I’m in the process of evaluating a spin-off business model for a national retailer, and geography is playing a large role in determining the efficiency of this model. To determine the potential universe of this spin-off, we needed an examination of the geographic penetration of the existing customers in relationship to the proposed territory.
Through this research, I was reminded that every single direct company out there should be testing a zip model, either for selection or suppression, to increase performance of their prospecting.
The old adage “birds of a feather flock together” rings true, which is what allows zip models to be so successful. Through the research conducted we realized that the 80/20 rule truly does apply (though it really was 80/30 in our case)—80% of the leads generated were coming from 30% of the zip codes within the territory that was created. By using a model to target the top 30% of zip codes, we can easily and dramatically improve the productivity of our lead generation.
Zip models come in a variety of formats, some simple and easy to produce and others more complex. A zip model can be as simple as looking at how many customers you have in any given zip code and then comparing that to the number of households within that zip code to create a penetration ratio. The higher the penetration, the better that zip code is for your prospecting.
You can also create more complex zip models which will also take into account other variables such as promotion history, demographics, psychographics, etc. These models generally need to be created by an external vendor due to the complexity and availability of data.
If you are currently prospecting and not using some form of a zip model, you are likely wasting valuable marketing dollars by not focusing your efforts on the people who are most likely to respond.
Travis Seaton is senior circulation and marketing manager at San Rafael, CA-based catalog consultancy Lenser.