There are over 123 million households in the US, and no two of them are identical.
They all have a unique mix of tastes, styles, and inherent traits. They buy a mix of goods from a variety of stores, work in a mix of different occupations, and spend their free time engrossed in a mix of hobbies. With such a broad mosaic of different household characteristics, it can become difficult to properly identify the best projects to suit the economic development needs of a given neighborhood or community. In cases like this, economic developers, site selectors, business leaders, and urban planners turn to Market Segmentation.
Market Segmentation and the Tapestry Segmentation System
Market segmentation is based on the concept that households with similar demographic characteristics, brand preferences, and economic positions will tend to live in neighborhoods with others who share these traits. Businesses use market segmentation to understand their customers’ lifestyle choices, purchasing preferences, and how they spend their free time, to better position themselves within local markets.
For this purpose, the Tapestry Segmentation System was developed by Esri to classify US neighborhoods based on socioeconomic and demographic composition. The system is broken down into 14 summary groups (called “LifeModes”) and 67 total segments (see an overview here), organized by characteristics like household size, median income, median age, and purchase preferences. Understanding the major tapestries in a retail trade area provides insight into better planning to address the consumer needs in that area. For this month’s Featured Indicator, we will provide a quick peek into the world of Tapestry Segmentation, and the implications it has for economic development.
Before discussing the segments themselves, it is important to first recognize that tapestry segments are generalizations, and there is no guarantee that a given household will fit perfectly into a specific segment. For example, even though the description for Segment 8B (“Emerald City”) mentions a strong preference for Whole Foods and Trader Joe’s, there is no guarantee that some consumers within that segment won’t prefer to shop at the local Buy ‘n’ Large. Rather, tapestry segmentation is best used as a set of common characteristics among most consumers which sets a foundation for further research.
The specifics of each segment are calculated based on a combination of complex cluster analysis techniques for a range of variables , and reflect the propensity of households within that segment to exhibit certain demographic, lifestyle, and consumer characteristics relative to the overall population. The 2017 white paper on their methodology can be found on their site. The purpose of this exercise is to compare local consumer trends to those of consumers across the U.S., so that businesses and developers can understand consumer demand in areas with which they may not be familiar.
Tapestry Segmentation is best used in economic development when trying to understand which development projects best suit the needs and interests of the local consumer base. Because economic development can take many different forms, this level of information is indispensable for deciding which project should be taken on and where it should be implemented. For example, members of Segment 3B (“Metro Renters”) would likely have drastically different needs and desires for economic development than, say, Segment 10B (“Rooted Rural”), given differences in factors like household size, median age, population density, and purchasing patterns. Here are the two segments side-by-side:
Segment 3B (“Metro Renters”)
- Average Household Size: 1.66
- Median Household Income: $52,000
- Median Household Net Worth: $14,000
- 80% of homes are renter-occupied multi-family complexes
- Up-to-date on the latest fashion trends
- Leisure activities include yoga and Pilates
Segment 10B (“Rooted Rural”)
- Average household Size: 2.47
- Median Household Income: $38,000
- Median Household Net Worth: $72,000
- 80% of homes are owner-occupied single-family homes
- Tech is seen as “complicated and confusing”
- Clothing is purely utilitarian
- Leisure activities include hunting and fishing
In this case, the differences are stark and quickly noticed, but as demographics become increasingly nuanced, differences between segments became increasingly uncommon and increasingly important. Households in both Segment 6A (“Green Acres”) and Segment 6B (“Salt of the Earth”) enjoy owning ATVs, working on home improvement and DIY projects, and maintaining a healthy lifestyle, for example. However, there are disparities between the two in income and wealth that may not be immediately apparent—individuals in the “Green Acres” segment have a 36% higher median income ($72,000 vs $53,000) and 69% higher median net worth ($223,000 vs $134,000), and are more likely to invest in pensions and Social Security, and use technology for everyday tasks. Though these differences can be minute, they can have strong implications that can mean the difference between success and failure of a new B2C (business-to-consumer) business.
Esri ZIP Lookup
The research methodology and bulk data from Esri is proprietary, and only available with a subscription. Despite that, the Esri team has built an interesting tool based on the data called Esri ZIP Lookup, which provides a free taste of what economic developers use to make sense of retail demographics. Using ZIP Lookup is as easy as visiting the Esri website and inputting a ZIP code. This will bring up an interactive map, a list of three top tapestries with descriptions, and statistics on the selected ZIP code’s median income, median age, and population density.
For this month’s indicator, we used ZIP Lookup to get a snapshot of the dominant tapestries in three ZIP codes of the US: Strasburg, Virginia (22657), Geneva, New York (14456), and Hoboken, New Jersey (07030). Note that each analysis covers only one single ZIP code within each geography, therefore the dominant segments may change with a broader geographic scope. While data for larger geographies is proprietary, a profile for every segment is available to view online and can be found by clicking or tapping the name of each segment's name in the list.
Examples using the ZIP Lookup Tool
Town of Strasburg, VA
Segments at a Glance:
- Segment 4C (“Middleburg”): Largely married couples, often with kids (average household size of 2.73). Likely to live in a single-family home in a low-density neighborhood. Careful to research products before buying (and preferring to buy American), and apt to invest in the future. Emphasis on traditional family values.
- Segment 6F (“Heartland Communities”): Semirural and semiretired. Primarily married empty nesters who appreciate a slower pace of life. Strongly adherent to tradition and reverence for country. Careful to budget, and unwilling to make large purchases without serious consideration.
- Segment 6A (“Green Acres”): Older families with a passion for DIY. Typically found living in single-family homes in rural or suburban areas. Love to garden and take on projects around the house. More likely to make income from multiple sources, like investments and self-employment. Highly educated and financially prudent.
