Geodemographics: Using Location-Based Segments for Targeted Marketing
What does your address say about you? Quite a lot, as it turns out – especially to marketers trying to reach all of us with relevant messages. Segmentation strategies have long been a powerful way to target certain audiences, and geographic information is a key piece of the puzzle. Let’s take a look at the history of geodemographics and take a tour of the segmenting solutions being used in the marketplace today.
Who, What, Where… and Why
Marketers use a lot of different strategies to gain an in-depth understanding of their customers and prospects. Traditional segmenting strategies generally focus on four traits:
- Geographic: Where are they? Features such traits as urban vs. rural address, climate, and market size
- Demographic: Who are they? Includes factors such as age, income, gender, ethnic background
- Psychographic: What do they want and why do they want it? Segmenting based on personality, motives, and lifestyles
- Behavioral: What do they do? Focuses on past purchases, downloads, page visits, and other interactions
Generally, these traits are assembled to create personas of different types of customers. They’re also used to create segments of prospects in order to target them more effectively. Geodemographics – the science of defining population traits by studying the demographics of targeted areas – is a way to deepen the understanding of who they are and what they want by taking a closer look at where they live.
Location, Location, Location
This field of research has been around for a long time. In fact, it has its origins in England at the end of the 19th century. Charles Booth, a social researcher, spent many years studying the causes of poverty in London. During his research documenting working-class life, Booth developed the idea of “classifying neighborhoods” to create a social index based on 1891 census data.
What started out as a way to help alleviate poverty (and indeed, his work eventually influenced the creation of government programs such as free school lunches and pensions for the elderly) soon became a powerful tool for commerce. Geodemographic segmentation is based on two ideas:
- People who live in the same neighborhood often have more similar characteristics than two people chosen at random. In addition to comparable earning power (since the cost of renting or buying in most areas is usually similar) there are also likenesses in preferences and backgrounds.
- Neighborhoods can be categorized by the people who live there, and neighborhoods that contain similar types of people can be added to the same segment, even though they are widely separated by physical distance.
Once marketers realized that the principle that “birds of a feather flock together” could be applied to geographical areas, geotargeted marketing was on the rise. ZIP Codes, neighborhoods, and addresses were used to pinpoint a customer’s location and to find potential like-minded buyers in the same regions. Before the advent of digital marketing, flyers and direct mail were used to target specific locations. With advances in databases, geographic information system (GIS), and customer relationship management (CRM) software, marketers have gained a powerful strategic advantage when it comes to understanding their customers.
Of course, the sheer mass of data available to marketers can be a challenge as well. Where do you start? Which traits are the most meaningful? How can you figure out which areas and neighborhoods you should try to target? These are complex questions, made more so by the fact that like many other characteristics, geodemographics changes over time.
Sorting Through the (Geo) Data
There are many companies that examine and translate the meaning of this data for you. Maponics is a company that builds and defines geographic borders at the local level, such as neighborhood boundaries, ZIP Codes, and school attendance zones, and provides solutions that “paint a picture of local character.” RDA Research is a firm based in the UK providing web-based marketing tools that combine market research, behavioral, and geospatial data.
One of the biggest geodemographic organizations in the United States is Nielsen PRIZM. Their geographic segments have been developed based on U.S. census data and serve to categorize consumers into 66 distinct types. The descriptions of these segments include the likes, dislikes, and likely purchasing behaviors of local residents.
How does this translate into insight? Visit the free tool, Nielson MyBestSegments, and use the ZIP Code lookup to find out how your neighborhood is categorized. For example, I can quickly find out the following facts about my ZIP Code (97232):
- Population: 12,178
- Median Age: 38.4
- Median Income: $38,000
- Consumer Spend: $267 MM
- Consumer Spend ($/HH): $41,436
I can also find more information about the average age, household income, race, and ethnicity, as well as how many people live in each household, how many are married, and how many have children. I can also find out the most common segments for my ZIP Code. According Nielsen MyBestSegments, these are:
- Big City Blues
- Money & Brains
- Multi-Culti Mosiac
- Urban Achievers
- Urban Elders
According to their analysis, the Big City Blues demographic includes a population that’s 50% Latino – the highest concentration of Hispanic Americans in the country. Made up of young singles and single-parent families in urban areas, this segment is faced with the challenges of low incomes, tentative jobs, modest educations, and limited education. The next segment, Money & Brains, has (as you might have guessed) high incomes, advanced degrees, and fashionable homes. Many are married couples with few children. It’s quite a mix, and that’s just the first two segments! I have to admit, this high-level view does a pretty good job at capturing the complex makeup of the rapidly changing population in my Portland, Oregon neighborhood.
Putting Insights Into Action
You can see how this data would be useful to marketers. With the professional version of PRIZM, any file, list, or survey can be coded with this information. Using this data, you can:
- Learn about the consumers you’re trying to target and tailor messages, offers, and products specifically to their interests.
- Find out where current customers and prospects live and locate more people like them, across the country.
- Group similar segments together and target them with similar messaging, ensuring greater efficiency in your campaigns.
Combining this insight with marketing automation and customer relationship management (CRM) makes it possible to connect even more dots with your prospects. Knowing who people are, what they want, and what they’ve done in the past makes it much easier to target them with relevant content in the future.
More Ways to Segment
There are many companies that can provide different kinds of location-based insights, and some of them can integrate with your marketing automation and/or CRM solution. For example, Salesforce Data.com (which integrates with Act-On) provides reverse IP lookup to find the name of the organization that web visitors come from, and uses this to let you find contacts in that organization.
If addresses and ZIP Codes aren’t targeted enough for you, companies like Urban Airship are taking advantage of the rise of mobile to use location-targeting capabilities down to the individual level using beacons and location boundaries. And Twitter recently introduced new ad features that help advertisers target Twitter users through wireless carriers and new devices.
Are you using geodemographics or location-based segmentation to target your audience? Let us know what’s worked for you in the comments.