If you are wondering why I am writing a post about the ZIP code and what it may have to do with business, this quote from a 1988 article from the Chicago Tribune offers a good explanation:
“What started out as a unit of geography has become a basic unit of demography,” said Lin Andrews, general manager of the San Francisco office of Wunderman Worldwide, which calls itself the world’s largest direct-mail marketing agency.
The old saying “you are what you eat” has given way to “you are where you live,” said Andrews.
By using a system that places every household in America into one of some 38,000 ZIP codes and combining that information with census data marketing experts such as Andrews can pinpoint consumer tastes and lifestyles in ways that make Madison Avenue salivate.
This kind of detailed information is particularly useful to America’s thriving direct marketing firms. They earned an estimated $135 billion in 1986, according to industry sources; in doing so, direct marketers touched virtually every American household through the mailbox. Each year, they send billions of direct-mail catalogues and advertising, or “junk mail.” 
History & Development
The ZIP in ZIP Code stands for Zone Improvement Plan, and it was introduced July 1, 1963, as part of a larger Postal Service Nationwide Improved Mail Service (NIMS) plan to improve the speed of mail delivery. Under the old system letters went though about 17 sorting stops – the new system was going to be considerably less time-consuming utilizing newer, more mechanical systems.
As for the numbers that made up the ZIP code, each stood for something. Here is what the Postal Service had to say in their 1963 annual report:
“the five-digit ZIP number is a structured code in which the first digit identifies one of ten large areas of the Nation, and the second digit indicates a State, a geographic portion of a heavily populated State, or two or more less populated States. The third digit identifies a major destination area within a State, which may be a large city post office or a major mail concentration point (Sectional Center) in a less populated area. Five hundred fifty-three of these Sectional Centers have been designated across the country. The final two digits indicate either a postal delivery unit of a larger city post office, or an individual post office served from a Sectional Center.” 
For those who may remember the time before ZIP codes, you might know that using codes was not an entirely new idea. In 1943 the USPS implemented zones for 124 of the urban areas. However, over time as the country’s population and amount of mail increased, the old system became cumbersome. The 1963 annual report explains that the old system had grown to 109 zoned cities and about 600 other cities with assigned local zones. For some places, a vestige of the old system would remain. For example, “Mail previously addressed to Washington 18, D.C. thereafter, correctly addressed, carried the ZIP Code 20018.”  The new system, when fully implemented, was to speed processing and delivery times by reducing the number of times an item was handled.
To get this new system going, government agencies and large bulk mailers like magazine distributors and publishers were targeted first. As for individual correspondence, acceptance was a bit slower. Initially many people didn’t even use the new ZIP code and most of that mail was still delivered in roughly the same time frame. As usage rose, mail using the code was given priority and that mail was delivered much faster. Despite the fact that not everyone was enthusiastic, the Postal Service hoped that by the 2nd anniversary people would be more comfortable with the system. Ultimately, the full benefits of the system wouldn’t be realized until everyone was using the number.
While many may not have been enthusiastic, it does seem that some people were. While use of the new ZIP code was somewhat low for individuals, some small towns had as much as 50% of their citizens using it.  The Christian Science Monitor wrote an article in October 1964 that related how one small southern town finally added house numbers when they got their ZIP code. To make it easier for people to determine codes for the mail they were sending, on June 1, 1965, the Post office introduced a single national postal code directory that replaced the 52 individual State and territory directories.
While the part of NIMS that was most obvious to the public was the introduction of the ZIP code, it also included the development (and eventual use) of optical scanners. The ZIP codes had to be introduced and firmly in use before it was practical to use the scanners. As the Postal Service wrote in their 1963 annual report – “Widespread use of the ZIP Code is expected to pave the way for a smooth transition to mail sorting by mechanized optical scanning equipment which is now under development.”  The 1965 annual report indicated that there was a contract for six of the optical readers with each being capable of reading and sorting ZIP-coded addresses at a rate of about 36,000 per hour. It seems that three different firms were each developing their own reader and all were to be tested at the Postal Laboratory. Each had to “be able to locate, recognize, and read numerics in all common machine-imprinted fonts on envelopes and to convey sorting instruction to a letter sorting machine” 
Advertising this new number
As with anything new, the Post Office had to advertise. One of the many efforts revolved around Christmas and letting children know Santa’s ZIP code was now 99701. Another was the introduction of Mr. ZIP the orange-skinned mail carrier symbol:
“Mr. ZIP joined the roster of well-known public figures during the year. The spritely cartoon character, created by the American Telephone & Telegraph Co. and its agency, Cunningham & Walsh, in cooperation with the Department’s information office, blossomed into a new symbol of Postal Service and mailer cooperation.
