How to Use Demographic Data in Data Driven Marketing - dummies

How to Use Demographic Data in Data Driven Marketing

By David Semmelroth

Demographics in data driven marketing refers broadly to the statistical study of a population. What is the birth rate? How many people are married? What’s the average age of the population?

In marketing, understanding the demographic traits of a particular audience is crucial. For example, the whole art of purchasing television advertising revolves around understanding the demographic makeup of the audience. TV stations have a very good sense of who is watching and when. Providing that data is precisely the purpose of the famous Nielson ratings.

You may occasionally be asked to provide customer profiles to assist your advertising department with its media strategies. Remember, it’s not just about TV. Radio stations, magazines, and even billboards all have audiences who share particular traits. Your customer database can help in getting advertising in front of the right people.

The success of your database marketing campaigns also depends on your having a pretty good sense of whom you’re communicating with. Demographic data is central to all aspects of a marketing campaign. Whether you’re selecting a target audience or trying to customize your message, chances are good you’ll be using demographic data.

Common types of demographic data in data driven marketing

The demographic data commonly found in marketing databases falls into a few general categories.

  • Financial data: Household income is probably the most widely used piece of financial data. In the financial services sector, sometimes net worth is more useful, although it’s typically much harder to get at. Home value is another common trait.

  • Gender: Certain products are gender specific. Gender is also used in selecting the so called head of household. This is the person who receives your marketing communication and is considered to be the primary decision maker. The world of marketing is not the world of Beaver Cleaver, however. The head of household is usually female.

  • Lifestage data: Age, marital status, and presence of children are all examples of lifestage data. The number and ages of children can also be important.

  • Lifestyle data: Lifestyle data revolves around consumption. Does the customer own or rent their residence? How many cars, boats, TVs, or motorcycles do they own?

  • Geographic data: This essentially amounts to the customer’s address. But there are some standard ways of grouping addresses together.

Demographic data sources in data driven marketing

You can get some demographic data directly from your customer. This is known as self-reported data and is generally considered to be the best and most accurate source. But in many cases, you can’t get it.

That’s when you turn to a third-party data provider. A number of companies will take your customer list and attach a wide array of demographic data to it, generally at the individual household level. Several of these companies have demographic information on virtually every household in the country.

There are three large marketing service providers. Acxiom, Epsilon, and Merkle can all provide customized segmentation schemes. The major credit bureaus, Equifax, Experian, and TransUnion also provide segmentation services.

These third-party databases are assembled from a variety of sources. The USPS, the U.S. Census Bureau, and other public records all provide valuable demographic information. This data is all public record data and so doesn’t generally raise privacy concerns.

Tread carefully with census data. Even though this data can be attached to individual households, it does not really reflect the individual household. It actually represents the average of a relatively small group of households that are geographically close together — a neighborhood, for example. The data for a given household is the same as for their next door neighbor.

These averages can compromise the quality of your targeting criteria, especially in densely populated areas. The residents of a large apartment building on the West Side of Manhattan may have, on average, two kids and a household income above $100K. But that doesn’t mean that everybody in the building meets those criteria. It’s best to have data that relates to specific households if you’re using it to define target audiences.

Data providers also get information from their corporate partners. Product warranty information, credit-card transactions, Internet activity, and a host of other industry-specific data is combined to form a comprehensive picture of consumers. Privacy comes into play here as well. For legal, ethical, and practical reasons, these vendors will not share the actual customer data that they have collected from their corporate partnerships.

At least, they won’t share it at the individual customer level. Instead they use the data to analyze your customer base. They will produce a customized set of segments specific to your particular needs. In essence, they say things like, “I can’t tell you how I know, but I know that these customers are young affluent couples without children.”

Some of these third-party customer segmentation schemes are quite elaborate. They break your customer base up into hundreds of small segments. Each of these segments is quite uniform with respect to its demographic makeup. The best way to understand what segmentation is all about is to look at an example.

One segmentation scheme that’s quite famous among marketers was developed by Claritas PRIZM, which is now owned by the Nielson company (of TV ratings fame). One of the endearing things about this particular scheme is that the company spent a lot of time naming these segments in a clever and informative way. You find segments with names like Money and Brains and White Picket Fences.

Third-party data does cost money. Over the years, though, it’s become cheaper and cheaper. It has also become more and more accurate and comprehensive. Good demographic data does contribute significantly to the effectiveness of your marketing campaigns. It’s worth your time to explore what’s available.