Demographic Environment and Its Importance to Business

The demographic environment differs from country to country and from place to place within the same country or region. Further it may change significantly over time. Peter Drucker, who emphasizes the tremendous economic and business implications of demographic changes, suggests that any strategy, that is any commitment of present resources to the future expectations, has to start out with demographics.

. It is conventionally said that Management is Men, Material, Machinery and Money. Even if all the other Ms are excellent, it would not be of use unless the Men is the right one in terms of quality,potential,motivation and commitment etc.

Market is people in the sense that the demand depends on the people and their characteristics such as – the number,income levels, tastes and preferences, beliefs, attitudes and sentiments and a host of other demographic factors. No wonder, demography is an important basis of market segmentation.

The important demographic bases of market segmentation include the following:

1.        Age structure

2.        Gender

3.        Income distribution

4.        Family size

5.        Family life cycle (e.g.young,single: young, married, no children; young married with children.......)

6.        Occupation

7.        Education

8.        Social class

9.        Religion

10.     Race

11.     Nationality 

The importance of demographic factors to business is clear from the facts that ‘management is men’ and ‘market is people’. Demographic diversity between and within nations is very conspicuous.

Demographic factors such as size of the population, population growth rates, age composition, ethnic composition, density of population, rural-urban distribution, family size, nature of the family, income levels etc.have very significant implications for business.

Population Size: Nations with large and growing population and rising income are the future markets. Poor countries with small population are generally not attractive for business. However, even such countries may hold out opportunities for some companies. As these markets may not be of interest for large companies, small firms may find promising niches in these markets.

                        Advanced countries, particularly with large population, are generally attractive markets. The major part of the international trade and foreign investments naturally take place between these nations. Because of the large potential of these markets, competition is generally strong in them.

                        The size of the population is, thus, an important determinant of demand for many products. One of the important objectives of the formation of the European Union(EU) was to bring about a single market that compares, in terms of the number of consumers, to that of USA and Japan.

Falling Birth Rate and Changing Age Structure: The falling birth rate, declining population and changing age structure have important implications for business and governments. Although, there has been an explosive growth of the global population particularly in developing countries, the universal trend now is fall in birth rates. Because of the declining birth rate,population is already peaking in a number of countries. The collapse of population size has serious implications for business.

                        The declining birth rate poses a problem for many businesses. Because of the decline in birth rates and consequent fall in the size of the baby population, the market for baby product has shrunk. This has prompted some companies, such as Johnson and Johnson, to reposition their products (originally introduced as baby products) and to pay more importance to international business.

                        On the other hand, the declining birth rate has been a boon to certain industries. For example, industries such as hotels, airlines and restaurants have benefitted from the fact that young childless couples have more time and income for travel and dining out.

                        It is obvious that business should necessarily ponder over whether the falling birth rate and the shrinkage in the number of young people-and especially of people under eighteen, that is,babies, children and teenagers- is a threat or an opportunity.