Two neighbors living on the same block may have a few things in common. Maybe they're both families of four with annual household incomes of $60,000. Maybe they even both have dogs. A geodemographic model would lump these households together, based on where they live and how much they earn. Look closer, though, and these neighbors may spend money very differently. The family on the corner may splurge on a Disney World vacation every summer while the other saves their extra cash in the bank.
Now one company thinks it's found a way to cluster consumers based on how they shop and spend money. Transactional Data Solutions is a joint venture between MasterCard International and Symmetrical Resources, parent company of Simmons Market Research Bureau. Both partners bring powerful resources to the table-MasterCard, its seven terabytes of transactional data and Symmetrical, its well-regarded Simmons market research surveys. This spring, TDS will issue its first National Merchant Advisor Report that covers consumer buying habits in more than 30 categories, including department stores, apparel, catalogers and travel.
Here's how it works. First, TDS generates a panel of 670,000 randomly selected MasterCard users and tracks their buying habits. To protect consumer privacy, the company never knows any individual's name or address. "The firewall is always up," says Bill Engel, president and CEO of TDS. "There's no way to know who's behind a particular account." By analyzing the panel's aggregated transactions, TDS can cluster consumers by shopping behavior-what they buy, where they shop, how much they spend, and so on. One cluster, for instance, might be 25-to-35-year-old women who shop at upscale department stores. Using a proprietary system, the company can then mine Simmons data to define this cluster even further by looking at its media habits, brand preferences, and lifestyle choices. It might find that this group of women often reads fashion magazines and listens to top-40 radio stations on their commute to work. TDS expects to identify roughly 40 shopper clusters.
Armed with this data, retailers can target shopper clusters most important to their bottom line. A national restaurant chain, for example, could see which clusters spend the most at its dining tables-and how much they spend in the restaurant category overall. If cluster number 20 represents 15 percent of the chain's sales, but 22 percent in the category, the chain is probably missing out at the cash register. TDS can also identify, among many factors, which clusters visit the merchant most and spend the most, the extent to which the retailer "shares" consumers with competitors, and the composition of new and repeat customer segments.
Merchandising and advertising teams can glean how to target these attractive consumers most effectively too. Retailers, Engel says, have noted steep productivity declines from direct mail and are becoming more interested in mass media. Using TDS reports, clients can pinpoint which media-broadcast and cable networks, local newspapers, magazines, etc.-index high with particular shopper clusters and then focus advertising in those particular outlets. "Retailers need to know what's going on outside their four walls," Engel says. TDS hopes it can provide them with the window.