needs and immediate goals, however, there are likely to be demographics that are more profitable than others. The following are solid, key points to remember when researching profitable demographics: Research is an ongoing process People change, cultures change, nations change, because of this change research is and ongoing process. How frequently information is gathered, and to what extent old information is updated or replaced will vary from campaign to campaign. It, basically, breaks down as: the more time and labor that can be devoted to information gathering, the more accurate and massive our demographics will be. Regardless, any amount of time spent researching and updating old information is vastly superior any sized, one-time demographic. Where research is free, do lots of research: There are countless ways to collect facts and opinions of many demographics, or discover which demographics exist within a given market or location. Participate in every level of interaction possible, when you notice a free research opportunity/medium. Most importantly, keep and open eye [and mind] to any medium or location in which you can interact with potential consumers. A few examples of these mediums, on the internet, are: • Forums • Blogs • Social Networks • Media Sharing Networks • Chat or Instant Messaging Communities and Freeware • Newsletters • Bulletin Board Systems • Games Be varied when researching, and don't be afraid to test new demographics: Even when met with overwhelming positive response, never hesitate to try new methods or test new attributes. Despite any apparent advantage or disadvantage from these occasional diversions, useful information can still be yielded. This may improve the current campaign or even future campaigns, regardless there is something to be gained. Use relevant attributes for your research: It isn't always easy to determine what is relevant and what isn't, in a particular campaign; experience is a big help in this regard. Experimentation and tenacity are the tools of the wise novice; where logical connections cannot be assessed experiment, and refine your results into consistent commonalities - make a log or blog to document information and help discover commonalities and connections. Collaborate with other researchers: Share and learn a variety of methods and techniques whenever you discover another researcher, regularly engage communities and mediums, keep an open mind to new techniques, and always behave politely. Many researchers are more than willing to share and discuss ideas if politely contacted and queried.
  4. 4. Anticipate exceptions: A demographic is a generalization, there will always be some exceptions to the rules and commonalities you discover. Be prepared, and do not falter. A quick correction, some information gathering/updating, and some-time later any mistake should be forgiven or forgotten. Correction is part of the ongoing research-process, as well as being an unmistakable human element. Cases of demographics w.r.t consumer behavior Search engine / Online Ad-network With search engine marketing, you can advertise online—where more and more customers are going every day to learn about, shop for and buy products and services. Signing up for an account allows you to advertise your business in search results on tier I search engines like Google, Yahoo and MSN and other popular sites in their distribution network. Even if your business is a traditional brick-and-mortar store and you don’t sell anything online, you can still use search engine advertising distribution tactics, to attract potential customers to your business. Search Marketing can be beneficial to most businesses, whether you’re selling online products, promoting business services or providing media and information on your website. Sponsored Search and Content Match feature cost-per-click pricing--you’re only charged when your ad is clicked (instead of every time it is displayed), allowing you to maximize your return-on-investment. The amount you’re actually charged each time your ad is clicked depends on two things: your bid(how much you have bid for that keyword) and your ad’s quality(how relevant your ad is to a particular keyword).
  5. 5. Demographic Targeting @ Yahoo and Google ad networks Demographic Targeting solution allows advertisers to reach consumers identified by their demographic characteristics, such as age, gender and many others. With huge number of registered users and high average frequency of visits, demographic targeting provides the broadest reach (millions of impressions) of any provider. Unlike other demographic targeting services that try to guess age and gender based on consumer website visits, Search engine Demographic Targeting is powered by age and gender information provided by consumers themselves. Although Yahoo was a company that came 4 years earlier than Google in the market, Google's ability to accumulate data and implement it right brought Google in a dominating status. Below are revenue comparison of both. Success Stories from online Advertising
  6. 6. From 2006 to 2007, Bankrate.com used Google AdWords testing and targeting features to increase measured conversions by 102% and click-through-rate by 57%. Bankrate.com’s story is one of early adoption. Started 25 years ago as a newsletter for mortgage industry professionals, Bankrate acquired dot com status in 1994 – shortly after the browser was born – and shifted its focus to financial information for consumers. "At the time, the idea of providing unbiased, objective, comprehensive financial information to the consumer was new," says Michael J. Ricciardelli, Bankrate.com’s senior vice president of consumer marketing. "That core idea hasn’t changed. We now have 22 in-house editors and reporters and provide free rate information to consumers on more than 300 financial products." They accomplished with demographic targeting: • Improved clickstream: Focus on targeted landing pages increased revenue derived from AdWords traffic by 66% • Increased conversions: Measured conversions increased by more than 102% from 2005 to 2007 • Developed highly-effective ads: Constant testing resulted in a 57% increase in click-through-rate (CTR) • Improved return: Increased its return-on-advertising-spend (ROAS) by 35% from 2006 to 2007
