True Micromarketing with Desktop Mapping: Gain a Power Tool for Customer-Focused Decision Making

Executive Summary

Often the marketing decisions that businesses make do not achieve their targeted goals because the company has not matched its products and promotions to its customers' geodemographic profiles. They too often rely on best-guesses or gut feelings, rather than factual market insights. However, the most successful promotions typically consider their customers' actual demographic attributes and purchasing behaviors.

Some companies have not taken this step due to cost. But most companies can take this important step, because today there are powerful, proven, and cost-effective decision-support tools available to help them understand exactly who their customers are - including their lifestyles, attitudes, and shopping preferences. And these insights can be accessed with just the click of a few keystrokes - with desktop mapping. Desktop mapping essentially brings key customer data to life. Used properly, this sophisticated, but easy-to-use technology can greatly improve businesses' ability to market the right products to the right consumers at the right time.

This white paper explores true micromarketing with desktop mapping. It explains what companies need to know to fully understand the marketing potential of this business tool, the positive impact it can have on their businesses, and how to bring it onboard as part of their ongoing marketing programs. Businesses who already use desktop mapping will learn how to hone this application to a whole new level of customer-focused decision-making - which could significantly impact their bottom-line profitability.

What is Micromarketing?

Who are your company's ideal customers? Where do they live? What products do they buy and what products will they buy? If you do not know the answers to these three basic business questions, you may be losing existing customer loyalty, new customer acquisitions, and sales. True micromarketing is one of the most powerful and dynamic tools available to help businesses fully understand their customers and strategically position themselves to win the ongoing competition for existing customers' mind share and new customers market share.

True micromarketing means targeting marketing activities at specific, well-defined consumer groups who have the demographic, geographic, and psychographic characteristics needed to purchase specific products. It means understanding customers at a previously unavailable level. And it means making marketing decisions based on knowing what will appeal to customers. True micromarketing is feasible for any business that understands its customers at such a detailed level that they can accurately select products, then price, package, position, and promote them in the most effective ways possible. Today, true micromarketing is a reality easy and affordable decision-support tool thanks to the availability and affordability of GIS desktop mapping.

Desktop Mapping - Introduction

Desktop mapping is a robust field within the geographic information systems (GIS) industry, which emerged on the scene in the mid-1990s. It has revolutionized the way businesses see their customers ever since. One of desktop mapping's many capabilities is the ability to precisely locating customers on colorful, thematic trade-area maps. These highly visual tools give businesses the opportunity to literally "view" their customers from three strategic perspectives: demographic, geographic, and psychographic.

The value of this in-depth visual information is immense. Properly used, it can impact the full spectrum of marketing decisions, from selecting products to creating promotions. In fact, it can help businesses make the most accurate decisions on each of the traditional five Ps of marketing - product, pricing, packaging, positioning, and promoting.

With desktop mapping, marketing decision makers no longer have to rely on their best guess or third-party information to make critical decisions on what consumers will or will not buy. By adding GIS-based mapping insight to marketing activities, companies will gain valuable consumer insight to help them make much more informed decisions based on who their customers actually are.

This level of consumer insight leads to true "micromarketing," which gives companies the power to strategically decide what to sell, to whom, when, and where. These informed decisions can be incredibly profitable, because companies will both increase revenue (because they are actually marketing products to the people who want them) and reduce marketing waste (because the companies' marketing activities will be focused where they will deliver the highest return).

Progressive companies are already using desktop mapping to make more informed marketing decisions. This means that they have invested in the software, demographic tools, and data products that allow them to cost-effectively conduct this high level of consumer research on-demand from their desktops. As a result, they are enjoying leadership positions in today's marketplace, in which competition threatens to reach unprecedented levels.

Desktop Mapping - Primary Benefit

The primary benefit of desktop mapping is that it allows businesses to geocode, or place, their customers on a wide variety of trade area maps. It also provides retailers with demographic and psychographic reports on the consumers who live in their markets, and with ZIP+four address identifiers for each of the known customers. Retailers can use this in-depth consumer information to make a wide range of decisions such as optimal product selections, ideal pricing strategies, the most appealing product packaging, the best positioning strategy, and the most effective promotions. All of these decisions are vital for helping businesses retain their current customers, attract new customers, reduce marketing costs, and increase sales.

