BUSINESS DEMOGRAPHY

Business demography entails the application of demographic concepts, data, and techniques to the practical concerns of business decision makers. This loosely organized field includes but is not limited to site selection, sales forecasting, financial planning, market assessment, consumer profiles, target marketing, litigation support, and labor force analysis. Specific applications have evolved over time, reflecting changes in data sources, computer technology, statistical techniques, and the business environment. This entry surveys the major features of this eclectic and rapidly changing field, focusing on the United States.

Evolution of the Field

Businesses have based decisions on demographic data and techniques since the late nineteenth century. The emergence of business demography as a distinct field, however, is quite recent. The release of 1970 census data in machine-readable form gave rise to an electronic data industry that grew from a handful of companies to at least 70 competitors by the mid-1980s. Although the number of data vendors has declined since that time, many new firms focusing on marketing, survey research, trend analysis, mapping, and software development have been established. As the field matured, it became routine for businesses to base decisions on the advice of consultants and employees skilled in collecting, analyzing, and interpreting demographic data.

Responding to these developments, the Population Association of America formed a Committee on Business Demography in 1982, which, together with the Committee on State and Local Demography, launched the publication of the newsletter Applied Demography in 1985. During that formative period two commercially oriented magazines (American Demographics and Business Geographics) were launched, reporting on demographic trends, data availability, technological advances, and business applications. Business demography thus coalesced into a visible and well-established area of endeavor, although the field remains loosely defined and organized.

The Practitioners

Business demographers fall into three distinct groups. The first group consists of analysts employed by private companies whose work pertains specifically to those companies and their business activities (e.g., market analyses, customer profiles, site selection). The second group consists of analysts with firms that create demographic databases (e.g., population estimates, consumer spending, lifestyle clusters), develop proprietary software applications, and perform customized research (e.g., estimates and projections of the population residing within five miles of a supermarket). These firms serve both government agencies and business enterprises. The third group consists of individual consultants who undertake specific projects for individual clients. For some of these practitioners, consulting is a full-time activity; for most, it is a part-time pursuit outside their regular work activities.

Not all practitioners have formal training in demography. Indeed, the diversity in training, educational background, and current occupation reflects the eclectic nature of business demography as a field. Many practitioners have backgrounds in economics, geography, marketing, statistics, survey research, real estate, or other disciplines. Even those with formal demographic training have acquired many job skills principally through work experience rather than academic training. Few academic programs extend their demographic focus to the field of business, and few business schools offer training in demographic applications.

The Tools

The tools of business demography parallel those that demographers use generally: data from a variety of sources, computer hardware and software, and basic demographic concepts, measures, and techniques. Those tools are set apart by the purposes for which they are used. Business demography is intended to clarify and inform business decisions rather than to advance knowledge. The tools of demography are described elsewhere in this encyclopedia; here the focus is on their business applications.

Data sources include publicly available censuses, surveys, and administrative records (e.g., building permits, registered voters, Medicare enrollees); proprietary surveys (e.g., of new or repeat purchasers); and firm-specific records (e.g., customer files, business transactions). The availability and reliability of such data vary considerably across levels of geography and among countries. Typically, the smaller the area is, the more difficult it is to obtain useful data. Because business decisions often pertain to local markets, there is a premium on assembling reliable data for small areas.

Exponential increases in computing power and data storage capacity have greatly expanded the possibilities for organizing, integrating, and analyzing data. Computer networks enable analysts to share information and transfer data globally over the Internet. Powerful software packages have largely automated statistical analysis and reporting functions. Advances in geocoding and the displaying of spatial information through geographic information systems (GIS) have been especially influential, as many analyses call for data that are grouped into customer service areas, market analysis zones, and other uniquely defined geographic areas. The ability to use these computing tools effectively is crucial for many business demographers.