  7. 7. Fashion in US!! Fashions change !! The fashion industry can be divided into five segments: haute couture, luxury, affordable luxury, mainstream, and discount. • Haute couture (women’s garments only) is the most expensive and exclusive of all four segments. It is occupied by only a handful of companies that produce custom-made clothing for the world's wealthiest individuals. Prices for a couture piece range from $25,000 to millions of dollars and though the market is small it has been expanding due to the explosion of new wealth in emerging markets such as India, China and the Middle East. Eg . Giorgio Armani Privé (segment of Giorgio Armani), Christian Dior , Chanel etc • Luxury segment is a step down in terms of quality and price, but still serves a wealthy clientele. Eg Dolce & Gabbana , Prada, Gucci. There are no clear-cut criteria for a brand to be classified as "luxury," however one important factor is the concept of exclusivity. A person who can afford anything does not want to own something anyone can buy; they want something special and unique. As a brand becomes more popular, it is not regarded as highly by the wealthy clientele. For example, around 2002 the trademark Burberry plaid was seen on everything from expensive bags and coats to cheap caps and scarves, becoming affordable to the middle and lower classes as well. Since the plaid was everywhere, it was no longer exclusive or "special," which turned off many of its wealthy customers. Today, in an effort to regain its exclusive status, Burberry has greatly reduced the presence of its trademark plaid. As a result, Burberry has reported record sales (over $1.5 billion for fiscal year 2007, over three times more than its sales ten years ago) and its stock price increased by 51% from 2006 to 2007. Many luxury companies walk a fine line between increasing market share and maintaining the elite image that is so important to rich consumers with a lot of money to spend. • The luxury market is growing despite the suffering U.S. economy. In 2006 8 million American households earned more than $150,000 a year, which is a 7% increase since 2002.[ Also, in 2006 there were 1.14 million "ultra high net worth households," which are worth at least $5 million. This number is four times more than the number of ultra high net worth households a decade ago. In addition, due to the devaluing of the U.S. dollar, tourists have been spending more money in American stores. In 2006, 49 million foreign visitors spent a record $104.8 billion in the United States. Increased foreign spending combined with an increase in the number of wealthy individuals means the luxury market is in a growth phase. • Affordable luxury targets "aspirational" consumers, those who are not rich enough to afford luxury brands but will accept lower-priced alternatives. Eg Coach, Tiffany; These inexpensive items allow access to a brand and a lifestyle that lower-income consumers aspire to but cannot afford. However, recession, in addition to rising credit card debt and gas prices, have hit middle-class consumers hard. While the wealthy continue shopping as much as ever, these "aspirational" shoppers, people who form the backbone of the affordable luxury market have begun to cut back on non-essential goods such as clothing and accessories, leading to decreased sales. • The goal of mainstream brands like Polo Ralph Lauren, Gap etc is mass appeal; they sacrifice an air of exclusivity for popularity. They are generally perceived by consumers as being of lower price and quality than affordable luxury goods. These brands market to middle-and-lower-class consumers. Since their prices are much lower than their luxury counterparts, these brands make less money per garment. Thus, they focus on volume, selling as many goods as they can and appealing to a large number of people. In this case the concept of exclusivity no longer applies, as their goods are made (and priced) to appeal to a large number of people. • Discount brands cater to low-income consumers eg Walmart, Target At the highest levels, the fashion industry is relatively insulated from economic changes. For example, recession in the United States have done nothing to harm haute couture, which is actually seeing an increase in customers in a time when so many other companies are fighting decreasing sales. The luxury market is doing well compared to mainstream, affordable luxury and discount brands, where its customers have less financial security and thus are not spending as much money on clothes and accessories as they used to. Although haute couture and luxury have been doing well, the downturn in the United States economy has had an adverse effect on affordable luxury, mainstream and discount brands. Their target demographic is middle-to-
  8. 8. lower class individuals who are more susceptible to poor economic conditions than their richer counterparts. These individuals are no longer splurging on clothes and accessories as much as they used to, which is bad news for all three segments. Demographics in US Demographics are important to fashion companies. They need to know what kind of person is buying their products. It heavily influences the kinds of advertisements a company makes, what products they advertise most and where those advertisements appear. Below are brief descriptions of a number of important demographics to fashion companies: Affluent Households An affluent household has an annual income greater than $100,000. They make up only 18% of American households yet spend almost one out of every three dollars in the United States. Affluent households are the fastest-growing segment of the American population, increasing 12.7% from 19.7 million in 2005 to 22.2 million in 2006. Affluent Americans tend to be highly educated and work-driven.