Essentially, GIS-based mapping brings business data to life. Mapping is a powerful way to link information with geographic locations and, therefore, literally see data in its context - from areas as small as a neighborhood to as large as the entire United States. Further, mapping is a highly flexible analysis tool that presents data in a variety of visual presentation styles such as different shades of color, as symbols of different sizes, as dot patterns of varying densities, or all of these at once in multiple layers.

So, instead of conducting marketing analyses based on data listed in dry tabular formats, desktop mapping places the data in vivid maps of your trade areas - allowing you to see your customer information from whole new perspectives. As a result, you will not only have the specific numeric information you need, but you will now also see geographic relationships that you may not otherwise have been able to see, such as buying patterns and overlapping markets. Unlike any other marketing tool, GIS-based maps give businesses a highly strategic tool that lets them precisely identify - and literally see - customer data from three perspectives: demographic, geographic, psychographic. These three perspectives impact what you're selling and how you're selling it.

1. Demographic data. GIS-based maps answer all of the fundamental questions of who your customers are based on where they live, including their income levels, nationalities, ages, household sizes, the types of cars they drive, their consumption patterns, and how they pay for purchases. When you see your customers spatially identified on maps, you can conduct a number of highly valuable studies. One of the most common is "clustering," which is based on the principle that birds of a feather flock together. In other words, if a group of your customers live in one ZIP+four area code, it is highly likely that their neighbors also fit their demographic profiles. And this means that they, as well, could become your customers. The idea is: if you know precisely who your customers are, you can use desktop mapping to find other similar consumers in your markets, and market directly to them.
2. Geographic data. GIS-based maps give you pictures of exactly where your customers live. With this information you can conduct a variety of market analyses such as looking for clustering patterns or overlapping markets. In addition to the visual data, the geographic information from desktop mapping includes ZIP+four customer identifiers. ZIP+four areas are the smallest geographic levels available to businesses. These are the zip codes with four extra digits added to the main five-digit area code.
   
   To understand the significance of the difference between the two zip code levels, consider that a traditional five-digit zip code area contains between 1,000 and 5,000 households, and crosses through many demographically diverse neighborhoods. On the other hand, a ZIP+four area code contains between four and 12 households. At this significantly smaller geographic level, you are virtually assured that the list represents a single demographic and psychographic consumer lifestyle in most markets. This dramatically quantitative difference between the two zip levels gives businesses an unprecedented ability to almost handpick the consumers they want to include in their promotional activities.
   
   Further, by understanding their customers and potential customers at such a detailed level, retailers can create specific advertising messages to fit their exact buying needs, wants, and behaviors. For example, a company could send baby product promotions to new families and senior-citizen specials to households with older family members.
3. Psychographic data. GIS-based maps include consumer reports. Based on demographic data, these reports begin making inferences about the targeted consumers' behaviors, such as identifying their key purchasing drivers. In other words, the reports help determine what motivates a consumer to shop at one store versus another, or to select one product over another. This information will help companies make more informed decisions on which products their customers are likely to buy in the future.

Micromarketing Versus Mass Marketing

Today's consumer-oriented businesses face the unique challenge of marketing to customers in an era saturated with mass marketing. Several decades of mass marketing across the country have had an increasingly negative effect on businesses, including forcing many products' margins to drop to dangerously low levels and making customer loyalty a near impossibility. Mass marketing sounded like a good idea back when every family seemed to have 2.5 children, a home in the suburbs, and two cars in the garage - and before every other retailer was doing it.

The idea was a simple one: Estimate the general demographics of your markets and then blanket multiple markets with general product selections and promotions. Two problems arose after a few decades of mass marketing: Consumers become much less homogenized in markets across the country, and every major retailer was engaged in similar mass marketing activities, frequently with the same products. As a result, the effects of mass marketing have diminished greatly over the years. This problem became painfully clear as retailers have spent more money to achieve less response.

