Erin Patton SMU Adjunct Professor

1. CRACKING THE CODE ON THE 21ST CENTURY URBAN MARKET
A White Paper
February 28 2010
Erin Patton
The Mastermind Group (TMG)

2. CRACKING THE CODE ON THE 21ST CENTURY URBAN MARKET
It is a catch 22. Developers and retailers have an increasing need and desire to expand
operations into previously underserved markets, yet lack of experience and insufficient
information in these complex markets serve to underscore the uncertainty of a good
investment strategy.
This white paper details “information gaps” that limit the potential of the urban
marketplace. “Cracking the Code on the 21st Century Urban Market” addresses this
conundrum by outlining how urban consumer behavior information and an innovative,
proprietary segmentation tool can help retailers, developers and communities crack the
code on the 21stcentury urban market.
A MARKET OF LEMONS
In a world of perfect information, business decisions are made logically, based on the
facts presented. Projections, which incorporate full information about the quality and
performance of the market, provide guidance to the location decisions that would be most
profitable. Market conditions are monitored closely to provide signals as to changes in
the potential profitability of a location.
This stylized view of investment decision making palely reflects how real decisions are
made. In the real world in which we operate, information is not perfect. Information
imperfections can structurally change decision making, as detailed in the seminal work
on asymmetrical information by Nobel Prize Laureate George A. Akerlof, "The Market
for Lemons: Quality Uncertainty and the Market Mechanism." Using the used car market
as an example of imperfect information, Akerlof demonstrates how the car dealer selling
"lemons" or defective cars to unsuspecting consumers taints the entire used car market.
Good cars will be withheld from the market and eventually the market will fail. These
same principles can be applied to underserved urban markets.
Cities, or urban markets, became viewed as the "lemons" for significant private market
investment in the period following World War II due to a convergence of market and
cultural changes. The movement of whites to suburban communities radically changed
the composition of urban markets. New market opportunities emerged following the rapid
housing development in suburban markets. Then, in 1956, the first modern regional mall
opened in Edina, Minnesota, outside of Minneapolis.
This new retail format which optimized the suburban development environment quickly
became preferred by consumers. Further, the view of urban markets as "lemons" was
undergirded by the racially motivated tension and the newfound socioeconomic disparity
in urban markets which became articulated as "ghetto culture" and punctuated with riots.
These geographic, demographic and industry changes created seemingly indelible beliefs
of the unreliable nature of urban markets in terms of the quality of consumer potential
and the performance of investments that had served retailers so well in the past.
2

3. Lack of information continued to undergird this belief as analytic methods further
developed to accelerate retail growth in the path of suburban development. While a good
fit for those markets, these increasingly complex information decision structures held
inherent biases which fueled the "lemon" urban market beliefs. The result was urban
neighborhoods and cities with a paucity of retail provision, or underserved markets.
As we fully embark upon the 21st Century and the digital age, these prevailing, antiquated
perceptions and clandestine methods stand in stark contrast to the potential realities of the
modern, urban market. These perceptions are exacerbated by a widening information gap
and lack of actionable market intelligence and research tools.
As such, a transition period marked by intellectual gravity, creative instincts, real-time
insights and innovative tools and methods is necessary to effectively translate the urban
market opportunity and create real, perceptual change challenging old beliefs,
information imperfections and the very basis upon which investment decisions are made
to realize its full potential.
CHANGING URBAN MARKETS: URBAN MINDSETS
Today "urban" as a place and geography is undergoing a transition. Prevailing, negative
perceptions of urban areas are yielding to positive, new realities such as the emergence of
“Uptown” urban lifestyle locales whose retail and residential centers are attracting
progressive populations of empty nesters, urban intelligentsia, young urban professionals
and contemporary urban couples seeking to reclaim the authentic urban experience of
their youth with a modern twist that validates the fulfillment of their upward mobility and
lifestyle aspirations.
In addition, the revitalization of historic urban neighborhoods is generating an influx of
new residents and investors who are bucking the suburban flight and boom of their
parent’s generation to re-connect with their urban roots. These individuals are well-
educated, possess significant disposable income and are willing to invest in urban
communities but find the return on their investment has gone largely unmatched as they
are having to travel considerable distances for basic goods and services and remain in
wait for further commercial and residential development to boost property values and
reshape these communities.
Finally, southern migration patterns by African-American Gen X families from the North
in search of a better quality of life has created a new, progressive population of
transplants residing in the suburban areas of major southern cities who maintain an urban
mindset and are willing to travel to urban centers from the suburbs to satisfy needs for
culturally-relevant goods, services and experiences.
These dynamics have combined with immigration patterns, particularly among the Latino
population, and the stable presence of the inner-city working class to produce a unique,
transcultural fusion and emergence of new, less understood groups to form an urban
population which can no longer be succinctly described. While connected through a
shared mindset and lifestyle interests, each of 3

