National Systems Charts Business Course With U.S. Census

Finding a site for a new regional mall used to be easy.

“All you looked for was a place where an interstate highway was going to intersect a large local street and buy 100 acres of land,” said William A. Speer, manager of market research at The Hahn Co., the La Jolla-based developer responsible for Horton Plaza, University Towne Center, North County Fair, Parkway Plaza, and more than 40 other shopping malls around the country. In those days, nearly every project was a slam dunk, a sure winner.

But those days are over. New freeways are not being built. Land is too expensive. “You have to look for niches and overlooked opportunities,” Speer said. “It’s like looking for a needle in a haystack.”

Turning to Computers

To find the needle, Speer relies on computerized demographic and marketing information supplied by National Decisions Systems, a 9-year-old company based in Encinitas which has emerged as the leading player in a new industry--the commercial integration of demographic and marketing information. Six suppliers compete nationally.

“These companies buy the U.S. census and then allow users to carve the country up any way, shape or form they want,” said Martha Riche, senior editor of American Demographics magazine. “Using statistical models, they estimate what the census would be if it had been taken that year. And they add other databases to their information.

“The very existence of the information,” Riche added, “is revolutionizing the way that people do business.”

For example, for a regional mall, Hahn wants to find areas with 60,000 to 100,000 households representing $2 billion in household income within a specific geographic radius. The NDS software can find them. Hahn wants to spot competitors who got there first. The NDS software can locate them.

Hahn planners want to know an area’s population distribution; where do the Nordstrom shoppers live, where are the K mart customers? The NDS database can tell them. They like to know how many people are around the site during the day and how many at night. The NDS software knows.

Once the mall is built, the need for information doesn’t stop. Potential tenants want to know how many children in what age groups live near the proposed mall; the number of two-income families; how many teen-agers own BMWs. Nike may be curious how many triathletes with Adidas running shoes live within jogging distance. The NDS system can figure it out.

Indeed, argued H. Michael Stansbury, founder and chief executive officer of NDS, his company’s two software products, Infomark and Vision, know more than who people are, where they live and what they buy. “As frightening as it may seem,” he said, “we can forecast what people are going to look like demographically 15 years from now, where they will live, what they will buy and how they will eat.”

Three car manufacturers, Stansbury said, have already altered the designs of their next generation of cars according to the National Systems forecast.

How do National Systems and its competitors know so much? The bulk of the demographic information they package and resell comes from the United States census. The industry was born in the early 1970s, after the Census Bureau offered the 1970 census on computer-readable tapes.

“Before 1970, there was no good way to analyze the demographics of a local area,” said James Paris, senior associate at Urban Decision Systems of Los Angeles, the first commercial demographic information company.

UDS was founded in 1972 by several urban planners. Among its first jobs was to provide demographic information for the reapportionment of California State Senate districts.

National Systems entered the market in 1979. Since his graduation from San Diego State University in the late 1960s, Stansbury had consulted with large retailers, advising them where to set up new locations. Jack in the Box was one of his early clients.

At first, National Systems sold what is called “vanilla demographics.” For about $50, a client would receive all the census information for a given area.

By 1982, Stansbury realized that simple census information would not be enough. “We were on the edge of an information explosion and I wanted to be in on it,” he said. “I wanted to be a client’s single source of demographic and marketing information. I wanted to help them find a location, target their customers better, aid their strategic planning and guide their advertising and marketing.”

To do that, he began to systematically integrate and cross reference new data bases to the census information. He added the 8 million businesses, including their addresses, tracked by Dun & Bradstreet. He did the same for shopping malls. “I can give you a map of all the bank branch offices in a specific neighborhood,” he said.

The maps include all major streets and highways. And because all the information is coded by latitude and longitude, a customer can create a detailed area map of virtually any shape.

Next, Stansbury integrated data from ongoing national surveys of consumer spending habits, patterns of restaurant patronage, motor vehicle registration and voter registration. Finally, using psychographics--a classification technique based on the premise that the way people spend money is influenced by their personal values and life styles--National Systems has categorized all 85 million American households into 48 marketing segments or clusters.

