What's Your Zip Code?

In marketing, it is easy to become preoccupied with the endless variety of choices. What customers or market segments should you target? You could have hundreds if not thousands of zip codes in your market area. What channel of communication should you use to reach the potential customers? You could offer coupons, run ads in magazines, put inserts in the Sunday paper, try radio advertising, try TV advertising, hire more salespeople, hold more in-services, or target self help groups. Choosing where to focus your marketing efforts and how to reach the best customer can be a daunting task. You can increase your chances of hitting the right targets by implementing precision marketing.

Precision marketing uses data management and analysis tools along with execution strategies to make your marketing expenses more targeted. It will optimize your profitability by delivering the right messages, to the right customers or market segments, through the right channels. Precision marketing can dramatically improve your company's return on investments.

The following 10 steps will help you perform precision marketing for your company. This will enable you to target the customer or customer group that is the company's best prospect.

1. Review customer data.

The first key component of precision marketing is gathering knowledge about your existing customers. In this step you will look at your best results and use this data to later find ways of getting similar results. Use your data management tools to retrieve information about your current customers. Compile the customer data in an Excel spreadsheet so that it can be analyzed. You can create columns with the total number of customers for each zip code, the number of new customers that were acquired for each zip code and total amount of sales for each zip code. Take the total amount of sales for each zip code and divide that number by your total sales. This will give you the percent of total sales for each zip code. Rank the zip codes by the highest percent of total sales. Next identify the zip codes that produce 80 percent of your total sales. Roughly 20 percent of the zip codes that produced sales for your company in the past year produced 80 percent of your total sales according to Pareto's Rule. Later in the precision marketing process you can analyze this data to find similarities in the zip codes that make up the bulk of your sales. Add an additional column that gives the distance between your store and each zip code.

2. Review community data.

The next step is to gather data about your market area. You can start by gathering information about the counties that are in your market area. The information will be most valuable if you can take it to the zip code level. Create a second spreadsheet with relevant data for each zip code in the market area you cover. The data you collect should include total population statistics and projections, as well as data for the population over and under age 65. Additional helpful information could be the number of people with physical disabilities, total DME spending projections and projections for DME spending on specific product lines such as oxygen or mobility depending on your product mix. There are places that you can purchase this information. Another way to gain this knowledge is by creating your own database using some free information from sources such as the Census Bureau. Once you have assembled all of the information for your market area in a spreadsheet you should create a column with the percent of the population for each zip code falling under each category.

3. Review the competition.

The third part of this process is your competition. Know who your competitors are. One way to identify the competitors in your market area is by using public directories. A helpful tool is the Supplier Directory section of Medicare.gov. The Supplier Directory gives you detailed information about your competitors. You can search by state, county, city or zip code. Once you gather this information, you should list the number of competitor locations for each zip code in your market area.

4. Integrate all customer, community and competitor data.

After you have gathered data on your existing customers, your community and your competitors, you will need to combine the data sets. Integrate the zip codes in the customer spreadsheet that produced sales for your company in the past year with the zip codes in the community spreadsheet. This will give you the zip codes in your market area that your company currently has active customers in. Add the information about your competitors to the zip codes that are in the integrated spreadsheet. The spreadsheet should contain the customer, community and competitor data for the zip codes that remain.

5. Analyze and find common characteristics of top 80 percent.

In this step, you will use the integrated spreadsheet from step four, but only focus on the zip codes that made up 80 percent of your total sales in the past year. The purpose of this analysis is to find the common characteristics of your best customers so you can go after similar customers and get the same results in the future. The method for analyzing market performance is sales per capita. It is derived by dividing annual sales in a zip code by the total population of the zip code. Next, calculate the median sales per capita for that group of zip codes. Narrow the list down to the zip codes that are at or above the median sales per capita and find similarities among that group. You might find similarities in the percent of the population with a physical disability, total population, DME spending, the annual income of the zip code, the distance from your store location, the number of competitors in that zip code or the percent of the population over age 65.

6.Target zip codes by matching common characteristics with external data.

For this step you will use the characteristics of the zip codes that produced per capita sales at or above the median. Focus on the zip codes that do not currently produce 80 percent of your sales. The similarities identified in the prior step will help you to target the zip codes that are your best prospects. For example, if you found the median percent of the population with a physical disability to be 8.5 percent, sort the zip codes by the percent of the population with a physical disability and narrow the list down to the zip codes at or above the median. If your second criterion was population, then calculate the median and narrow the list of zip codes down even further. If the median population is 27,000 people, sort the remaining zip codes by total population and eliminate the ones that do not meet or exceed the median. If your third criterion was the percent increase in DME spending, calculate the median and eliminate more zip codes. If the median increase in DME spending was 10.5 percent, sort the remaining zip codes by the percent and eliminate the ones that do not meet or exceed the median.

If there are characteristics remaining, do the same calculations to narrow the list of zip codes down. The zip codes that remain when you are finished are your A targets. For our example, the A zip codes would be the ones that met or exceeded the median percent of the population with a physical disability, total population and percent change in DME spending. The B targets would be the zip codes that met or exceeded the median percent of the population with a physical disability and total population. The C zip codes would be the ones that met or exceeded only the median percent of the population with a physical disability. If you have more than three criteria, the A list would be those that met all of the characteristics. The B list would be those that met all but the last characteristic. And, the C list would be the zip codes that met all criteria but the last two.

7. Research marketing avenues for areas of the A and B target zip codes.

After you have identified which zip codes to target, you will need to research ways to reach your potential customers. Find out if there are newspapers that target a specific town, or zip code. If you advertise in newspapers that precisely target the zip codes or cities you are pursuing, you have a better chance of success. See if there are any expos in the area where you could display equipment. Expos provide a great opportunity to showcase your business to people in the community. Find out if there are any disability ministries, outreach organizations or self help groups in the area.

8. Develop ways to measure efforts and results of each target area.

You will need to develop ways to measure your precision marketing efforts. Once you have identified areas to target, you need to keep track of your return on investment. Track your marketing efforts for each zip code and the sales for each zip code. This will let you know how successful you are at determining a high quality prospect, and how successful you are at marketing to that prospect.

9. Make recommendations for concentrated advertising for A and B zip codes.

By this time you should have researched the possible ways of reaching out to the target areas. You now should choose between the possibilities and perform a concentrated marketing effort in the A and B zip codes that represent new opportunities. Concentrated marketing consists of 70 percent to 80 percent of your sales calls, purchased media that is targeted to buyers within the specific market, and 70 percent to 80 percent of your public relations effort.

10. Make recommendations for maintenance marketing for current top 80 percent.

Decide how you will market to existing customers that represent 80 percent of your sales. This maintenance level marketing consists of 20 percent to 30 percent of your sales calls, purchased media and public relations effort.

Once you have gone through the10 steps and have launched your precision marketing plan, you should follow up and analyze your efforts each quarter. Business is always changing; therefore, you need to be ready to make changes as well. In addition to determining your best customer prospects, precision marketing can help you determine the best location for opening a new branch. By performing precision marketing in different markets and comparing your results you also can use precision marketing as a site selection tool.

This article originally appeared in the October 2004 issue of HME Business.

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