Table of Contents:-
- What is Demographic Environment
- Demographic Environment Meaning
- Components of Demographic Environment
- Importance of Demographic Environment
- Impact of Demographic Environment on Business
What is Demographic Environment
The demographic environment refers to the study and analysis of the characteristics of a specific population or target market. It includes various factors such as age, gender, income, education level, occupation, ethnicity, etc. A thorough understanding of the demographic environment is important for businesses and organizations as it helps them to tailor their products, services, and marketing strategies effectively to meet the needs and preferences of their target audience.
Demographic Environment Meaning
Demography refers to the study of the population that constitutes population size, the growth rate of the population, and age. composition of the population, economic stratification of the population, education levels, caste, religion, race, income, asset ownership, home ownership, employment status and location. These factors are relevant to the business for formulating and implementing of strategy for controlling and accomplishing the objectives of the organization.
Demographic environment encompasses the application of demographic concepts, data, and techniques to the practical concerns of business decision-makers. This loosely organised field includes but is not limited to site selection, sales forecasting, financial planning, market assessment, consumer profiles, target marketing litigation support, and labour force analysis. A demographic environment refers to a set of demographic factors such as gender or ethnicity. Companies use demographic environments to identify target markets for specific services or products. This practice has both advantages and disadvantages. When choosing a strategy, marketers need to consider both aspects of the demographic environment.
Components of Demographic Environment
Demographic variables are the most popular bases for distinguishing customer groups in the realm of business. Some of the demographic variables that are used for business purposes are as follows:
- Age and Life-Cycle Stage
- Marital Status
- Gender and Sexual Orientation
- Social Class
- Family Size
- Income
- Educational Level
- Religion
- Occupation
1) Age and Life-Cycle Stage
Consumers want and liabilities change with age. Marketers categorize the market into four groups based on age: children, young people, adults, and the elderly.
2) Marital Status
A person’s lifestyle depends on his marital status. A single bachelor tends to focus on enjoying life, leading to a purchase behaviour that includes more spending on food, clothing, travelling and entertainment and less on furniture. But a married person is more likely to buy a home and invest in furniture.
3) Gender and Sexual Orientation
When God created human beings he made Males and Females and gave them distinct survival needs. Gender segmentation is one of the most common forms of segmentation as around the globe men and women have always been vocal about their separate needs.
4) Social Class
It has a strong influence on preference for cars, clothing, home furnishings, and leisure activities. reading habits etc. Many Companies design products and services for particular social groups or classes.
5) Family Size
The size of the family influences the quantity and size of purchases. The spending habits of a large joint family are different from those of a nuclear family.
6) Income
Income varies among the population in any country. In India, income can vary greatly, ranging from a few hundred rupees a month to millions. As a result, customers’ preferences and behaviours vary a lot based on people’s income levels.
7) Educational Level
The academic standard segments people with the same income i.e., with a similar ability to buy into their different likelihood to buy.
8) Religion
Traditions, religious rituals, and cultures play an important role in differentiating and categorizing the market.
9) Occupation
Various occupations can influence buying behaviour. Sales professionals and people in academic training possess different purchasing behaviours.
Importance of Demographic Environment
The term demographic denotes characteristics such as age, income, education, asset ownership, ownership, employment status, etc., of the population in an area, district, country or world.
Data concerning these factors are of interest to businessmen because of their impact on the business. In particular, the following demographic characteristics or elements of a population are of interest to a business:
1) Population Size
It is very important to understand population size and the changes in a population size like:
i) Changes in a nation’s birth rate and/or family size.
ii) Increase or decrease in total population.
iii) The Impact of Fast Population Growth on Natural Resources and Food Supplies.
Such a study is very helpful in framing suitable strategies for an international business.
2) Geographic Distribution
Population shifts from one region to another from non-metropolitan to metropolitan areas to search for employment. It may have an impact on a company’s foreign strategic competitiveness. Some important issues may be as follows:
i) Attractiveness of a company’s location and respective governmental support.
ii) Need to relocate the company if population shifts.
iii) Concept of working from home electronically, implying changes in recruitment and management of the workforce.
3) Ethnic Mix
This reflects the changes in the social value system of a population and has implications both for a company’s potential foreign customers and for the workforce.
The following points outline the issues that need addressing:
i) What changes in the ethnic mix would need a new product and service design and delivery?
ii) Will new products and services be demanded or can the existing ones be modified?
iii) Do the managers have the preparation to manage a culturally diverse workforce?
4) Income Distribution
Change in income distribution is important because it determines the purchasing power, disposable income, consumption and savings patterns, etc. Tracking, forecasting, and assessing changes in income patterns may identify new opportunities or even threats for companies.
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Impact of Demographic Environment on Business
While comparing the two sides, the macro environment is found to be highly important or effective and is not under the control of management. Concerning the macro environment, the demographic environment is the most important force which is studied by businessmen. The market has no meaning without population. Hence, population changes must be seriously contemplated before entering into a market. The demographic environment changes have the following effects:
1) Changed Family Life
Family lifestyle is changing steadily in the current environment. These lifestyle changes include an increase in the number of working women, an increase in marital age in women, a rise in the earning status of women, and the right to demand divorce, etc. This plays an important role in devising business strategy. Previously, women were simply house-makers, but now, they have extended their roles outside the periphery of their family circle. This has reduced the time they devote to household chores. This has resulted in capturing the attention of businessmen towards ready-made foods, semi-cooked foods, breads, washing machines dishwashers, etc., which may prove to help work women.
2) Geographical Shift in Population
Due to some reasons or problems, people shift from one place to another temporarily or permanently and this shift causes a change in their tastes and preferences. Business strategy is vastly affected by a geographical shift in population. The majority of people visit foreign countries and become residents of that country due to their jobs or other factor, and when they return to their home country their tastes and choices change. So, understanding this factor is also very important for business managers to design effective business strategies.
3) Education and Profession
There is a vast difference between the needs and demands of educated and uneducated customer groups. There may be variations among individuals with different levels of education. The buying preferences of customers in any population also vary due to their distinct professions or occupations. With time, several new professions have evolved and developed in the market and therefore different products and services are required to fulfil their demands. Business managers need to be very careful in designing business plans for a population to match the consumer requirements
4) Age Structure of the Total Population and its Changes
A variety of age groups can be seen in a particular population or market including children, youth, adult and senior age groups. Therefore, a product is generally not meant for every age group. Businesses need to be very creative in designing appropriate products and services for these groups. Along with population increase or decrease, demand varies respectively. Thus, businesses must analyse the population trend before finalising their business strategies.