How Do Businesses Use Demographic Data?

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  • 0:01 Business and Demographics
  • 0:59 Identifying Locations
  • 1:59 Production Analysis
  • 2:54 Advertising
  • 3:53 Strategic Planning
  • 4:44 Lesson Summary
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Lesson Transcript
Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

Businesses have all sort of tricks to help them remain profitable, and one of the best is demographics. Explore how businesses use demographics, and test your understanding with a brief quiz.

Business and Demographics

Hey, let's start a business. Any ideas? I know, we could sell bow ties. Who doesn't love bow ties? Well, actually this is a very important question for us. We need to know exactly who does and does not love bow ties, because we are selling bow ties. And where can we turn for that information? How about demographics - statistical analyses of a population.

Businesses use demographics all the time, and it's not hard to see why. Luckily, most of these statistics are pretty readily available through the U.S. Census or the Department of Labor, not to mention independent marketing companies and local governments. So, come on, let's grab some demographics and start our business. We've got a lot of bow ties to sell.

Identifying Locations

Demographics can show all sorts of information about a population, and that data can be really useful when setting up a business. For example, our first task is to pick a place for our business. After all, we want a profitable location, right? We want to be in a place where people need bow ties. So let's look at our demographic charts.

This neighborhood here is almost entirely composed of young families on a modest income. So while you may have one person per family who could want a bow tie, they may not have extra income to spend. How about over here? This neighborhood is mostly people over 65 who are pretty wealthy. That sounds good, that generation likes bow ties, right? But wait, it's 80% female. Women don't often wear bow ties. Aha. Here we go: 70% of this neighborhood is composed of young males who work in either accounting or computer programming. This is definitely a good spot to sell some bow ties.

Production Analysis

The next step as we get our business going is going to be a production analysis, an evaluation of costs and efficiency related to our product. So will we be able to make enough money to buy the material for bow ties, how much space do we need to store them, what sort of packaging do we need, etc. We want to make sure that our potential profit is greater than these costs, so let's head back to those demographics. It looks like the average income in this neighborhood is much higher than the average cost of rent, so these people should have money to spend. Also, we can see that, on average, people in this area spent up to 30% of their income on clothing, so that means we are in a good spot and can keep moving forward.

Advertising

Okay, now this step is important. We're a new business, and this is a dangerous time for us. We've got to get people buying bow ties fast, and this means advertising. Let's start by placing pamphlets on car windshields. Oh wait, according to our demographics, most of our target clientele doesn't drive a car, they bike to work, so that advertising strategy would be targeting a group less likely to want bow ties. We've got to use our resources efficiently.

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