Trade Area Analysis, Development
Trade area analysis and mapping describe the characteristics of the area around a store or network of stores. Without accurate trade area definitions, you cannot measure the key statistics that impact a store's performance. Use trade area analysis to aid site selection and target marketing. Trade area analysis and mapping tell you:
•Where a store's customers are coming from
•How many customers you have in a trade area
•Where to look for for more customers
Benefits of Trade Area Analysis
•Identify gaps or overlaps in the market coverage of your 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 store's trade area •Use as a key input into customer profiling
Factors that Impact Trade Areas
Analyzing trade areas should be performed regularly to provide key metrics for improving sales and marketing performance. Adding new stores to your 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.
Retail Trade Area Analysis: Concepts and New Approaches By Donald B. Segal Choosing a retail site in the absence of sound trade area analysis is a lot like flying an airplane with blinders: It forces a business to commit itself to a course in the absence of vital information such as store patronage, local market opportunities, competing businesses, and barriers that would dissuade consumers from visiting the site. Geographic Information System technology is a fundamental tool for analyzing retail trade areas today. This technology removes site selection "blinders" because it identifies and illustrates the crucial factors for site selection within a geographic framework. Essentially, trade area analysis is a methodology, process or technique that provides a basis for understanding, visualizing and quantifying the extent and characteristics of known or approximated trade areas. Trade area analysis provides the foundation for:
• Understanding the geographic extent and characteristics of store patronage. • Spatially assessing performance.
• Performing competitive analysis.
• Evaluating market penetration and market gap analysis. • Target marketing.
• Identifying/quantifying effects of cannibalization.
• Developing and exploiting demographic profiles.
• Site suitability and site selection studies.
Trade area analysis also employs theoretical techniques that are used to approximate the potential patronage area. These techniques are used in cases where customer level data is not available. Three types of theoretical approaches are commonly employed in trade area analysis, including: • Radial (ring) studies
• Gravity models
• Drive time analyses
Radial or ring based analysis is 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 center. 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. Consequently, radial studies are a simplistic approach that can result in an incorrect delineation of the trade area and errors of...