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Sep 18, 2007
How To

How to Use Geotargeting to Find Your Best Customers - 5 Strategies & Pitfalls to Avoid

SUMMARY: Geotargeting isn’t just for search when looking for your best prospects. Location-based research can help you do more than discover physical markets with the highest penetration of customers.

Here, we tell you how to use geographic data analysis to determine:
- Where your best customers are and how you can find more of them.
- If being first in a location is really the best idea.
- How to find what markets are vulnerable to competition.
“Not enough people learn about location intelligence in business school. Everyone learns marketing to demographics and segmentation techniques that let you slice and dice data. But the ability to add geographic queries to that analysis may seem too hard,” says Jon Winslow, Director Business Development, Pitney Bowes MapInfo.

Skipping the geography lesson is a mistake, says Winslow. Location-based research can help you pinpoint markets with the best potential ROI for marketing campaigns, uncover gaps in existing territories and make smarter decisions about new locations. The key is asking questions that are geographic in nature when planning your marketing or business-development strategies.

We spoke with Winslow about location-based tactics that allow marketers to add geographic context to their demographic and segmentation efforts. Here are his top five strategies:

-> Strategy #1. Dig into demographic and geographic data

Most marketers perform high-level demographic research when deciding which markets to target for a new product launch or marketing campaign. But finding the locations with the highest penetration of potential customers -- and best potential for ROI -- often requires digging deeper into the data.

When you find a market that appears to have a large pool of potential customers, perform a second, micro-level assessment of that market’s demographic and lifestyle data to determine how challenging it will be to reach these customers with your marketing campaigns.

For example, a retailer selling cowboy gear might find that New York City has a large number of customers who have purchased cowboy boots in the past. But given the total population of the area, those customers only represent a small percentage of the market.

By contrast, a smaller market in the Midwest, such as Topeka, KS, might have a smaller total number of potential customers but a much higher percentage of the population likely to purchase cowboy boots.

In that scenario, a marketer would have a harder time developing a campaign for New York that would reach the smaller segment of the population interested in cowboy boots. A campaign aimed at Topeka, however, would have a higher likelihood of reaching an interested customer, even if the total number of potential customers is lower than in the big city.

-> Strategy #2. Target customers within a region

Take detailed geographic differences into account when planning your marketing campaign. Segmenting prospects in a given area by SIC code or other top-level factor often fails to take into account whether logistical or technological limitations prevent some customers from receiving the product or service. Instead, you should mail or email marketing materials only to those qualified leads on the list who can take advantage of an offer.

For example, telecommunications companies offering DSL or wireless service might not have complete coverage in certain markets because of technological or logistical limitations. Some people, for instance, might be too far from the central office or fall into gaps in wireless coverage.

Winslow has seen many providers blanket an entire region with marketing only to have interested customers call in and learn that they’re not eligible for the service. The result: aggravated customers and wasted money.

Instead, a detailed look at coverage areas would have helped the marketing team target only those customers who could participate. “If you can qualify customers before you mail to them, you can save a lot of potential headaches downstream.”

-> Strategy #3. Approach first-mover advantage with caution

Conventional wisdom in many industries, especially retail and banking, is that the first company to set up shop in a particular market enjoys a first-mover advantage: grabbing customers and market share that followers will have a tough time prying away.

In some cases, however, being the first mover can actually be a disadvantage. Yes, a disadvantage.

Last year, MapInfo analyzed the performance of first-mover and follow-on bank branches in specific markets and found surprising results:

- First movers enjoyed an advantage over followers in the first three years of entering a market with no existing banks. But over the long-term (the next four to eight years), follow-on banks actually performed better than the first mover.

- After operating in a market for five years, the first-mover branches had deposits equal to 39% of the average US branch, while follow-on branches had deposits equal to 43% of the average.

Retailers may experience a similar phenomenon. The success of Lowe’s entering markets already occupied by competitor Home Depot and national retail and restaurant chains locating near Wal-Mart stores that have already created a retail destination point are good examples.

In such cases, first movers take a greater risk in trying to prove the viability of a new market area. Followers are able to observe the performance of those outlets and develop strategies to capitalize on the customer base or traffic patterns already developed by the first mover.

-> Strategy #4. Geocode customers to find opportunities

When marketers think they have saturated a given market, they often look to new areas to establish a location or target their efforts. But a more granular analysis of exactly where customers come from can uncover hidden, often smaller untapped markets within established regions.

- Winslow recommends geocoding all customers by capturing ZIP code information for each transaction. This data can be collected by retailers in a point-of-sale system or in online shopping carts or mail-order databases.

- With this data, marketers can see exactly where customers are coming from. They can uncover concentrations of customers traveling long distances to a particular location or who are outside the scope of established marketing and advertising campaigns.

- Based on the location information, marketers can develop demographic profiles of these customers.

Those locations might be areas that didn’t appear viable based on high-level demographic analysis, or were deemed in close enough proximity to another market to be served by an established store. For example, Winslow worked with a restaurant chain that thought it had saturated a region within New York state. But based on customer geocoding, they determined that a particular restaurant was drawing a large number of customers from the nearby town of Plattsburgh.

Although the company had originally considered Plattsburgh too small of a market to support a restaurant, it built a new location there that ended up being one of its highest-performing stores.

-> Strategy #5. Develop average customer benchmarks

Accurately predicting the sales capacity in different territories can be challenging. But you may have data on hand from existing customers’ purchase histories that can help you model the sales potential in different territories. Those models, in turn, can help set realistic sales goals for your field reps or refine marketing campaigns.

Start by looking at existing customers’ characteristics and purchase histories. Segment customers by factors such as:
o Industry
o Size
o Location information (market size, demographic characteristics, etc.)

Then, analyze the purchasing patterns within those segments to determine what types of products and services the average company in that segment buys, along with average sales volume and profitability. With those benchmarks, you can analyze companies in your prospect database by territory to segment them according to customer type. Use the benchmark averages for those customers to establish the potential sales volume and most popular potential services.

Also, you can analyze existing customers within sales territories for upsell potential. Companies with a lower sales volume or limited mix of services compared to the average customer in the region could be targets for specific marketing efforts aimed at selling additional products or services.

Useful links related to this article

Creative samples from MapInfo:

Pitney Bowes MapInfo:

See Also:

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