To counteract the dulling effects of mass marketing, many retailers have been adopting micromarketing tactics in an attempt to market to specific, well-defined groups. However, the gulf between what is called "micromarketing" and those activities that constitute true micromarketing is vast. The bridge to cross this gulf is desktop mapping. Not since the days of the neighborhood corner grocer has there been a better opportunity to truly understand who your customers are. Like the corner grocer, who knew his customers' exact wants, needs, likes, and dislikes, companies today can also understand their customers are at an in-depth level with desktop mapping.

Desktop Mapping and the Five P's

By deciding marketing activities based on information provided from GIS-based maps, companies can make more informed decisions on the five Ps - product, packaging, price, positioning, and promotions.

• Product. Retailers can apply GIS-driven micromarketing to determine if their stores are delivering the right products to their consumers. Accurate product selection increases the probability that consumers will actually buy the products available in the stores, because the products have been selected to suit the consumers' specific needs and wants. In addition to selecting the right products, companies that are in a position to customize products can ensure they are creating products that will fit consumers' preferences.
• Positioning. GIS-driven micromarketing allows retailers to accurately position their products, product categories, and even their stores, because they understand the consumers' demographic characteristics and psychographic behaviors. As a result of desktop mapping, they can prioritize the variables that are important to their customers, and correctly position products and the store itself based on those factors. For example, for large families with low incomes, price may be a dominant factor in making purchase decisions. Whereas, small families with large incomes may be driven by specific product quality factors, such as brand names or health trends.
• Pricing. Product pricing can be done most effectively when retailers understand their customers' demographic characteristics and psychographic behaviors. Demographically there are distinct groups of consumers who are very cost conscious and groups for whom the price of a product is not a top driver in their buying decisions. In fact, there are a number of industry studies that show which pricing strategies, for example, value pricing or cost-plus pricing, work best with which consumers. With this data retailers can determine how price-sensitive their customers are in specific areas within their markets and determine the ideal prices for products in different areas.
• Packaging. Who your customers are can dictate which product packaging, including the physical container and the messaging on the package, will be the most effective. Through GIS-based micromarketing companies provide insight on both fronts.
• Promotion. There are certain industry-acknowledged levels of effectiveness for the various methods of advertising. By applying GIS-based micromarketing to the creation of their promotions -- including the message, promotional vehicle, and consumer targeting - business can significantly increase the results of all advertising methods. With this insight they can create highly customized promotions that talk to well-defined neighborhoods or classes of consumers. What's more, they can avoid creating psychological barriers in customers' with promotions that do not fit their psychographic profiles. Further, companies can select the most appropriate advertising vehicles to deliver the messages to their targeted audiences, for example, choosing direct mail to reach upscale consumers with a promotion for a new, expensive line of olive oils, or using bus advertisements on specific routes to sell convenience foods to low-income working mothers.

Related Marketing Disciplines

There are many marketing disciplines that can work in conjunction with GIS-based micromarketing to enhance the effectiveness of your marketing efforts, such as consumer research, lifestyle segmentation programs, frequent shopper programs, and category management. Here's how.

