Is It the Death of Demographics?

By Don Peppers

Are the days of demographics as a primary marketing tool over? Market segments are shrinking as information becomes more accessible and easier to analyze. Marketing based on location or purchase history is becoming outdated –- who responds to direct mail addressed to "current resident" anymore?

A unique dialogue with each individual customer, the ideal in one-to-one relationships, is now possible, according to Chris Bailey, CEO of RatePoint, which promotes and analyzes online ratings systems.

"Demographics are a crude way of looking at markets, almost a segmentation of a macro vision of how you approach customers," Bailey says. "If you can get the segment down to one [customer], you can have a much more optimized delivery with instant return."

As futuristic as it may seem to say that companies can communicate with each of their customers differently given today's global marketplace where a small market share could mean millions of consumers, he's not alone in his views.

Martha and I have been advocating this point since day one, and now it looks like technology and strategy have caught up to the idea in a more mainstream way. "Technology today is aligned with [Bailey's] point," says Linda Vytlacil, vice president of Decision Sciences for Carlson Marketing. "Companies are organizing to execute against much more highly individually relevant and uniquely compelling communications to consumers."

Inexpensive storage capacity, software capable of searching large databases, and the prevalence of consumer data collected via the online channel all contribute to more individualized communication. Traditional media like television and print that are mass-produced are suffering as a result of this trend because they can only target large groups, according to Bailey. His contention that demographics are dead, however, is not certain.

"Demographics aren't dead, but using broad sociodemographic information alone for targeting might be," Vytlacil says. "That just isn't as relevant as an organization could be if it knew specific information about a customer."

A better understanding of a customer leads to predictions of behavior, Bailey claims. "Utilizing better and more specific information lets you come up with a profile of each customer and try to make assumptions on their next actions based on what other, similar customers have done," he says. In other words, what does this customer most need from us next?

The question is, where does all this new relevant, critical information on customers come from? Social media and other Web 2.0 technologies will contribute, but Vytlacil sees even more direct interaction between customer and company providing significant insight.

"What's going to be the driver here won't be what the company can extract from the consumer," she says. "It's the collaboration that companies will be doing with their customers." She points to KLM, an airline company that allowed customers to create personalized luggage tags similar to the way credit card imprints can be personalized with different images. In that way the company is collecting such data on customers as their interests without sending a survey or buying a demographic list.

Regardless of how companies acquire it, the key is relevant, specific information. "We won't just be looking at demographics anymore," Bailey says, "but we'll be looking at an individualized approach to optimize results and improve the customer experience."

For more of Chris Bailey's thoughts on the future of demographics, listen to the 1to1 on the Run podcast, "The Death of Demographics."

A question that all economic developers should ask is how changing technologies can help build one-to-one relationships with their various audiences.