The Difference Between Demographics and Psychographics

The Big Five of Demographics

You are probably familiar with the big five of demographic data: income, education, age, gender and race. The Census Bureau collects this data and makes it available by census tract. But, what if you have individuals with identical demographic stats who have very different buying habits? For instance, I live in a rural community, not far from Madison, WI. A woman who has my demographic characteristics, but lives on Madison’s Isthmus will have very different spending patterns than I do. Our different interests are evident in where we choose to live. In the Era of Big Data, companies are using psychographic data to dig deeper into spending patterns.

A few years ago my sister-in-law became a part owner of a Gymboree Play and Music franchise. The parent company offers demographic research to their franchisees, among other supports. Lynn and her partner flew out to California for training. They were given site selection help for opening their Alabama location.

Gymboree had quite a few locations in California, but few in the Southern United States, at the time. The new franchisees were given demographic information based on what had been successful for California franchises. Lynn and her partner located in a suburb with married couples of an age likely to have young children.

Customer Research—Demographics Alone Are Not Enough

Demographics suggested that the higher the income and education of the parents, the more likely they were to spend disposable income on enrichment classes for their children. Since this is not a day care or a preschool, at least one parent needed to have enough leisure time to transport their child and wait for the classes to end.

In early 2010 sales for the Alabama franchise were not what they’d hoped, but the new franchisees did not blame it on the poor economy, they took a closer look at their customers. When their lease was up they moved location, based on experiences which did not match the parent company’s assumptions.

They found they had a large number of Hispanic clients whose demographics on income were lower than their original target. It turns out that parents in the nearby Hispanic neighborhood place a high value on family, children and enrichment. They were likely to spend more of their disposable income on children’s enrichment than neighboring non-Hispanic parents.

It would be a mistake to think that simply adding a demographic search by ethnic identity would tell the whole story. According the Hispanic Chamber of Commerce there are over twenty different countries and sub-cultures represented in Spanish speaking communities. Lynn and her partner needed to understand their core customers. Demographics alone are not enough.

Data Research Tools

One of the tools I use is the Tapestry Data tool supplied by ESRI. According to their website: “Tapestry classifies U.S. residential neighborhoods into 65 unique market segments based on socioeconomic and demographic characteristics.” For my customers, I am able to put together reports and GIS maps which give a clear picture of actual customer spending patterns. This information can be used for site selection and marketing, by companies that are not big enough to collect this kind of robust data on their existing customers. It can also be cross-checked with existing company data, to give an edge that helps with decision making. Play around with their free tool, which gives you a snapshot of what Tapestry results are for any zip code.

How well do you know your customers? What additional information would give you the competitive edge?