4. these sub-groups also exhibits a unique set of attitudinal preferences and behaviors, thus,
presenting the opportunity for targeted planning and investment efforts.
As a result of these emerging psychographic characteristics, any description of modern
urban markets based solely on standard demographics and monolithic perceptions lacks
the precision required to justify investments in new products, new locations and new
customers and will be strategically flawed. This shift presents both a formidable
challenge and sizeable opportunity for marketers and urban market actors seeking to
make informed decisions on maximizing the potential of this influential, yet underserved
market which now represents a $300 billion global economy according to market
intelligence firm, The Mastermind Group (TMG).
Given this confluence of events, the reorganization and entry of new population groups
within a maturing urban market, and the expansion of the urban mindset outside of
physical boundaries, it became abundantly clear that organizations in the public and
private sector seeking access to actionable data and information on the urban audience
would require an advanced approach to decipher these trends operating beneath the
surface level to fully realize the significant economic growth potential for America’s
urban population centers.
A NEW APPROACH TO URBAN CONSUMER BEHAVIOR
Embracing a new paradigm, such an advanced approach to urban consumer behavior
presented itself through the combination of marketing expertise and insights and street-
sense gained as the product of an inner-city background, and was introduced through
Nike’s Jordan Brand. Largely based on the success of its “psychographic” approach to
urban consumers and focused urban retail strategy, the brand advanced to more than $350
million dollars in revenue.
The core principles are grounded in the clustering of consumers based on shared
attitudinal, behavioral and lifestyle characteristics across a continuum of distinct
segments. These segments are comprised mainly of Generation X-Z populations, ranging
in age from 14 to 50, who are not bound by the racial preferences and biases of previous
generations. Hence, the 7 Ciphers™ segmentation framework was born out of more than
15 years of clinical observation and frontline experience canvassing and developing
urban markets on behalf of Fortune 500 companies and organizations.
The Mastermind Group (TMG) initiated a quantitative study based on the 7 Ciphers™
framework in partnership with The Brooking Institution’s Urban Markets Initiative, MTV
Networks and PepsiCo. In consultation with renowned market research method expert
William R. Dillon, the study marked the first quantitative segmentation study on the
urban market. The purpose of the data and tools derived from the study were to:
• Provide a rich profile of the 7 segments along attitudinal, psychographic,
demographic, geographic and product use dimensions
4

5. • Develop a reduced set of items and a classification tool used to identify and
track segment membership over time
• Project the findings onto the national population
• Produce a geodemographic derivative tool to identify where segments
cluster within urban environments
• Gather behavioral data on shopping patterns, elasticity and willingness to
travel for lower price and better quality
• Provide implications against the general market
The transcultural and transcendent underpinnings of the 7 Ciphers™ framework are
critical toward evolving the urban market beyond pure demographics and monolithic
perceptions equating exclusively to African-Americans. The availability of information
and data provided from the study are critical in ensuring that urban consumers have
access to quality goods and services to enhance their overall quality of life.
Armed with this data and information, brand marketers, retailers and urban planners can
now dimensionalize the urban market beyond myths and past perceptions. From an
investment perspective, these urban actors will have more perfect information on the size,
location and behavior patterns of the various segments and urban market population as a
whole to align investment decisions against the most fertile target segment(s).
ACTIONABLE KNOWLEDGE = RETAIL SUCCESS
When faced with market entry decisions, developers and retailers must consider a host of
variables. Acting upon information that the critical masses within the urban market were
sensitive to the skyrocketing prices of sneakers, contrary to perceptions that price equaled
status and urban consumers would react with disdain toward a “cheap shoe,” discount
retailer Steve & Barry’s decided to launch a high-quality $14.98 sneaker targeting the
urban market endorsed by an NBA star raised in a Brooklyn housing project.
The launch transformed Steve & Barry’s University Sportswear from a relative unknown
commodity to a national retail player and spawned a dynamic growth cycle for the
retailer. One can only imagine the impact on its growth (and market share of its
competitors) had Steve & Barry’s parlayed the success of the launch to invest future retail
development in urban markets in tandem with investment strategy in malls where they
were able to negotiate favorable lease agreements.
While this strategy was able to support its cost-driven culture, it created an access barrier
for urban consumers who cited a resistance toward having to put as much money in their
gas tank as the cost of the sneakers just to find a store location which negated their price-
value proposition. Urban consumers eventually cooled on the brand. 5