Major effort during the year focused on creation and dissemination of a package of materials to launch ZIP Code on July 1. Again emphasizing local effort, the ZIP Code program included every medium of communication, and, for the first time, harnessed all of the Department’s outlets – regularly made available to other Government agencies and charitable organizations – to support a single Post Office program.
From Miss Ethel Merman on radio and TV, to children writing to Santa Claus at his North Poll ZIP Code address, Mr. ZIP caught the attention and imagination of a substantial part of the mailing public.” 
There may even be some who remember or have heard the jingle sung by Ethel Merman to the tune of “Zip-a-Dee-Doo-Dah”:
“Welcome to ZIP code, learn it today. Send your mail out the five-digit way. For a time-saver to lighten the load, your return address should have the ZIP code.”
Despite the fact that the code was introduced in 1963, there was still a need to advertise many years later. According to their 1967 annual report, over 1,000 newspapers and major magazines carried public service advertisements which had been prepared by the Wunderman, Ricotta & Kline agency under the auspices of the Advertising Council. There were also advertisements on radio and TV as well as bus and other rapid transit. Several large circulation magazines like Vogue, Time, and Reader’s Digest even did their own promotional ads. In 1966 there was a national ZIP Code Week in October and even a film, “ZIP Code” that featured Mr. Zip and the Swinging Six singing group that won a silver medal at the International Film & TV Festival that year.
By the end of the 1960’s the ZIP code was common. But changes to the ZIP code weren’t done, because in 1983 ZIP+4 was introduced. Who knows what the future holds for the ZIP.
Business catches on
While modern marketers know the value in using the ZIP code for demographic research, business noticed early that the ZIP code could provide an alternative way for them to determine market groups. The 1967 Annual Report even made note on the unforeseen business uses of the ZIP:
“Mr. ZIP has been given a wide variety of nonpostal jobs in the past year. Industry has shown a keen interest in the geographic areas ZIP Codes represent, because they often define markets more accurately than political entities.
The California Council of Growers bases much of its planting tips to farmers on their ZIP Codes. An Ohio gas firm uses the codes to determine concentrations of stockholder groups. The routes of meter readers in Cedar Rapids, Iowa, are divided by ZIP Code areas, as are those of salesmen in many sections of the Nation. Several insurance companies assign accident report and claims investigators by the codes. The Kentucky Health Department requires the ZIP’s of patients to trace the source, concentration, and spread of communicable diseases. Some military reserve units detail new personnel to training centers near their homes by ZIP.
Because of the ever-growing interest in the coding system by marketing, transportation, and research organizations, a joint project is underway with the Bureau of the Census to devise methods for making census data available by ZIP Codes.” 
Today, there are many databases like ReferenceUSA, Hoover’s Relationship Manager, SimplyMap and others use the ZIP code as one way to limit results by geography. Government agencies also produce and publish data by ZIP code. Mostly notably is the Census Bureau which was predicted by the Postal Service back in their 1967 annual report. The IRS also produces statistics by ZIP code based on individual tax returns.
While smaller units like Census tracts and block groups are hard for novice users to determine, ZIP codes are recognized numbers that are easy to understand. It may also be that someone might prefer to use ZIP codes when they are looking at their market within a city because other political and geographic designations may not be as relevant as ZIP codes
In the last 50 years the ZIP code has become more than just 5 (or 9) numbers on a piece of mail. For more on this anniversary and U.S. postal history, the National Postal Museum is the place to go both virtually and in person.
1. “Zip Gives Them Your Number.” Chicago Tribune, August 08, 1988. http://articles.chicagotribune.com/1988-08-08/business/8801210424_1_zip-code-mr-zip-junk-mail Accessed June 25, 2013.
2. Annual report of the Postmaster General (Washington, D.C. : U.S. Postal Service, 1963), p. 8.
3. Annual report of the Postmaster General (1963), p. 8.
4. Annual report of the Postmaster General (Washington, D.C. : U.S. Postal Service, 1964), p. 99.
5. Annual report of the Postmaster General (1963), p. 8.
6. Annual report of the Postmaster General (Washington, D.C. : U.S. Postal Service, 1965), p.33.
7. Annual report of the Postmaster General (1963), pp. 91-92.
8. Annual report of the Postmaster General (Washington, D.C. : U.S. Postal Service, 1967), pp. 13-14.