• Consumer Research. Consumer research allows you to define exactly who your customers are, including their perceptions, attitudes, and suggestions about your stores and store networks. There are many techniques available to collect various types and quantities of consumer research, including direct methods such as outbound, inbound, or face-to-face surveys. Several highly skilled GIS companies have created efficient and effective systems to collect this in-house data for companies. Indirect research methods also exist such as credit card database searches. However, retailers must consider the risks and limitations of these methods, such as the possibility for receiving skewed information: In other words, credit card data will reflect only those consumers who have used those credit cards. The advantage of doing direct research is that retailers get specific answers related to their businesses about what is right or wrong with a product, category, store, or a store network. Too many businesses discount the capabilities of in-house customer research to help them market more effectively: But this is a limitation they should rethink.
• Lifestyle Segmentation Programs. Lifestyle segmentation programs are a proven marketing tool that have been around since the mid-50s. Many retailers have used them with a great deal of success. These programs, such as STI: LandScape, group customers across the country into categories based on demographic, geographic, and psychographic factors. Retailers can identify which consumer categories most accurately fit the descriptions of their customers, then find where these groups live in their specific markets. The third step of effectively using lifestyle segmentation programs, and the one most retailers don't take, is to call on the services of syndicated research organizations, such as Mediamark, R.L. Polk, or Experian Simmons, to define consumer clusters in terms of their propensity or probability of purchasing specific products.
• Frequent Shopper Programs. Frequent shopper programs became popular in the 90s as more retailers realize the value of identifying their customers. However, few companies have achieved an efficient and effective way to process all of the data these programs can generate. The main use that companies have drawn from frequent flyer programs so far is to identify where their customers are coming from geographically and to identify the consumers' general shopping patterns. However, frequent shopper programs lend themselves to much more potential than that for companies that find ways to tap into the vast quantities of information they generate.
• Category Management. One of the hot topics in the recent past has been category management, which is the management of products and services by categories versus by a single product or service. Here, too, understanding your customers is the key to increasing the success of this discipline, because you'll better understand which specific categories, such as olive oils or baby products, will appeal to targeted consumers. When you effectively manage your product categories, you'll increase your total category sales and, thereby, generate greater store profits.

Desktop Mapping in Action - User Scenarios

Here are three user scenarios that illustrate how GIS-based micromarketing can be applied in the real world. These scenarios represent just a few of the many ways that micromarketing with desktop mapping can dynamically impact consumer-focused companies' marketing programs. To create their own success stories, each company should examine its short-term and long-term goals, and the capabilities of micromarketing described in this white paper. Then talk to GIS desktop mapping experts to determine how to best apply this powerful discipline to their businesses.

• Micro-Positioning Healthy Foods. One suburban grocery store learned that to appeal to its large audience of middle-class housewives, it had to sell many categories of low-fat food items. The grocery store took this idea a step further and positioned the entire store as the "health-conscious" neighborhood grocer. Then it bought ZIP+four mailing lists and conducted direct mail campaigns to these consumers. The result was phenomenal, according to the grocer.
• Micro-Promoting Swimming Pools. Some products by definition do not have mass consumer appeal, for example, swimming pools. Only a select group of consumers will have the necessary criteria to own one, namely, the desire, money, and property specifications. In this case, advertising to an entire city, say through a newspaper advertisement, will surely be a wasted expense, because the vast majority of the newspaper's readership will not fit the necessary criteria. One swimming pool retailer took a GIS-based micromarketing approach to promoting his business. He first identified the neighborhoods where people who owned pools already lived. From this data he purchased the ZIP+four mailing lists surrounding these areas. He then sent a direct mail package that appealed to their desire to own a pool "just like your neighbors do."
• Micro-Pricing Petroleum Products. Pricing petroleum products is one of the most challenging pricing games in any market. The goal of every petroleum company is to make the greatest profit while still being the most competitively priced. Desktop mapping helped one petroleum company in Austin, Texas, maximize every opportunity to price its gas at the optimal levels at all of its stores, which were located in many geodemographically varied parts of the city. It could do this because it learned in which areas its potential customers where more price-sensitive and where they were more convenience-oriented. In other words, the convenience-oriented consumers would choose gas stations because they were near home or on the way to work. Whereas the price-sensitive consumers would drive miles out of their way to pay a few cents less. So, the gas station chain priced its product accordingly for maximum traffic and profit.

GIS-Based Micromarketing Steps

Micromarketing with desktop mapping is an accessible and affordable marketing strategy for nearly all companies today. The fundamentals of all GIS-based micromarketing include the following four steps:

