Economic competition is increasingly global, and organizations are faced with international rivalry. In order to be able to ensure one’s own competitiveness in this environment, it is necessary to address potential buyers as effectively as possible. However, individual industries consist of many heterogeneous groups. From a marketing perspective, therefore, adequate segmentation is necessary so that the various groups can be addressed in a goal-oriented manner. Organizations rely on a variety of attributes to identify relevant segments. However, in a global economy, the relevance of demographic factors seems to be continuously decreasing in this context. This raises the question of whether marketers should focus more on psychographic factors in the context of segmentation. This post will look at what is meant by psychographics, the extent to which they can complement demographics, and their importance in international competition.
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Almost all organizations face the challenge of having to communicate with their (potential) customers. To increase the effectiveness and efficiency of communication, the overall market is divided into individual segments on the basis of selected attributes. This segmentation makes sense because it allows buyer groups with comparable attributes to be addressed. If the heterogeneous overall market is divided into homogeneous groups, each group can be addressed specifically. From a marketing perspective, this simplifies the communication process, as content no longer has to be attractive to every potential customer, but instead only to a specific group. Marketing activities thus realize a higher ROI (return on investment) – if implemented in a targeted manner. The segmentation of the consumer market can be based on different approaches. Individual buyer groups can be formed on the basis of geographic, demographic and psychographic factors, or on the basis of specific behavioral characteristics. The optimal solution, however, is usually a mixture of these approaches.¹
The goal of segmentation is to create homogeneous sub-markets so that a single market segment can be understood as a group of people who share similar characteristics. Psychographic characteristics can be used in this grouping to supplement or even partially replace demographic factors. To understand why this is the case, it is first necessary to define the term psychographics. In the Cambridge Dictionary, it is defined as
“the study of customers in relation to their opinions, interests, and emotions”.²
Segmentation based on psychographic attributes thus takes into account not only those factors over which individuals have little or no influence (demographic factors), but also personality and lifestyle. People with different demographic attributes may nevertheless have the same wants and needs, so this provides an adequate interface for communication on the organizational side. Lifestyle in particular may be meaningful in terms of purchasing behavior, as it is often shaped by (conscious) consumption decisions. When organizations want to develop new products and/or services or increase their growth, it can therefore be useful to take a closer look at the brand preferences of customer groups. Often, these allow conclusions to be drawn about which values are regarded as particularly important and which wishes and needs must be satisfied. Resources should therefore be allocated in such a way as to promote the development of corresponding organizational divisions.³
Organizations can only grow if they manage to acquire a sufficient number of customers. However, this can only succeed if products and/or services are offered that solve specific problems or satisfy explicit needs. In doing so, organizations also face international competition. In a global world economy, the geographical location of an organization is of limited significance. This applies in particular to the service sector, because the nature of services makes it easier to offer them across geographical borders. It can therefore be assumed that the shift toward a service society will undermine geographical competitive advantages in the medium term. In this context, it appears all the more important for organizations to be able to identify the needs and desires of their customers and address them with the help of effective marketing. Segmentation simplifies this process, as the individual sub-markets are easier to serve than the overall market. However, if organizations define these sub-markets solely on the basis of demographic factors, then this could result in what actually appears to be a homogeneous mass having heterogeneous needs. From this perspective, it therefore does not seem plausible that it is sufficient to form customer segments on the basis of the demographics of individuals.
One possible approach organizations could take to avoid this problem is to focus more on psychographic characteristics. Focusing on customers’ interests, beliefs, and emotionality makes it possible to obtain a more detailed picture of individual customer segments. Communication and other marketing measures could also benefit from this, as the focus on psychographic attributes provides the basis for action-oriented communication. Furthermore, it can be assumed that consumers would also benefit from this way of thinking, as organizations feel compelled to address the explicit wants and needs of their potential customers. If this is done responsibly, it is conceivable that the full spectrum of products and services faced by individuals would be more focused on problem solving and value to the customer. Although both organizations and customers would benefit in such a scenario, it should also be emphasized at this point that taking psychographic characteristics into account also presents new challenges. Identifying and quantifying psychographic attributes is much more difficult than is the case with demographic factors, as they cannot be observed directly, but can only be identified on the basis of self-reporting by consumers or through complex market research studies. This would involve a significant additional effort and possibly many organizations are not willing or able to undertake this effort. Another limitation that should be considered is the potential discrepancy between behavioral intentions and actual behavior. Even though psychographic characteristics should be able to predict behavioral intentions, this is no guarantee that the individuals considered will actually act according to their intentions.
Due to international competition, it is becoming increasingly challenging for many organizations to acquire customers. One method used in practice to increase the effectiveness and efficiency of communication with potential customers is to divide the overall market into individual segments. The consumers within the individual segments should be homogeneous in terms of their characteristics. Segmentation is carried out using various approaches, with segmentation based on demographic factors certainly being the most widespread. However, if organizations want to address consumers’ explicit desires and needs, they should also focus on psychographic characteristics. Even though identifying such characteristics requires significantly more effort, this extra effort still seems justified. When organizations focus on psychographics, they can better understand their customers, communicate with them in an action-oriented manner, and generate continuous growth.
¹ Martin, G. (2011). The importance of marketing segmentation. American Journal of Business Education (AJBE), 4(6), 15-18.
² Cambridge Dictionary. N.d. “PSYCHOGRAPHICS | definition in the Cambridge English Dictionary.” Cambridge Dictionary. Accessed July 26, 2021.
³ Lin, C. F. (2002). Segmenting customer brand preference: demographic or psychographic. Journal of Product & Brand Management, 11(4), 249-268.