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13 trade area analysis

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13 trade area analysis

  1. 1. Lecture 13Trade Area Analysis
  2. 2.  A trading area is a contiguous area from which a retailer gets customers for the merchandise he is selling Trade area analysis and mapping describe the characteristics of the area around a store or network of stores Without accurate trade area definitions, it is not possible to measure the key statistics that impact a stores performanceIntroduction
  3. 3. Percentage Distribution
  4. 4. Percentage Distribution
  5. 5.  Trade area analysis and mapping tells:  Where a stores customers are coming from  How many customers you have in a trade area  Where to look for more customersAid Site Selection & Target Marketing
  6. 6.  Analyzing trade areas should be performed regularly to provide key metrics for improving sales and marketing performance. Adding new stores to the network will cause the trade area of nearby stores to change. In a saturated market, or if stores are placed too close to one another, cannibalization can occur. A change to product offerings will impact the trade area, as will shifts in population and demographics, the existence of competitors, changes to highways and roads, and the addition of other businesses that attract people to the area.Factors Impacting Trade Area
  7. 7.  Total size & density (demand & supply) of the population Per capita disposable income Education level Family system (Joint / Nuclear) Occupation (job / professional / Business) Standard of living Age group distribution No. of residents owning homes No. of manufacturers, suppliers, wholesalers available Size of competitionFactors to be Considered for TAA
  8. 8.  Traffic Flow  Direction of traffic  Movement of Vehicular Traffic  Parking facilities  Distance to store  Access from major roads  State of traffic congestion  Ease of deliveriesDemand Density
  9. 9.  Procurement Merchandise Management Store Location Transportation InformationSupply Density
  10. 10.  Personal Factors like:  Preferences & Emotional Attachment  Prejudices, Likes & dislikes Political Reasons & compulsions Unwillingness of key persons to a new & better location on the grounds of far distances Preference to residential or suburban areas eventually getting crowded with time Selection without thorough investigationCommon Errors in Store Location
  11. 11.  Identify gaps or overlaps in the market coverage of the existing store network, and make corrections by opening, closing or moving stores Make better site selection decisions by using characteristics of existing trade areas to predict trade areas around potential locations Define a geographic area to analyze for market potential, market penetration, and competitive threats Become more efficient and effective at target marketing by reaching out only to those customers and prospects in a stores trade area Use as a key input into customer profilingBenefits of TAA
  12. 12.  Three Theoretical approaches:  Radial (Ring) Studies  Gravity Models  Drive Time AnalysisTechniques of TAA
  13. 13.  Performed by selecting and evaluating demographic variables that fall within a pre-defined distance from a store location This technique assumes that the trade area is circular, with the store at its centre Ring analysis does not account for barriers such as rivers or railroad tracks that may cross through a trade area and restrict access to a retail site. Radial studies are a simplistic approach that can result in an incorrect delineation of the trade area and errors of omission or commissionRadial (Ring) Studies
  14. 14. Radial (Ring) Studies
  15. 15.  Gravity models, or spatial interaction models, define a trade area based on its attractiveness relative to other trade areas  These models provide an approximation of store trade area by putting the distribution of all locations (including competitors) into a geographical context and evaluating each locations relative attractiveness  A distance decay curve is used to model the spatial interaction of individual locations. Often size of the store, or store sales if available, is used to drive the attractiveness parameter.  Gravity models are more sophisticated than simple radial approximations, but still do not account for logistical barriers and they are limited by the availability and accuracy of competitor data.  Not appropriate for Non-Technical AnalystsGravity Model
  16. 16. Gravity Model
  17. 17.  Use of GIS tools to digitize the roadway systems that indicate the type of road such as a city street or a divided highway  Speed limits are assigned based on the type of road, the mode of transportation (car, truck, motorcycle, etc.), congestion parameters, and the time of day  Parameters used to dictate the ease of traveling along road segments  Through this process, a polygon is generated to represent the extent to which a vehicle can travel outward from the site in all directions along the existing roadway systemDrive Time Analyses
  18. 18.  Unlike the radial distance or gravity model-based trade area approximations, GIS based drive time analyses account for logistical barriers  Drive time analyses are generally considered to be valid for “convenience” store scenarios, where patrons are expected to go to the closest or most logistically convenient location  Based on the accuracy and the present state of technologyDrive Time Analyses
  19. 19. Drive Time Analyses
  20. 20.  http://www.businessdecision.info/mapsreportsdata /images/tradearea_custdistgraph_lg.gif http://www.mappinganalytics.com/trade-area- analysis/trade-area-analysis.html http://www.directionsmag.com/features.php?featur e_id=5 Donald P. Segal, Spatial Insights Inc., Nov 18, 1998References