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Image result for market penetrationECON First believes that business success centers around knowing the economic and demographic characteristics of each unique primary market area. While business experience, insights and intuition are important, they are substantially advanced by hard data.

The primary market area (PMA) of most business can effectively be captured by a combination of zip codes. Fortunately, beginning in 2011, the U.S. Census Bureau has compiled five year weighted average economic and demographic data on an annual basis by zip code.

ECON First uses this data to gauge business market penetration.

THE PROCEDURE

The first step used in gauging market penetration is for the business to compile a listing of its customers or clients by zip code. The zip codes subjected to further analysis then encompass 80% to 85% of the business’s client base. This is considered the PMA of the business.

The second step is to collect the Census Bureau zip code data for the designated PMA zip codes. The data collected depends upon the business’s perceptions of the characteristics of its customer base.

For example, what does the business believe is the range of household income for its clients? What is the age range of the clients? The gender? The level of formal education? The household type (e.g., married couple with children vs. single individuals)?

Third, the percent of the business’s clients by zip code can be compared to the distribution of PMA households by the various relevant characteristics. A simple example table is below.

Zip code % HAC PMA customers % PMA households % PMA households $100K or more % PMA households with one or more persons age 60 or more
19707 33% 10% 14% 13%
19711 22% 33% 27% 28%
19808 19% 26% 18% 29%
19350 11% 7% 11% 7%
19311 5% 5% 6% 4%
19807 6% 5% 7% 7%
19348 3% 14% 17% 12%

Obviously, there are zip codes the business has substantially penetrated (e.g., 19707) and zip codes where ground could be gained (e.g., 19348). For zip code 19348 the potential is far stronger for households with annual income of $100K or more than for households with one or more persons age 60 or greater.

The extent to which increased market penetration can be obtained depends upon a variety of factors. The major factor, of course, is driving time from the zip code to the business location. The importance of other factors can be teased out by examining the changes in the household characteristics between 2011 and 2015 (the most year the data is available). High growth in the absolute number of high income households, for example, increases the potential for this business’s market penetration.

CONCLUSION

ECON First specializes in providing the hard data that allows business owners to make more informed decisions regarding start-ups. expansion, marketing channels, and pricing strategies. It is inappropriate to apply summary measures taken from nation or state level data and assume they apply to specific primary market areas. A more comprehensive analysis is required for business success.

Let ECON First help you to better evaluate the extent of your business’s primary market area penetration.

Dr. John E. Stapleford

ECON First

www.econfirst.com