Where you live is what you are: Why location is such a big deal

One of the most underrated pieces of information that companies gather is where their customers live. Where people choose to live reflects a lot of the issues that are important to them. People congregate near to others who share their broad outlook on living:

Single hipsters like to be near other hipsters in higher density buildings that are in suburbs that are in the middle of, or very close to, the action (whatever and wherever that may be).
Middle class, blue-collar workers also like to live in neighbourhoods that have similar households around them.
Those people who choose to live in outer suburban/semi-rural areas do so because they share similar aspirations for the type of lifestyle they wish to enjoy.
In the United States, people tend to congregate in areas which support their dominant political viewpoint.

For companies trying to understand better their customers, location can be a vital piece of information because it then unlocks so many other insights.

What ties all this together is address. Not the postcode, but the actual street address. Postcodes cover a large area and incorporate enough people so that the postcode average becomes a wash-out of all of the blocks and neighbourhoods that go into the area. Our previous blog post covers this in more detail. For moment, however, trust me.

There is a lot of information about the block or neighbourhood where someone lives. The Motor Vehicle Census can tell us whether the area prefers Holdens over Fords and whether the area is a sinkhole of used cars or likes to buy new vehicles.

The average spending from a neighbourhood allows you to calculate the share of wallet you have earned from a particular customers. Customer A and Customer B both spend $1,000 with you each year. Customer A lives in a block where the average total spend on your particular good or service is $4,000. This means that you are have a 25% share of their spending. You are a vital piece of his/her life.

Customer B lives in a block with the average total spend on your particular good or service of $10,000. You have a 10% share of wallet. You are much more of an incidental part of your customer’s life.

Understanding your place in your customer’s lives is a very important part of becoming relevant to them. Equally, it will also let you know which customers are just not worth your time. Saying, “No” is just as powerful and just as profitable as saying, “Yes”. Oftentimes, the best returns come from knowing when to stop hitting your head against the wall and stop throwing money at people who just don’t give a damn.

These two customers could both live in the same postcode and so you would never be able to tell which one you mean the most to. You would not be able to distinguish between someone who thinks about only every so often and someone who thinks about you every time they consider making a purchase of your good or service.