Zip Code Forensics: The Southwest United States

If you're a multichannel marketer based in New England, you probably don't spend a lot of time thinking about customer behavior in Utah, Colorado, New Mexico, or Arizona.

Hillstrom's Zip Code Forensics (free to marketers who contribute anonymous zip code data, $5,000 for all other marketers --- compare to Claritas Prizm NE here) has a favorable view of the Southwest United States.

Multichannel evangelists suggest that direct marketing works well among customers who have access to retail.

Zip Models suggest otherwise. Notice that the bright orange (traditional direct marketing / catalog) and bright green (online marketing / e-commerce) areas are largely outside of urban areas, away from concentrated retail strongholds.

Honestly, folks, we've been led astray by mainstream multichannel "best practices" thinking. We survey a thousand customers who buy across channels, those customers tell us that they love multiple channels, then we tell retailers we should pursue these customers via $379 research reports and vendor white papers. Who benefits from this form of marketing? You know the answer.


We have an opportunity to think more about what a customer "needs", thinking less about what we want to "give" to a customer. What does the customer living fifty minutes outside of Flagstaff "need"? Does our industry explore this angle? Have you read a research report on the needs of the rural mountain customer in the Southwest United States?

Unlikely.

Cape Cod: Home Of Catalog Crazies

Just a few hours south of Boston, we find a quaint little world known as Cape Cod.

Hillstrom's Zip Code Forensics suggest that this corner of the world is home to some of the most productive catalog customers in the United States. With limited retail options and a less hectic lifestyle, catalog marketing is perfectly suited to individuals who choose to live in this area.

This is our opportunity. We identify areas where customers have specific marketing preferences, then we capitalize on those areas. When we have actual customer data, we leverage that. When we are mining prospects, we use Zip Code Forensics or internally built zip models to improve productivity.

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?