Demographics-Is That Your Final Answer
All right...let's play...Who Wants To Be A Small Business Owner?You've done well, so far. You're going for the big one. You've got one lifeline left, Phone A Friend. Here's your question:
What is the most important thing for you to know about your prospective customers?
A. Name
B. Address
C. Phone number
D. Demographics
Be careful! This may be one of those trick questions, and it is for all the marbles.
I know, it's a hard question; like all of the questions Regis asks his contestants who get to the million dollar level. But unlike on Who Wants To Be A Millionaire?, on Who Wants To Be A Small Business Owner? you don't get to take a pass and go home with a half-a-million. You MUST answer the question - and correctly - or you may lose everything.
Take your time. Tell me what you're thinking.
Yes, names are important. It's important to remember the names of our customers when they come in. And names, plus their addresses and phone numbers are important to collect so you can assemble a database of information about your customers, and use this info for direct marketing purposes.
But that's the part that seems tricky, right?! While each of the first three are important, they are also each an answer by themselves. Tricky, huh?!.
So, you're thinking maybe it's "D, Demographic"? Confident? Why would that be so important?
It's true - you do need to know the demographics in your market. Actually, Joe and Jane Customer fit into a number of demographic profiles: white male, age 45, high school graduate, veteran; black female, age 28, college graduate; Hispanic mother of two, associates degree, active in local politics. The combinations of consumer demographic profiles are intimidating, aren't they. Because we know that consumers behave in the marketplace based largely on who they are demographically. For example, college graduates, as a class, earn more than high school graduates, and therefore, can be expected to buy more expensive homes, cars, etc. So if you're building houses or selling cars, the educational profile of prospective customers in your market is vital information in your construction or inventory planning.
Right again. Lifestyle is also an important aspect of demographics. But it is a somewhat mercurial element, because after all, lifestyle is something that can change. But there is one critical component of demographics that is absolutely locked down: the generations, especially the numbers.
How long have we been tracking generations? Good question. I'm not sure how long marketing experts have been segmenting our population into generations. But one thing I can tell you for sure: You can change your education, your income, your location, even your gender, but you cannot change when you were born, and therefore, which generation you belong to.
Here's the good news for business owners: Making business decisions based on generational numbers is easier than those based on behavior. Here are the generations that still matter in the marketplace, listed by name, age range, and size:
The GI generation: 70+ years, originally 60 million (not that many left now)
The Silent generation: 55-69, 30 million
The Baby Boomers. 35-54, 80 million
Generation X: 18-34, 50 million
Generation Y: Under 18, 80 million
Why is understanding generations the easiest part of making business decisions based on demographics? Well, as you can see, there are only a handful of generations to keep up with. Not so when it comes to lifestyle.
According to geodemographers at Claritas, an Arlington, Virginia based marketing company, American society is composed of 62 distinctive lifestyle types - a 55 percent increase over the 40 segments that defined the U.S. populace during the 1970s and '80s. In his book, Parallel Universe, Michael J. Weiss writes, "These lifestyles represent America's modern tribes, each with its own set of values, culture, and means of coping with today's problems." Whew! How can we possibly keep up with 62 different tribe behaviors?
So, have you decided on an answer yet, or do you want to phone a friend? Fine, who do you want to call? Excellent choice. Ken Gronbach is a marketing/advertising/demographic expert, and a member of our Brain Trust.
We've got Ken on the line and he says the answer is "D, Demographic", because small business owners must learn how to predict who their future customers are going to be, and how many there are going to be of them. Ken also says that the two most important groups you should be tracking are the Boomers and the kids, Gen Y, which he also calls "the Echo Boomers", because, like the original Boomers, they are 80 million strong.
If you have been selling things that only 30 year olds buy, that portion of your business is probably off by 40% (see Gen X). If you sell things teenagers want, your business is likely to grow by 40% (See Gen Y). This is not expensive research - just do the math.
Ken says to pay attention to generational shifts, as well as cultural shifts. Read as much as you can about the generations and "tribes" that live in your market.
So, you agree with Ken. You choose "D, Demographic". Is that your final answer?
We have a winner. You win the opportunity to be a small business owner for another day. Congratulations.
Being a small business owner is more than starting and running a business. It's about being able to sustain your business model. If you don't know that there will be enough people around to buy what you have to sell, then all of the brilliant marketing in the world may not save you. Ask Honda Motorcycles what happened to them when Generation X boys came of motorcycle buying age and there were 40% fewer of them (young men buy most motorcycles) than the preceding generation. Ask Levi Strauss the same question about why their jeans business went south.
And the Boomers are not going to behave like their parents did. They are healthier, hipper, and richer. If you sell things that "old folks" like, your customers, and your business, are diminishing daily, never to be replaced.
Write this on a rock... Before you start a business or launch a new product or service, do your demographic homework. Check out the demographic research that has been done on your market and make sure there are enough customers to sustain your business model. And remember: Some of this research is nothing more than finding the numbers and doing the math.
