Does the Shoe Fit? How to Select Demographic Data to Enhance Yo
by Christine A. Smiley
Imagine as you walk by your favorite department store that you impulsively purchase this season's trendiest shoes and wear them home. But you soon realize that shoes are very uncomfortable, and they quickly find a permanent home in the spare closet. You wish you had spent more time going to different stores to compare prices, styles and overall fit. Fortunately, an investment in a pair of worthless shoes may go unnoticed. But companies looking to make a substantial investment in demographic data want to be sure that the purchase will add value to their marketing decisions over time.
Even with the wealth of data that companies often have about their customers, they sometimes want more. Purchase records tell a lot about how a customer interacts with a company, but they may give little insight into who a customer is. Many vendors, including Experian, Polk, Acxiom, infoUSA and KnowledgeBase Marketing, offer demographic overlays. These companies compile or buy data from a variety of sources such as phone books and government agencies. A customer list can be enhanced with individual and household demographics such as age, presence of children and income. It is important to shop around and find the data that will best match and enhance your customer file.
There are different ways to work with a data provider. If demographics will be used for occasional profiling, you may send the vendor small sample files. The vendor will append information and produce a profile report without returning the overlay data. On the other hand, if demographics will be used extensively and you have the capability to manipulate data in-house, you may want to enhance your entire file. In this case, the overlay data would be permanently appended to your file, giving you control over when and how to use the information.
Why Purchase Demographic Data?
There are several reasons for appending additional demographic data to your file.
Profiling. Sometimes marketers gain a better picture of customers by looking at demographic characteristics. Understanding who is buying certain products can help refine the message presented in promotions and may be helpful to prospecting by suggesting certain types of lists or selects. Determine which demographic elements would be particularly insightful to marketers at your company.
Creating subgroups. When profiling customers, subgroups may be discovered that deserve different treatment. For example, profiling jewelry catalog customers may reveal two main groups: middle-aged men and teenage girls. Perhaps the men are buying the jewelry as gifts, while the young women are buying for themselves. The marketer could then create two versions of the catalog, each presenting an appropriate message to the target audience.
Targeting. Purchase information is usually more powerful than demographics, but demographic data can help, particularly when transaction data are sparse. For example, demographic elements could improve a model that predicts purchase likelihood of one-time buyers repurchasing. Or, splitting under-performing RFM cells based on demographics may reveal portions of cells that could be mailed profitably.
Picking A Data Supplier
There are four main issues to consider when evaluating demographic data vendors. The relative importance of these factors will depend on how you plan to use the data.
Overall vendor relationship. Would this vendor be easy to work with and provide quick turn-around times? Are the prices competitive? Would the vendor provide guidance in using the data? Are all the data elements you want available? Ask vendors to walk you through their products, the available fields and their data sources. Discuss sample reports and case studies.
Data coverage. To evaluate data coverage for your company, ask each vendor to overlay a sample of your file and produce match rate reports. Most vendors will perform this initial work at no charge. The top-level rate is the percent of your file that the vendor can match to its database. A customer who matches will receive data for at least one overlay field.
For elements that are particularly important to your business, make sure the vendor can provide information for a significant proportion of your customers. For each element, the field match rate is the percent of the total sample that is marked with a known value. Table 1 (below) shows example match rates for two vendors. Vendor A has a higher top-level match rate and can identify age on 70 percent of the file. But vendor B is able to identify more customers as married and as homeowners. A furniture cataloger who is interested in home ownership may prefer vendor B.
Vendors will summarize information in various ways. One vendor might provide a marital status field with two levels, married or unknown. Take time to understand the possible values of each element. Look at distributions of key fields to make sure they are reasonable. For example, if you sell high-priced merchandise, you would not expect vendor data to show most of your customers with an income under $30,000.
Predictive power. If you plan to use demographic data in specific modeling situations, test these uses before you buy. Ask each vendor to return the enhanced sample file to you. Add demographic elements to your current models and see if lift is improved. Another way to look at predictive power is to compute averages for different levels of a demographic field. For example, look at the average dollars per customer for people marked as homeowners, unknown, or no top-level match. If the homeowners show a higher dollar per customer, then this field could be valuable in distinguishing among your customers.
Data accuracy. Are the overlay values correct? There may be particular elements already on your file to use for comparison. For example, a company that offers credit may be able to judge the accuracy of a vendor's age field based on internal credit application data. If you are particularly concerned about accuracy of certain fields, you could survey several hundred customers and compare their answers to the overlay data. Table 2 (at left) illustrates that vendor A tends to be more accurate on date of birth.
Use Demographics as a Marketing Tool
The final decision to purchase demographic data and the selection of overlay elements should be considered carefully based on these factors. Realize that demographic information is never 100-percent complete or correct, but it can be useful. Take plenty of time to consider how you will use data. Complete some test runs or walks to make sure your purchase will be a comfortable fit. Avoid the impulse buy, and go with the solid investment.
Christine A. Smiley, consultant with Kestnbaum, KnowledgeBase Marketing, has served as project manager on major analytical efforts for multiple clients over the past four years. With a master's degree in applied statistics from Purdue University, she has extensive experience in the development and application of statistical models. She can be reached at (312) 782-111360, ext. 232.