Both Heartland and Green Acres are part of LifeMode 6 (“Cozy Country Living”), who are typically married empty nesters living in rural single-family dwellings. Middleburg is part of the somewhat younger LifeMode 4 (“Family Landscapes”), who share many of the same interests and socioeconomic traits as LifeMode 6, but are relatively younger by comparison and only recently settled down. The prominence of all three of these segments is evidence of a generally older, more established population with more conservative views and tastes. These segments paint a picture of a community of households that are deeply rooted or looking to deeply root themselves in a bucolic rural setting.
In late 2015, the Town of Strasburg needed to make a decision on what to do with its largely undeveloped business park. Some parties wanted to make investments toward preparing the park for commercial/office space, while others hoped to attract retailers. The Camoin Team used Tapestry Segmentation, coupled with retail sales and sociodemographic data, to understand local consumer preferences and determined that Strasburg was well-served by the existing retail mix in the region and retail would not be a good direction for the park. Adding to that, the town was in desperate need of full-service restaurant, so Tapestry Segmentation data was used to determine the type of restaurant that the local consumers would best support (eg. Red Lobster vs. a high-end steak house).
City of Geneva, NY
Segments at a Glance:
- Segment 5E (“Midlife Constants”): Settled in suburbia, and quickly approaching retirement. Typically living in quiet neighborhoods just outside of a metropolitan area. Traditional, with an understanding of technology but rarely any need for the Next Big Thing. Prefer practical purchases, and are more likely to be engaged in passive leisure activities like scrapbooking, fishing, or golf.
- Segment 8G (“Hardscrabble Road”): Younger families working to get by. Highly likely to be unemployed, with unemployment rates within this segment at roughly twice that of the US. Cost-conscious, favoring shopping through an in-home sales rep, QVC, or HSN.
- Segment 5D (“Rustbelt Traditions”): A varied mix of married couples and older single-family households. Stable but modest income, which favors budgeting but allows for occasional impulse buys or dinners at family dining establishments. Very focused on family matters.
The high percentage of “other segments” makes analyzing Geneva difficult, but a profile does emerge when examining the area’s top segments. Over 30% of Geneva’s population falls within LifeMode 5 (“GenXurban”), the second-largest summary group in the United States, which encompasses many middle-aged individuals (both married and single) on the cusp of retirement. This summary group differs from LifeMode 6 (“Cozy Country Living”) mentioned above by being somewhat more densely populated. Segment 5D (“Rustbelt Traditions”) distinguishes itself from Segment 5E (“Midlife Constants”) by having both a lower level of educational attainment (high school diploma vs college degree), a lower median age (38.7 vs 46.5) and a higher median income ($51,000 vs $48,000). Both these segments stand in contrast to Segment 8G (“Hardscrabble Road”), which has a much lower annual income ($28,000) and a much lower median age (32). This segment is made up primarily of families (both married and single-parent), and are more likely to rent.
Camoin Associates worked with Geneva on an economic development strategy in 2012. At that time, their population was dominated by two large segments:
- Young singles and married couples in their late 20’s and early 30’s, who were just beginning to establish themselves in their careers and community and starting to have an impact on changes in the city ("Great Expectations", "New Comers", and "City Dimensions" segments)*.
- Older 55-to-65-year-old households nearing or entering retirement, who had lived in the community most of their lives and tended to be resistant to change in their city ("Rustbelt Retirees", "Social Security Set", "Midlife Junction" segments)*.
These two dominate groups were at odds with each other in terms of how the City should approach economic development strategies moving forward. Tapestry Segmentation profiles helped our team identify similarities and common interests between the two groups, whiched helped us focus initial strategy development on common issues.
* Note that as the Tapestry Segmentation System and US consumer demographic research has evolved, most of these segments have been deprecated.
City of Hoboken, NJ
Segments at a Glance:
- Segment 3A (“Laptops and Lattes”): Affluent and engaged in city life. Young (median age of 37) and well-educated (75% have a bachelor’s degree or higher). Likely to be health-conscious and/or environmentally aware. Likely to use public transportation. Active on the stock market, and well-connected through mobile technology.
- Segment 3B (“Metro Renters”): Mobile, single, and urban. More conscious of social status than most people, and willing to pay more for the latest trends in clothing, food, or tech. Willing to study or work harder than most to compete with others in their field.
- Segment 3C (“Trendsetters”): Young (median age of 36) and passionate. Well-paid with little financial responsibility. Must have the latest technology, which is an essential part of their personal, social, and professional lives. Always trying new food or traveling to new places.
The immediate reaction to seeing Hoboken’s dominant tapestry segments is that 95% of Hoboken’s residents fall within LifeMode 3 (“Uptown Individuals”). This LifeMode group covers a range of young, single, urban residents with a taste for adventure. These segments are somewhat more bohemian than the other segments we’ve looked at, being hesitant to pursue marriage or home ownership in favor of being mobile in pursuit of new opportunities. Segment 3A (“Laptops and Lattes”) differentiates itself from the others by being significantly more affluent—residents in this segment have a median income almost twice those of the other two segments listed. Segment 3B (“Metro Renters”) is similar to Segment 3C (“Trendsetters”), but its residents tend to live in lower-density (comparatively) neighborhoods (preferring lower-rent multi-unit housing to massive upscale complexes). These tapestries depict Hoboken as a more up-and-coming urban area compared to Manhattan right across the Hudson River.
Camoin Associates used tapestry segmentation to inform a market analysis conducted for the City of Hoboken. The analysis evaluated demand for various use types, including retail and residential, and was used by the City to understand how it should rezone certain Redevelopment Areas. To supplement a retail leakage analysis for various retail categories and supply and demand data for different housing types, tapestry segments were used to provide insight into the consumer patterns of households in the market area and the types of development that would be appropriate to meet their needs.