6. The Cordish Companies developers have found success by leveraging such information
and understanding of the urban market to pioneer innovative projects such as the Capital
Centre in “sub-urban” Prince George’s County Maryland which features big box retailers
and established retailers such as Starbucks alongside innovative retail concepts developed
by and tailored for urban consumers, including legendary singer Gladys Knight and Ron
Winans’ Chicken & Waffles.
The project also attracted urban economic investment players such as Earvin “Magic’
Johnson who brought his urban retail partnership with Loews Sony Theatre to the project.
Reed Cordish, vice president of the Baltimore-based Cordish Co., which owns the
Boulevard at the Capital Centre, said that when the company began considering the
project, potential "tenants just said they didn't see themselves there."
"I think there were race issues," Cordish told the Washington Post. "It didn't meet the
normal demographic they were used to seeing when they went into the suburbs. So it took
more meetings, more time, more negotiation, more hand-holding." Then stores including
Borders, Pier 1 Imports and the Loews Magic Johnson Theatres signed on, and the
project gained momentum. "It looks like we were visionary," but we weren't, Cordish
said. "Why it wasn't obvious to other people, we don't know."
THE 7 CIPHERS™SEGMENTATION TOOL
The 7 Ciphers™ segmentation is a psychographic instrument that:
• Shifts urban market paradigm beyond race-based demographic approaches
• Captures nuances within urban sub-segments to decode emerging trends and
behaviors and translate them into actionable information
• Provides framework to pinpoint rapidly shifting target to guide strategy
• Aligns planning and investment decisions against sub-segment populations
• Delivers ROI, measurement and accountability
The quantitative study was fielded with a nationwide RDD collection and targeted sample
frame of 1,000 completes and data from 200 non-qualifying respondents to demonstrate
general market implications. Key variables for the study were based on attitudinal,
psychographic, demographic, geographic, product use dimensions. The Core Urban
cipher is the centroid in this segmentation system, with each subsequent segment
containing elements of the core plus uniquely defining characteristics.
6

7. Core Urban – The innovators. Urban culture “software developers” who dictate
emerging trends in language and fashion and establish preferences that eventually
permeate broader consumer culture; Alpha consumers who stimulate mainstream
adoption;
Tertiary Urban – Inject traditional southern experience and values into modern urban
culture including dialect, cuisine, music, spirituality and family; Sub-Urban – Aspire to
replicate the authenticity of the urban lifestyle experience; Mosquitoes who transport
urban culture from inner-city back to suburbs and early majority;
Contemporary Urban – Hip-Hop’s Gen X; Upscale, affluent and status-driven; Self-
made products of urban environment who overcame obstacles and forged new path to
American Dream; Architects of modern, urban culture actively who seek lifestyle
occasions and destinations that capture authentic urban experiences or fulfill personal
needs to reinforce broader cultural connection;
Alternative Urban – Fusion of rock, Hip-Hop and skate culture; Product of suburban
environment who maintains preference for simplistic, artistic expression of urban culture;
Blend equally in urban environments and suburbs;
Organic Urban – Alter-Ego for Contemporary Urban cipher; Hip-Hop’s Gen X; Urban
intelligentsia who resist blatant commercialization of urban culture; Desire to maintain
pure elements of urban culture and recreate positive essence of childhood experience in
urban environments; New home buyers and investors willing to buck trend of suburban
flight of their parents to live and invest in revitalized, modernized urban neighborhoods;
Retro Urban – Niche segment attracted to experiences, products and concepts that
capture classical periods in urban culture and also demonstrate the “boomerang” effect of
urban culture’s decades of influence and exportation to global, urban centers and
populations such as Tokyo, London and Toronto;
CONCLUSION
An urban market renaissance is vital, not only for the quality of life of those living within
urban environments, but for the long-term prospects of a struggling U.S. economy and
retail sector plagued by market saturation and a lack of innovation.
New market tools are critical to enable the renaissance to occur. Through the
development and use of tools such as urban consumer behavior segmentation, established
retailers can have the evidence to enable risk appropriate expansion into under-served
urban markets to grow market share. Developers can integrate innovative retail concepts
from urban entrepreneurs and diversify commercial and residential projects by infusing
the appropriate cultural and lifestyle nuances that extend deeper than culturally-relevant
product assortments or restaurant menus.
The promise of elevating the urban market to its highest expression bodes well for public
and private investors and is buoyed by longstanding attitudinal and behavioral nuances
such as staunch brand loyalty and purchasing patterns of urban consumers which do not
fluctuate as drastically during economic downturns.
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9. ABOUT THE AUTHOR
Erin Patton is Founder & Principal of The Mastermind Group (TMG), a market
intelligence and brand management consulting firm based in New York with offices in
Dallas. He is regarded as one of the nation’s foremost thought leaders on urban culture
and consumer behavior. Hand-picked by Michael Jordan to launch the flagship JORDAN
signature brand during his tenure at Nike, Inc., Patton has served as chief strategist and
advisor to leading Fortune 500 consumer brands, retailers and sports and entertainment
luminaries. Patton is an author, frequent speaker and also serves on the faculty of
Southern Methodist University (SMU) in Dallas where he earned his MBA.
Comments about this paper can be directed to Erin Patton at
epatton@themastermindgroup.com.