Each cluster has its own Yuppie-like label. “Little leagues” and “barbecues” refers to stereotypical middle-class families. Families headed by older blue-collar workers living in the Rust Belt fall into the category called “hamlets and hard hats.”

Unlike most psychographic systems, which analyze population in units of 16,000 people according to ZIP codes, the National Systems works at the household level. “You are where you live,” Stansbury said.

The combination of demographics and market segmentation is a powerful tool. For example, within three blocks of 2nd and Madison streets in El Cajon stand a McDonald’s, a Burger King, a Taco Bell, a Von’s, a bank, a tire store and 17 other retail stores. They all found the location via National Systems.

New Format Caused Big Change

In the mid-1980s, NDS began to lease its data base on a laser disk. Its clients, which range from fast-food franchisers to the Presbyterian Church of America, responded dramatically.

For the past two years, National Systems has been perched in the middle of the Inc. magazine list of the 500 fastest growing, privately held companies in the United States. With a five-year growth rate of more than 1,000%, National Systems racked up $10.8 million in sales in 1986. Last year that figure grew to more than $15 million. “We will be on the Inc. list for five years,” Stansbury said, predicting that revenues in 1990 will hit $45 million to $50 million.

National Systems leases Infomark and Vision for $20,000 to $50,000 a year, depending on how many databases a customer wants. For a national developer like the Hahn company, the price is less than it had been spending for demographic information. Inc. magazine estimated National Systems’ 1986 profit margin at 6% to 10%.

The growth has been fast enough to make National Systems the acknowledged market leader, along with the Donnelly Marketing Information Systems subsidiary of R.R. Donnelly Co., a $3-billion, publicly held company. Donnelly Marketing is based in Connecticut and has an office in Costa Mesa.

“NDS is the fastest growing,” said Riche of American Demographics. She estimates the overall market for private data providers is currently about $50 million.

But the overall potential for this type of information is impossible to estimate. “It is on the cutting edge,” said Sheryl du Roy, director of corporate research at Public Storage Inc., the Glendale-based developer of self-storage facilities.

Using the ‘War Room’

Du Roy has established what she calls a “war room,” in which she has combined the NDS’ Infomark system with Public Storage’s own proprietary database. When choosing a site, 10 to 15 executives gather in the war room and view demographic and competitive information projected in color onto an 8-foot-wide screen.

Though that presentation of data is important, Du Roy cautioned, the final decisions rest on reports from field researchers. “The demographic information is massaged statistically and no methodology for making estimates is perfect,” she pointed out. “And there is some lag in the data.”

Consequently, no demographic information system could have steered a client clear of the collapse of the Houston real estate market in the early 1980s, for example. And it may not be able to spot rebounding or rapidly growing areas, particularly if the rebound began between censuses.

“We like to kick the soil,” Du Roy said. “The demographic information serves as a red flag or a reinforcement.”

Ironically, though each of the companies updates the census information in its own way, the results are similar. A recent study commissioned by the International Council of Shopping Malls revealed that the information provided by all six data suppliers for proposed shopping centers in Denver, Baltimore and Phoenix was virtually identical. “It is like one brand of toilet paper against another,” Riche said.

If the demographic information is largely the same, the use of the companies’ other main product, market segmentation, is controversial. “It is something of a funny animal,” Riche said. “It translates huge quantities of numbers into graspable ideas. But life is not always as easy as clustering makes it seem.”

“We are interested in psychographics,” Du Roy said. “But it is not an overriding interest. We want to profile our customer and our market but we are not sure that is the most useful way to do it.”

Stansbury conceded that the type of demographic and marketing intelligence National Systems sells is just in its infancy. “The information age itself is just beginning to blossom,” he said.

After the 1990 census, which will be published on laser disk and cost perhaps only $1,000, vast quantities of demographic information will be readily available to a larger public.

That should help data integrators, not hurt them. Companies will still probably turn to third-party suppliers to retrieve and integrate the data. After all, a bank in Southern California once tried to develop its own system using the 1970 census. After eight years, it was still working on it, UDS’ James Paris reported.

“This is a supply driven industry,” Stansbury said. “As we supply new enhancements and refinements, the potential usage is virtually limitless. And someday our data will be based on a 100% sample.”

When that happens, marketers may know more about their customers than their customers know about themselves.