  9. 9. The above graph ranks the retailers affluent households are most likely to frequent. Affluent households are interested in value: highest quality at the lowest price, meaning that though they can afford luxury retailers such as Saks (SKS), they have no problem shopping elsewhere if they see more bang for their buck. Middle-Income Households Middle-income households have an annual income between $30,000 and $100,000 and form the primary market for affordable luxury. These are people who cannot afford high-end luxury, but are not so poor that they cannot splurge every once in a while. Brands such as: Coach, Tiffany, cater to this demographic by providing lower- priced merchandise in addition to their more expensive products. Low Income Households [ Low-income households have an annual income less than $30,000. A greater proportion of their money goes towards necessities like food and utilities than affluent or middle-income households, leaving much less to spend on clothing and accessories. These households are more likely to be attracted to discount brands such as: Walmart, Target etc in order to stretch an already tight budget. For that same reason, these households would also be more interested in sales. Women Brands that cater to women include: BEBE, Cato Women influence over 80% of consumer purchases in the United States and are even involved in a majority of purchase decisions involving stereotypically "male" products, such as electronics and cars. The fashion industry is heavily focused on women. Although the brands and products they are most into depend on a number of other factors (such as wealth), there are some general trends in how women perceive fashion products. First and foremost, many women are influenced by trends. Also, women of all ages want clothing that flatters their figure and looks modern. Plus-Size Women [ An especially important demographic in the United States is plus-size women. 62% of American women are overweight. Many fashion companies do not make plus-size clothing. Some popular retailers that cater to the plus-size market are: Cato, Hot Topic etc. Men In the past few years men have begun to have more of an interest in shopping, and thus the male demographic has become even more important for retailers. Men ages 18-24 are most interested in shopping and brands, whereas older males tend to prefer bargain shopping; in other words to older men a brand is not as important as getting the best deal. Some retailers that cater to men are: Hermes, J Crew Group. Young Consumers [ Young consumers, especially those aged 15-24, usually have much more time to shop than older consumers[; many of them are students and have more time on their hands, as opposed to older consumers who have many more responsibilities such as full-time jobs and children. In addition, many young shoppers use shopping as a social event, which, combined with their free time, means they are more likely to shop around at many different brands to find the particular item they want. Brands that cater to young consumers include Guess ? Baby Boomers – Stores that cater to the baby boomer population are: Polo Ralph, Phillips Van Lauren. Baby boomers compose about 28% of the American population, have an estimated spending power of about $2 trillion and are currently between 44 and 62 years old.[ Boomers are most interested in the "experience" of shopping for clothes, meaning they want to enjoy the shopping process. They want to shop in stores they feel most comfortable in--meaning a store that does not cater to the 18-49 age group, and are most interested in value. Boomers can switch from one brand to another if they see higher value for their purchases somewhere.
  10. 10. Trends and Forces in the Fashion Industry Increasing Focus on Men [ Fashion was once seen as almost exclusively a "women's domain." However, in the past few years men as a whole have begun to pay more attention to their appearance and the fashion industry has responded by focusing more on catering to male clientele. For example, Hermès opened men’s-only stores in New York City. Although women still do make the majority of clothing purchases, companies are beginning to take advantage of the male demographic and appeal to them in order to increase sales. Less Affordable Luxury, More "Genuine Luxury" [] [29] The affordable luxury market, especially in the United States, is facing a problem due to the poor state of the U.S. economy. The middle-class "aspirational" shoppers who are integral to that segment's success are not indulging as much as they used to. In addition, there has been an increase in "extremely high net-worth" individuals in the United States and abroad. In the U.S. alone the number of "ultra high net worth households" increased fivefold from 1996 to 2006, to 1.14 million.[ These people are able to afford whatever luxury brand they want and the brands that are able to follow the money. These trends lead to decreased sales of affordable luxury and increased sales of genuine luxury products. New Markets for Consumers of High Fashion are Emerging Worldwide [ Now, more than ever, the nouveau riche in China and Russia are developing a big appetite for high fashion. In China for example, the economy grew more than 10% annually during the last five years, and by the end of 2006 the country had 345,000 U.S. dollar millionaires, 33% of whom were women. Chinese citizens are becoming increasingly fixated on luxury goods--they are viewed as a status symbol. ] China, Russia and the Middle East present large, wealthy markets for luxury goods companies.