1. Choose your marketing objective. The first step of micromarketing with desktop mapping begins with identifying your specific goals. For example, which of the five Ps do you want to focus on? Do you want to determine which new products your customers will buy, assess your product packaging issues, fine-tune your pricing strategies, review your store or a specific product's positioning, or create targeted new promotions?
2. Define your customers. To conduct true micromarketing, you need to know exactly who your customers are. There are several ways to gather both first-hand and indirect customer information, including in-store and telephone customer surveys, frequent shopper programs, lifestyle segmentation systems, and the U.S. Consumer Expenditure Survey. The results of your consumer research activities will form a substantial, fact-based foundation for all future marketing decisions.
3. Place your customers on a map. With desktop mapping you can easily geocode your customers, in other words, place them on maps. As a result, you will have the specific geodemographic information you need to, for example, purchase targeted ZIP+four mailing lists and find relationships among your consumers that you may not have otherwise been able to see, such as buying patterns and overlapping markets. In particular, using the consumer-clustering concept, you'll be able to infer more detailed customer profiles.
4. Apply the results to your marketing activities. With your GIS-based maps in hand, you can now put your data to work. For example, a restaurant may see that its stores are surrounded by middle-age consumers who are health-oriented. By adding more health food items to its menu, it can increase its overall total sales. It can even position itself as the "healthy" alternative to attract health-conscious consumers. On a promotional level, you can create several small, but highly targeted direct mail pieces designed to appeal to your consumers who live in the specific ZIP+four areas you've targeted. Or you can determine that a new line of high-margin products, such as ethnic foods or gardening supplies, will appeal to your targeted consumers.

GIS-Based Micromarketing Results

GIS-based micromarketing activities will allow you to make the most accurate marketing decisions possible. The results could put you in a whole new category of success including the following.

• Reduced marketing expenditures. With GIS-based micromarketing, you'll be able to create fewer ads, but target each ad with greater precision. This is because you can talk directly to specific consumers versus canvassing an entire area. As a result, you'll decrease your total cost of selling products, because you will not waste dollars or time trying to market to people who will not be interested. For example, fine-tuned promotional activities let you avoid blindly sending your direct mail promotions to a general mailing list that may include part of your target audience, but also thousands of people who do not fit your business's demographic profile. Considering that each piece of direct mail can cost from $2 to $5, the cost savings resulting from applying true micromarketing to direct mail alone can be tremendous.
• Increased promotional results. When retailers target their products to specific audiences, they increase the chance that this group will be interested in the promotions and will respond to them. As a result, retailers will dramatically increase the probability of a successful promotional campaign.
• Expanded customer loyalty. When you market specifically to consumers based on their exact needs and desires, you dramatically increase the chance that those consumers will become long-term customers who are loyal to your stores. Customer loyalty is a highly prized commodity in today's increasingly competitive marketplace, where fickle consumers will suddenly shift their shopping patterns based on any number of a wide variety of factors.
• Increased new customer acquisitions. Because you know who your best customers are from a demographic, geographic, and psychographic standpoint through GIS-based micromarketing activities, you can easily find more consumers in your markets who fit their profiles and then market directly to them. The possibility of attracting a large number of these like-minded consumers can increase significantly for retailers with well-crafted promotions.
• Increased sales. By reducing marketing expenses, increasing promotional results, expanding customer loyalty, and acquiring new customers, the bottom line results will achieve every retailers ultimate goal - increased profits.

Conclusion

Any company selling products and services to consumers is fully aware of the many challenges of maintaining viable businesses. That's one reason many businesses are demanding more powerful tools that help them deal with the intense market conditions. One of the keys to maximizing gains and minimizing losses is to understand exactly who your customers are. Armed with this information, businesses can appropriately market to their exact customers and potential customers.

In the past several years, desktop mapping has emerged as a powerful capability to help companies compete in the fiercely competitive playing field. Virtually every market in the country offers unlimited marketing opportunities to the location-oriented business that assemble the resources necessary to tap into them. In whatever ways you determine that micromarketing with GIS mapping tools can positively impact your bottom line, there's no time like the present to get started. Today's intense competition for customers is only going to become fiercer.

Many cutting-edge businesses have already begun employing desktop mapping to stake out the competitive edge in their markets. As a result, they are enjoying their vastly reduced marketing expenses and dramatically increased marketing effectiveness. With the accessibility and affordability of desktop mapping today, nearly every business should explore how and in what ways this powerful marketing tool can impact their businesses - and help them maximize every opportunity to target the right products to the right consumers all the time.

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