The concepts and measures of business demography focus primarily on dimensions relevant to commerce and enterprise: population composition (e.g., age, sex, race, income), consumer units (e.g., individuals, families, households), demographic events (e.g., births, deaths, marriage, migration), and the distribution of demographic characteristics and events across geographic areas (e.g., counties, census tracts, postal code areas). Business demographers have extended these measures by using consumer data. For example, geodemographic segmentation systems classify neighborhoods with similar demographic characteristics and consumer preferences into lifestyle clusters. Owing to business demography's emphasis on decision making, techniques that update recent census data and project future values play a particularly important role.

Demographers introduce fresh perspectives to the business world because they can envision business problems differently than business people ordinarily do (for example, distinguishing among age, period, and cohort effects that reshape a market). They inform and advise, broaden perspectives, and serve as catalysts for organizational change. By exposing business people to new perspectives, demographers can elevate management thinking from an operational to a strategic level.

Examples

The business concerns that demographers address are many and varied. Accurate sales forecasts depend on foreseeing changes in population size and composition. Human resource planning requires data on the characteristics of the labor force and the personnel needs of the business enterprise. Site analyses require information on local populations within reach of a particular geographic location. Financial planning requires information on how demographic changes affect cash flows and return on investment. Many projects require population estimates and projections, often with detailed characteristics (e.g., age or income). The following illustrations suggest the range of business applications.

Marketing and retailing. Demographic information and analysis have become essential to identifying, locating, and understanding the diverse consumer groups that form markets for goods and services. For example, newspaper publishers and editors recognize that they must adapt to the powerful demographic and societal changes that are transforming reading habits and readers' interests. Many readers live alone, are divorced or remarried, or are cohabiting. Among married couples, fewer have children at home but more anticipate future eldercare obligations. Accompanying these diverse lifestyles are new interests and obligations. Demographers can identify the changing demographics of newspaper readers, helping publishers cater to collections of small audiences with certain shared interests who constitute an increasingly segmented readership. Demographers also can devise and calibrate specialized tools for segmenting customers.

Human resource planning. The demographics of a corporate work force have important long-term implications for benefits, productivity, and profitability. General Motors, for example, spends more than $3 billion annually on health care for its current and former employees and their dependents. Since health-care expenditures vary greatly by age, information on likely future changes in the age structure is critical. Hallie Kintner and David Swanson (1997) analyzed the expected longevity of General Motors employees, developed a series of projections by age and sex, and made recommendations to the company's senior management that helped the company control health-care costs.

Site selection and evaluation. Geographic proximity to consumer markets is important because most retail transactions are made at specific locations. Productive retail sites generally are situated in the middle of dense consumer populations or are readily accessible to the potential users of a firm's goods and services. Local availability of an appropriately skilled labor force also is critical for many businesses. Evaluating a proposed site or weighing the comparative merits of several competing sites is another way demographers support business decision making.

Tracking emerging markets. As markets have globalized, businesses have increasingly focused on international markets, including the emergence of consumers within the massive populations of developing countries such as India and China. A defining characteristic of emerging economies is rapid economic growth, along with the ripening market potential that accompanies such growth. Anticipating future growth of consumer markets poses distinctive problems that are amenable to demographic analysis. With only a minimum of data, demographic accounting models can capture the upward economic mobility of newly prosperous consumers.

Conclusions

Business demography is a problem-driven field with an emphasis on using rather than advancing knowledge. Its practitioners address problems and inform decision making within a specific business context. Its tools and perspectives are drawn from demography generally but are applied to the practical needs of the business community. It is an eclectic and continually evolving field that is responsive to the opportunities that expanding data sources, statistical techniques, demographic methods, and information technology offer. Although its focus has been primarily on small areas, new applications and trends toward globalization are pushing it increasingly into broader areas with national and international implications. Future opportunities in business demography promise to be diverse.

See also: Small-Area Analysis; State and Local Government Demography.

bibliography

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Stanley K. Smith

Peter A. Morrison