How To Know Your Customers Better
Most small businesses don't invest in demographic research. They think they can't afford it, or that they know their customers so well that statistics will only confirm what they already believe. Between large national corporations and the mom-and-pop grocery, however, there are many businesses that need hard market information to make decisions. For most small companies, demographic research is a key to finding those answers.
High costs are not a barrier to small company use of demographics. Data processing costs are declining, the Census Bureau is stepping up its services to users of statistics, and a growing number of private data firms -- almost all small companies themselves -- offer tailor-made services at reasonable costs. Most important, much of the 1980 census data will be made public during the next two years, giving researchers and businesses alike a huge pool of fresh numbers to study and absorb.
What kind of small companies can profit from demographics? Small retail stores selling clothing, furniture, drugs, food, and hundreds of other products need to know what their share of market is, where to locate new stores, how to attract the best customers, and how to add profitable new lines. Small manufacturers of products sold on a regional basis need to know where to expand and where to trim, and how to adjust their distribution to take advantage of population shifts. Statistics are not the only answer, of course, but they can help in making business estimates as rational and accurate as possible.
A Small Business Administration publication on how to use government statistics tells of the owner of a chain of restaurants in New England who was trying to determine if he could expand his business by selling lunches to workers in factories and office complexes. He had devised a system that would permit profitable operations in plants with 20 to 49 employees, provided that there were enough of them in one area. Using the Census Bureau's County Business Patterns, he found that there were 373 operations that fit his criteria in the immediate vicinity. The key question -- whether the size of the market justified the expansion -- came from a single source.
Demographic information is not always so easy to find.A small chain of supermarkets in Syracuse, N.Y., decided that it had saturated one part of the three-county metropolitan area. Further growth meant moving into a different territory. But which part was likely to provide the strongest economic base for the future? The chain used statistics on population, income, housing, car ownership, and grocery store sales from several sources -- the 1970 census, the Annual Housing Survey, the Census of Retail Trade, and Census Bureau projections -- to decide which area had the best potential. Then it hired a private demographic data firm, which prepared computer maps of potential sites to project the characteristics of residents within the trading areas.
Between the simplest and the most sophisticated example there's a lot of room for maneuvering. But any small business that wants to explore the value of demographics faces two questions: where to find data, and how to interpret it.
For most people, the best way to start using demographic data is to find people who are knowledgeable about it, not by looking up printed statistics. Demographic experts can be found in most private data companies, state data centers, Department of Commerce district offices, and the Census Bureau's 12 regional Data User Services offices. Staff members of university libraries and faculty members in various university departments are often valuable sources of information. Local and regional planning groups also are good places to begin.
The next step is to familiarize yourself with basic reference materials. Some useful examples are Measuring Markets: A Guide to the Use of Federal and State Statistical Data; Reference Manual on Population and Housing Statistics from the Bureau of the Census; and the Statistical Abstract of the United States. More specific titles, such as Using Census Data for Site Selection and Using Census Data for Small Plan Marketing are also available. Finally, The 1980 Census: The Counting of America, a 40-page booklet written in layman's terms that explains the 1980 census and how to use it, is available free from American Demographics magazine, of Ithaca, N.Y.
Exposure to expert advice and these basic books can help you decide if your questions can be answered simply and cheaply, or if you will require the services of a private data company. Companies that provide demographic information are a relatively new industry. Generally they charge for the amount of professional consulting time and computer programming required to select relevant data, the amount of computer time needed for analysis, and for other research costs such as assembling and entering data. Most of these companies produce up-to-date population and income estimates based on the 1980 census and on federal revenue-sharing data from the Treasury. While figures from the 1970 census are now sadly out of date, and most of the important social and economic data from the 1980 census won't be available until 1982, estimates done by the Census Bureau every two years between the once-a-decade counting provide a reasonably good base for these firms to draw from.
When using private firms, however, buyers should know what they want and structure their questions to minimize time and costs. A retail firm that wants to branch out might ask to examine three different sites ranked in order of preference, or might ask only for a demographic profile of a single area, concentrating on analysis of the age distribution and income of the population, owned versus rented housing, household size, occupations, education level, and traffic flow. It always pays to know what information you want to find out before you start looking.
Demographics are not magic. The information is only an aid to making decisions, not a substitute for judgment. Barriers remain: Many private data companies find it unprofitable to spend long hours helping first-time data users decide what they need. But cost is not a real obstacle for the kind of simple data most small businesses need. The real barrier is psychological: People do not know how to use numbers and do not have a sense of how they can help make business decisions more rational. Since that obstacle can only be overcome by experience, small companies should begin looking at demographics now, before the fresh information from the 1980 census becomes out of date.