How Geodemographics Has Changed Over the Past 40 Years: Part One - A History of Micromarketing

August 15, 2011

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More than 40 years ago, marketers employed what I like to call “the power of location” to help answer key questions: who are my customers, where do they live, what media do they consume and how can I find more of them. Originally, ZIP Codes, and eventually addresses, were used to pinpoint a customer’s location and enable calculations to determine the distance consumers travel to a business, to find pockets of high potential customers and to target door-to-door advertising.

Lifestyle Segmentation and Geodemographics

In the 1980s, the principle “birds of a feather flock together” became the basis for geodemographic-based segmentation tools that allowed marketers to use location information to make inferences about the lifestyle and consumption behavior of their customers. From there it was an easy step to defining the most responsive segments and optimizing the media mix and messages to reach them.

Interestingly, many of these analytical techniques were developed even before computer mapping and GIS were invented. Complex algorithms to make typological inferences were coded in Fortran, Cobol and Basic computer languages and cranked out on old mini and mainframe computers. Most of the geographic and mathematical formulas built years ago to leverage these data are still the foundation of many geo-based marketing tools used today.

Specialists in target marketing and site location—firms like Claritas, National Decision Systems (NDS) and Donnelly Marketing Information Systems (DMIS) in the U.S.; CCN Marketing (later renamed Experian) and CACI in the UK; and Compusearch in Canada—built geo-segmentation systems (PRIZM, MOSAIC, ACORN, Lifestyles) in this period to profile, segment and target consumers. These data products also were instrumental in applying data from major media and behavior surveys to small areas for trade area analysis and database marketing.

It was not until these routines for geo-based market analysis were developed that the technology became more accessible to analysts on the user side. To analyze markets and customers, industry leaders built geo-segmentation-based desktop systems like COMPASS, InfoMark and CONQUEST—applications that became popular 20 years ago. Many spatial analysis techniques were programmed into these systems.

From Demographics to CRM

During the nineties, two other technologies emerged that had a major impact on the geo-based micromarketing industry: GIS and customer relationship marketing (CRM). Desktop mapping packages became very popular for displaying customers and demographics graphically. Some rudimentary area reporting capabilities were also available in these desktop GIS systems, but for the most part they became ways of displaying rather than analyzing data. Some micromarketing systems were revised, embedding GIS or creating extensions of GIS, but for the most part the proliferation of desktop mapping enhanced data display while surprisingly decreasing the availability of complex math and geographic routines that had been in the original purpose-built applications.

At the same time, businesses had access to more and more customer data and were investing in CRM systems to store information on customer transactions. Marketers were thrilled by the idea of tapping into these databases to model, segment, subset, target and measure customer behavior. But while these tools clearly enhanced the analytical processes, it was often easier to get data into the big CRM systems than to get them out—especially since marketers were not the highest priority for resource-strapped IT departments. Some marketers who could get at their CRM data abandoned the use of geo data, assuming that real household data were more useful than summarized segments.

For a number of years, these two “new” technologies which could have enhanced micromarketing analysis actually ended up doing the opposite. Complex spatial analysis was replaced by dots on maps and many abandoned overlay data rather than use them to fill in gaps, augment household data and make survey data more actionable. So the industry has gone through some interesting twists and turns in its evolution. Today, three things have prompted marketers to focus squarely on the quality of analytics: challenging economic conditions, the digital revolution and the availability of faster, better technology. The tools in our space need to respond to these realities.

Micromarketing Tools Today

There are now many tools available: reasonably comprehensive desktop systems, lighter applications for trade area reports, systems that just do site modeling, high performance business information tools with spatial functionality. There are a small number of Web-based tools but most of the true Web services applications have limited functionality.

In my view, geo-segmentation systems combined with household-level data are still essential to understand and connect with customers and markets. These systems allow one view of the customer across multiple datasets, and they fill in data gaps without intruding on privacy. They are executive-friendly and easy to understand. Even more important, when applied properly, they still work. But it’s essential that these data systems be accompanied by good analytical routines.

As we built our business (Environics Analytics) in Canada over the last decade, we have accessed many tools to deliver data to our customers. Clearly, there is no one-size-fits-all solution: Our customer base is broad with users in finance, insurance, real estate, retail, media, automotive, consumer packaged goods, government and direct marketing. Some of these users have actual locations, some don’t. Some have customer data, some don’t. We ended up offering and supporting a number of tools to help our customers use our data effectively. But even with multiple product offerings, we felt we were still missing some of the applications and attention to detail needed by marketers and business executives. And that troubled our staff, half of whom have more than 15 years of experience in geo-based micromarketing. We are very “hawkish” on math and methodology. Our corporate mascot is a geek!

As a company, we also wanted to innovate to deal with the new marketing realities—to make it easier to pass files from CRM to the analytics engine, to produce media optimization reports that combined traditional and digital media and to address the fact that all of our customers are faced with the challenge of doing more with fewer resources. Most importantly, we knew that, for many of our customers, having a technical analyst was a luxury and we wanted to make rigorous analytics available to marketers and executives. We decided that we had to build new technology to empower our users to get the most out of data.

Ed. Note: Next week,in part two of Jan Kestle’s article on lifestyle segmentation and geodemographics, she will explain a new cloud-based solution for micromarketing called ENVISION that will integrate location analytics with CRM. In addition, Environics Analytics will sponsor a webinar about ENVISION and its use at Best Buy Canada and LG Electronics on Tuesday, Aug. 23.


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