ZIP Code

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The five-digit numbering code and sorting system known as ZIP code—for "zone improvement plan"—was implemented by the U.S. Postal Service in 1967 to streamline mail delivery and speed customer service and to improve the sorting of third-class bulk-rate mail.

The number sequence arranges addresses against a numerical list, beginning with 00000 and progressing through 99999. Each ZIP code refers to a specific geographic mail delivery area. A single unique ZIP code can cover an area within a state or can represent a single company or building that receives a high volume of mail. A nine-digit numbering system, referred to as Zip+4, was introduced in 1983, adding the extra numbers to designate carrier route to further improve delivery services to businesses.

Direct marketing benefits

Direct marketers and advertisers have reaped far greater benefits from the ZIP code system than has the postal service. The system encouraged a host of strategies that enabled marketers to profile, evaluate, target, reach, influence and service selected geographic market segments.

At the beginning of the 21st century, 85% of marketing database information was organized around geographic files, such as telephone numbers, addresses, census tracts and ZIP codes.

Jonathan Robbin, a U.S. marketing researcher, developed a system in the 1970s based on ZIP codes that segmented markets and ushered in the era of "geodemographics." Selling products and services using market segmentation produced greater profitability than mass marketing, which entails the selling of one standardized offering to all consumers.

Market segmentation seeks to understand and fulfill the needs of individuals who compose unique market "clusters" within a mass market and thereby to achieve higher margins by offering an item carefully aligned with the unique preferences of a specific market cluster.

In his research, Mr. Robbin noted that neighbors tend to share similar needs owing to like sociodemographic and lifestyle characteristics. He mapped proprietary survey results onto ZIP code demographics and then targeted only the small neighborhood clusters thought to want a particular offering.

Mr. Robbin's method was widely embraced by direct-mail strategists, who realized that not all ZIP code areas responded uniformly to direct-mail offerings. Working with this "clustering" of ZIP codes proved an efficient means of increasing direct-mail productivity while reducing waste.

Geodemographic segmentation identifies local neighborhoods that share common demographic profiles, financial standing, lifestyle characteristics and similar purchasing behaviors.

Diverse market segments

Geodemographics based on ZIP codes came into question in the mid-1980s as marketers more aggressively sought to increase responses and cut waste. ZIP code areas frequently included diverse market segments rather than one tight group as had been hoped. The early 1980s showed ZIP code clusters, which averaged 6,000 households, being replaced first by census-tract clusters, which offered more precisely defined groupings of 1,500 members on average.

A number of companies provide marketers with information related to geodemographic segmentation, such as CACI Marketing Systems, Claritas Inc. and SRI International. CACI Marketing Systems publishes the Sourcebook of Zip Code Demographics, which contains statistics on all residential ZIP codes in the U.S. It provides information on population, gender, age distributions, ethnicity, households and families.

The future of ZIP codes in traditional direct-mail advertising has become a concern to marketers. Consumers increasingly are bombarded with direct mail, making clutter a factor, and more shoppers are turning to electronic shopping.

E-commerce retailers, however, are finding ways to increase sales, refine targeting efforts and improve customer service satisfaction through ZIP code-based programs. Amazon.com's "Purchase Circle," for example, sorts online book purchases by city, university or company using ZIP codes and the domain names on members' e-mail addresses.

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