Most service/retail businesses rely not on a single, homogenous group of customers, but a diverse subset of different consumers. The challenge is identifying these groups demographically as well as learning about their buying habits and lifestyle and media preferences. The more insight that can be gleaned about these preferences, the greater the likelihood of setting the right promotion strategies, especially co-op marketing.

Psychographic profiling was developed in the last decade to help accomplish this segmentation. Taking myriads of information nationally about individuals' purchasing decisions from the major credit card houses, several large data companies defined and named distinct "clusters". The concept is basic: Two individuals can be of the same age and income status, yet one can be more likely to save money, the other to spend; one can have children, the other can be a double-income family with no kids, and so on. Clustering attempted to define consumer groups combining demographics (including education) and lifestyle habits.

Later, national studies were undertaken that further identified which clusters are most likely to use various service/retail services. Also, cities were plotted such that clusters could be identified based on traditional one-, three- and five-mile demographics or by zip code. Eventually, psychographic clusters could be highlighted for a particular business by comparing addresses of its customers to the market.

By comparing one's psychographic customers to the market and to the clusters most likely to use their services, a business can now determine if it is reaching the right groups and if its immediate market is large enough to support itself.

In addition to converting the addresses of its customers to psychographics, any retail operation that interacts with the public has a unique opportunity to "mine" information about its consumers. The secret is setting up internal programs, such as comment card and special offer registrations -- and more importantly, asking the right questions to these consumers, whether in face-to-face surveys, focus groups or phone surveys.

The Watson Group has utilized this process with various clients to create productive, low-cost co-op programs. An example is Sports Collectibles of Houston, a group that produces and promotes memorabilia shows. Knowing that Sports Collectibles wanted to expand its audience to families with school-age children, The Watson Group devised a cross promotion with James Coney Island (JCI), which operates more than 20 units. Sports Collectibles provided autographed merchandise which JCI used in a register-to-win contest. In turn, JCI served as an outlet for discount admission tickets, and both parties experienced increased business.