Cluster Marketing At Home and Abroad

The Clustered World: How We Live, What We Buy, and What It All Means About Who We Are
by Michael J. Weiss

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The splintering society is no surprise to corporate marketers, who have been working with clusters for twenty-five years. An estimated fifteen thousand North American companies, nonprofit groups, and politicians have used clusters as part of their marketing strategies. Abroad, the need for micromarketing has fueled the creation of cluster systems in two dozen countries - withnew countries being added every few months. The popularity of clustering reflects a tidal wave of demographic forces that is leaving fragmented societies in its wake. Throughout Europe, many nations are experiencing aging populations, rising divorce rates, little household growth, and declining birth rates. Less restrictive zoning laws are encouraging suburban sprawl as young families leave old city centers. Meanwhile, increasing racial and ethnic diversity is obliterating the rigid class structures of the past. One result of these changes is that fewer people define themselves by their job titles, and many no longer feel compelled to conform to traditional notions of how they should behave on and off the job.

"When I get a passport and am asked for my profession, I say, 'Geodemographic consultant,' and they respond, 'Come again?'" says Richard Webber, managing director of England-based Experian Micromarketing. "Most ordinary people don't understand the jobs their neighbors do anymore. So they can live however they like - and consume whatever products they want - to reflect their unique lifestyle."

This do-your-own-thing attitude has also spurred the growth of lifestyle segmentation systems because increasingly stringent privacy laws limit how businesses can collect and use information on individuals. In countries with fresh memories of repressive Communist governments, citizens fear that personal data can be used for surveillance. Cluster systems, however, can circumvent such concerns by relying on neighborhood-level data drawn from both public and private sources: census statistics, car registrations, electoral rolls, and independent surveys. Experian, a global leader in gathering such data, made its name as a credit-scoring agency, helping insurance companies charge rates based on neighborhood clusters. According to its fifty-two-segment British MOSAIC system, motorists from country clusters like Gentrified Villages and Rural Retirement Mix pay low fees because of few thefts and little congestion.

Throughout the world, there's remarkable similarity in the way businesses are using the cluster technology - for analyzing trading areas, profiling customers, and driving media strategies. The increasing globalization of culture is also prompting multinational companies to look to clusters as a common marketing language to reach customers across many borders. In Spain, foreign retailers like Marks & Spencer are already using cluster profiles of city consumers to decide where to open their stores. In France, Pepsi has tapped cluster profiles of shoppers at Alcampo, the hypermarket grocery chain, to determine how much to pay for a meter of shelf space to display its soft drinks. Clusters have aided Detroit carmakers analyze motorists across Europe, though sometimes the results have caused manufacturers to make a sharp turn in their thinking. When General Motors profiled buyers of its sporty Tigra sedan, company officials were shocked to find fans not among the clusters of young suburban couples, as anticipated, but in areas filled with older urban retirees, who said the car made them feel young. GM altered its marketing and media plan accordingly.

Back in the U.S.A., marketers now spend an estimated $300 million annually on clustering techniques, which have become well-accepted tools in targeting direct-mail campaigns, selecting sites for new stores, and profiling the behavior of the nation's 100 million households. With the increased precision in data collection and greater power of desktop computing, the demand for information segmented by clusters is exploding. The new marketing buzzwords are narrowcasting, particle marketing, and segments of one. Claritas now calls itself a "precision marketing" company, able to target the households on any given street. Even corporate giants are now trying to hone their messages to the diverse tastes of America's splintered consumers. Ethnic minorities control some $600 billion in annual buying power in the U.S. Today there are three TV networks and 350 newspapers catering to Latinos alone.

In the current business climate, marketing wars are being waged in microneighborhoods with surgical precision. No longer can businesses target-market a whole city or even a zip code. In 75081, the zip code of affluent Richardson, Texas, a camera store looking to sell Nikons would score big by targeting the households on Oakwood Drive, classified as Winner's Circle and filled with well-educated mobile executives and teenagers, who buy a lot of expensive photo equipment. Meanwhile, less than a mile west on Woodoak, merchants would do better selling cordless drills and circular saws to these Kids & Cul-de-Sacs households, with their large families and upscale incomes.

Such information can be translated into bottom-line results. Until fairly recently, beer was marketed as a mass-appeal product much like milk. Major brewers stuck to limited product lines, rarely launched new brands, and fought over market share during routine price wars. But today liquor stores sell dozens of microbrews, and big brewers masquerade as microbrewers - Anheuser-Busch makes Elk Mountain Amber Ale - in aggressive fights over market share. With baby boomers aging out of their wild beer-guzzling days (consumers over fifty-five drink only about half as much as twenty-something-year-old drinkers), brewers have introduced nonalcoholic beers, such as Coors Cutter, to hold on to older consumers.

And it's worked. In Urban Gold Coast, a cluster of densely populated urban neighborhoods filled with singles and young couples, residents drink imported beer at rates three times the national average but nonalcoholic beer 50 percent less often than the general population. In Gray Collars, a cluster of inner suburbs home to aging couples, consumers drink imported beer at a rate one-third below the national average and nonalcoholic beers at 50 percent above the average. To compete in this landscape of shrinking niches, Miller now targets its brews to customers one corner bar at a time.

In the past, national retail chains and catalog companies have been the most aggressive users of geodemographic marketing systems. But a new generation of small and midsized users are finding ever more creative ways to employ the cluster system and retain core customers. On college campuses, admissions officers have been particularly innovative in employing the clusters to recruit and retain students. American University in Washington, D.C., matches the clusters of its applicants with alumni recruiters to make the interview process less of a culture clash. At Concordia College, a small liberal arts school in Seward, Nebraska, marketers dispatch targeted brochures to students requesting information. The mailer sent to students from upscale suburban clusters like Winner's Circle and Executive Suites focuses on careers previous graduates have entered in copy titled "A Stepping Stone to Your Future." Those from the middle-class Middle America cluster receive another, headlined "An Affordable Education" and focusing on scholarship opportunities at the school. At Hood College in Frederick, Maryland, officials assign roommates based on their home clusters in an effort to reduce conflicts. "It helps link people with similar backgrounds, so they're more comfortable in the residence hall," says Theodore Kelly, president of CERR, a cluster-based college consulting firm in Falls Church, Virginia. "And it sure beats making roommate assignments based on five general questions." No longer will parents hear about their child's "roommate from another planet."

Copyright © 2000 by Michael J. Weiss

About the Author

Michael J. Weiss is an award-winning journalist, author, and marketing consultant. A contributing editor to the Washingtonian and Ladies' Home Journal, he has also written for the Atlantic Monthly, the Newport Times, Redbook, and People. His first book, The Clustering of America, was named one of the best business books of 1988. He lives with his wife and two children in Washington, D.C.