13. Tertiary Urban – Inject traditional southern experience and values into modern urban
culture including dialect, cuisine, music, spirituality and family;
Sub-Urban – Aspire to replicate the authenticity of the urban lifestyle experience;
Mosquitoes who transport urban culture from inner-city back to suburbs and early
majority;
Contemporary Urban – Hip-Hop’s Gen X; Upscale, affluent and status-driven; Self-
made products of urban environment who overcame obstacles and forged new path to
American Dream; Architects of modern, urban culture actively who seek lifestyle
occasions and destinations that capture authentic urban experiences or fulfill personal
needs to reinforce broader cultural connection;
Alternative Urban – Fusion of rock, Hip-Hop and skate culture; Product of suburban
environment who maintains preference for simplistic, artistic expression of urban culture;
Blend equally in urban environments and suburbs;
Organic Urban – Alter-Ego for Contemporary Urban cipher; Hip-Hop’s Gen X; Urban
intelligentsia who resist blatant commercialization of urban culture; Desire to maintain
pure elements of urban culture and recreate positive essence of childhood experience in
urban environments; New home buyers and investors willing to buck trend of suburban
flight of their parents to live and invest in revitalized, modernized urban neighborhoods;
Retro Urban – Niche segment attracted to experiences, products and concepts that
capture classical periods in urban culture and also demonstrate the “boomerang” effect of
urban culture’s decades of influence and exportation to global, urban centers and
populations such as Tokyo, London and Toronto;
CONCLUSION
An urban market renaissance is vital, not only for the quality of life of those living within
urban environments, but for the long-term prospects of a struggling U.S. economy and
retail sector plagued by market saturation and a lack of innovation.
New market tools are critical to enable the renaissance to occur. Through the
development and use of tools such as urban consumer behavior segmentation, established
retailers can have the evidence to enable risk appropriate expansion into under-served
urban markets to grow market share. Developers can integrate innovative retail concepts
from urban entrepreneurs and diversify commercial and residential projects by infusing
the appropriate cultural and lifestyle nuances that extend deeper than culturally-relevant
product assortments or restaurant menus.
The promise of elevating the urban market to its highest expression bodes well for public
and private investors and is buoyed by longstanding attitudinal and behavioral nuances
such as staunch brand loyalty and purchasing patterns of urban consumers which do not
fluctuate as drastically during economic downturns.
8

14. ABOUT THE AUTHOR
Erin Patton is Founder & Principal of The Mastermind Group (TMG), a market
intelligence and brand management consulting firm based in New York with offices in
Dallas. He is regarded as one of the nation’s foremost thought leaders on urban culture
and consumer behavior. Hand-picked by Michael Jordan to launch the flagship JORDAN
signature brand during his tenure at Nike, Inc., Patton has served as chief strategist and
advisor to leading Fortune 500 consumer brands, retailers and sports and entertainment
luminaries. Patton is an author, frequent speaker and also serves on the faculty of
Southern Methodist University (SMU) in Dallas where he earned his MBA.
Comments about this paper can be directed to Erin Patton at
epatton@themastermindgroup.com.