  11. 11. Homeownership in US The housing sector has been a pillar of strength for the U.S economy in recent years, limiting the depth of the 2001 recession and leading the economic recovery ever since. Although the U.S. homeownership rate reached a record high 68% in 2003, an analysis by five of the nation’s leading housing and mortgage economists for the Homeownership Alliance points out significant differences in ownership rates across income levels, racial/ethnic groups, and regions of the country. For example, more than 75% of non-Hispanic whites own their homes, compared to less than half of African- American and Hispanic/Latino households. A large part of the gap in homeownership between non- Hispanic white and minority households is due to differences in economic circumstances and the age composition of these populations. Household incomes and accumulated wealth are typically lower among minorities than whites, and minority populations are on average, younger than the white population. In addition, Asian and Hispanic/Latino populations tend to live in urban areas of the East and West coasts where homes are less affordable. The Homeownership Alliance predicts that homeownership rates will exceed 70% by 2013. Over the next decade, racial and ethnic minority populations will drive increasing homeownership rates as will the large number of baby boomers moving into peak home owning years. This increase will equate to at least 10 million additional homeowners, with roughly one-half of the gain attributed to minority home buyers. The typical first- time home buyer is 32 years old with a household income of $54,800according to a 2003 report by the National Association of Realtors. He/she uses the Internet to facilitate their search, and makes a down payment of 6% on a home that costs an average $136,000. Expect this profile to change as racial/ethnic and other under served Americans increasingly enter the home buyer ranks. While most home buyers are married couples, marketers should not exclude singles from first mortgage loan promotional campaigns. As it turns out, single women are the second-largest segment of home buyers (22%), even exceeding single men (11%). The same economic conditions that have enabled first-time home buyers to attain a piece of the American dream were also instrumental in stimulating many households to purchase second and third properties. The prevalence of dual- income households, increasing mobility/connectivity, and the desire to relax in locations free from the threat of terrorist attacks are motivating many second-home purchases. Most often purchased as vacation homes and weekend retreats (as opposed to investment properties), second-home sales account for an estimated seven percent of the entire home market. Baby boomers—ages 38 to 56—make up the lion’s share ofsecond-home owners today, but generation Xers and younger working professionals are now entering this market as well. First-time buyer • Age 32 • $54,800 household income • 6% down payment • $13600 home price Repeat buyer • Age 46
  12. 12. • $74,600 household income • 23% down payment • $18900 home price Second-home buyer • Age 47 • $85,900 household income • 66% married couples • 37% purchase as investment The untapped potential A recent Futurist article suggested that the largest market in the world is absent from the radar screens of most corporations. The author, a global business consultant, notes that no more than 40% of people—those with the greatest spending power are tapped as markets for the vast majority of goods and services offered by today’s corporations. He goes on to say that the bottom 60% consist of under served and largely untapped markets that offer extraordinary opportunities for profitable enterprises with the vision to meet their needs. According to Federal Reserve estimates, the unbanked U.S. market consists of as many as 40 million consumers. Hispanics/ Latinos, African Americans, young people under age 25, unmarried individuals, women, and those earning less than $25,000 per year are more likely than their respective counterparts to be unbanked. A continual influx of immigrants will only serve to expand this market. These individuals and households need five basic financial services that credit unions are poised to provide: payroll and other check cashing, a mechanism with which to pay bills, low-cost money transfer services, micro-loans, and basic savings accounts. The strategies and tactics for reaching unbanked and under served markets are different than for traditional markets. Credit unions will need to revise and repackage product/service offerings, think in terms of core competencies, and start with one emerging market at a time. They should plan for a large number of transactions with small margins, and should make a long-term commitment to serving the under served. Finally, credit unions should seek out creative partnership opportunities with local businesses, government agencies, and not-for-profit organizations.