Northern California Coast: More Catalog Crazies

Another place where catalog marketing matters is along Highway 101, from north of San Francisco, into Southern Oregon.

In this region, customers are not offered the variety of retail brands available in San Francisco, Los Angeles, or San Diego. The lifestyle is different, more relaxed.

Again, when marketing to existing customers, we have enough information to infer channel preference. But when marketing to prospects, we can utilize Zip Code Forensics or internal zip models to improve our chances.

Zip Code Marketing: Claritas PRIZM and Hillstrom's Zip Code Forensics

Some of you are wondering about the differences between Claritas PRIZM Clusters/Segments and Hillstrom's Zip Code Forensics. Here's a quick comparison of the differences.

Claritas PRIZM Clusters/Segments: Each zip code (or zip+4) is categorized into one of more than sixty different lifestyle segments. Each segment is given a clever name, describing the type of person who lives in that segment. Demographic studies, surveys, and data are compiled to create a profile of the type of person who lives in that segment. The segments are well defined, and help the user understand "who" lives in a particular area --- you hear the segment name "Shotguns And Pickups", and you have an immediate image of the demographic of that area. This segmentation scheme can be used to improve direct marketing activities, as each brand is likely to align with customers who spend a lot, and live in specific segments. The cost of using PRIZM clusters is reasonably expensive, though marketers can gain an acceptable ROI.

Hillstrom's Zip Code Forensics: Each zip code (not at a zip+4 level) is categorized into one of six different performance and channel preference segments, similar to traditional zip code models used in zip code marketing programs.

• Catalog Crazies: Highly productive zip codes that prefer traditional direct marketing.
• Online Bliss: Highly productive zip codes that prefer e-commerce and online community.
• Catalog Fans: Average zip codes with a traditional direct marketing preference.
• Online Spend: Average zip codes that lean toward e-commerce.
• Catalog Preference: Zip codes with customers who do not spend much money on direct marketing, but do prefer traditional direct marketing (i.e. catalogs).
• Online Preference: Zip codes with customers who do not spend much money on direct marketing, skewing toward e-commerce if they buy something.

The direct marketer will use Hillstrom's Zip Code Forensics to target geographies that have higher-spending customers --- especially when the direct marketer is looking at marketing activities that perform at or below break-even levels.

The direct marketer can expect to reduce marketing expense by about seventy percent by targeting only Catalog Crazies and Online Bliss zip codes --- while improving sales performance by about ten percent, yielding a significant increase in profitability.

Hillstrom's Zip Code Forensics is based on anonymous sales data by channel, at a zip code level, from leading catalog brands across the United States. Mathematical Algorithms and Census Data combine to yield the six segments mentioned earlier in this post.

Hillstrom's Zip Code Forensics is FREE (yes, I said FREE!) to customers who contribute anonymous, annual sales data by channel by zip code, with free quarterly updates as catalogers continue to add their sales data to the algorithm. For marketers using the segmentation scheme across at least 200,000 in annual marginal catalog circulation, it is expected that a positive ROI will be achieved, based on beta tests conducted earlier in 2008.

Folks who do not contribute anonymous, annual sales data by channel by zip code will be charged a fee of $5,000 for an annual license.

Contact me (kevinh@minethatdata.com) for details or to participate.

Hillstrom's Zip Code Forensics!!!

Would you be interested in being one of ten companies that get to participate in the launch of a new product, for free?

I am close to completing the development of a product called "Hillstrom's Zip Code Forensics". The product segments every zip code in the United States based on the sales potential of the zip code (high potential, low potential), and the marketing preference of the zip code (traditional/catalog or online/digital).

At this time, there are four segments, based on the combination of descriptors listed above.

Early tests indicate significant potential! The catalog marketer or e-mail marketer would be able to not mail unprofitable names in break-even segments, increasing profitability in the process. I envision the catalog marketer overlaying the segmentation against marginal co-op/outside lists and unprofitable housefile segments. I see e-mail marketers decreasing frequency among traditional/catalog segments. Multichannel marketers will be able to clearly demonstrate that they are getting a better mix of multichannel customers if traditional/catalog and online/digital segment counts are both increasing, especially in high-potential zip codes.

Here is a link to a white paper outlining Hillstrom's Zip Code Forensics.

If you would like to be one of the ten companies that gets to participate (for free) in the final testing and development of the product, please contact me. All participants will send me anonymous zip code level sales data, by channel, for the past twelve months, and will get to use the product for free for at least one year if the algorithm becomes a commercially viable tool.

The product will be tentatively priced at $5,000/year should it be launched commercially. Based on initial tests, many companies who execute direct marketing campaigns will profitably benefit from the segmentation scheme.

Profit Week: Using Zip Codes To Improve Profit

I was introduced to zip code models in 1992. Since then, I noticed that fewer than ten percent of the companies I work with use this free technology.

Yes, free. It doesn't cost anything to create a zip code model. And the methodology generates profit for you. What could be better than that?

Step 1: Sum total sales by zip code for your business in the past twelve months.

Step 2: Identify the population in each zip code. There are many internet resources available to obtain population by zip code, or if you have a few dollars to spend, obtain the data from the Census Bureau, or get it as part of a mapping tool like Microsoft MapPoint.

Step 3: Divide total sales by total population. This yields sales per person. This is the most important metric.

Step 4: Sort your file by sales per person (descending order). Place your zip codes into grades ... best = 'A', next best = 'B', worst = 'F'.

That's it. Yup, it is that easy to create a zip model. Now if you have a statistician on-board, this person will want to jazz-up the model. Let her do that. But for the 97% of us who don't have access to a statistician, just follow steps one through four.

There are many uses for zip models. Let's review a few.


Enhanced Segmentation: Take any segment or list that does not meet your profit criteria, and mail only the individuals in the best zip codes.

	Entire List	Best 40%
Demand	$2.00	$2.25
Net Sales	$1.60	$1.80
Gross Margin	$0.88	$0.99
Less Marketing Cost	$0.75	$0.75
Less Pick/Pack/Ship	$0.18	$0.20
Variable Profit	($0.05)	$0.04

When business is as bad as it is for many multichannel marketers, this is a tool that opens up numerous lists and segments ... and did I mention that the tool is free?


Zip codes offer uses that go beyond traditional cataloging.

• E-Mail Marketing: Identify the zip codes that are in urban, suburban, and rural areas. Folks in rural areas receive free shipping offers, folks in urban areas receive free sales tax on in-store purchases.

• Retail Trade Areas: Few things are more fun than using zip codes to outline retail trade areas, especially pre/post store opening. If you want to see how your online sales are impacted by a store opening, this is a great way to do that.

• Merchandise Analysis: At Lands' End, we followed swimsuit purchases by month by zip code. Northern zips performed well in February and March (vacations), southern zips performed well in April and May (warm weather), northern zips performed well in June and July (summer!).

It won't cost you anything but time to run a query that aggregates sales by zip code. Why don't you give it a try?