Trade area analysis defines the geographic area from which a retailer draws customers. It identifies where customers come from, how many are in the trade area, and where to find more. Factors like demographics, income, competition and transportation access affect the trade area. Common techniques to define trade areas are radial studies, gravity models and drive time analysis. Understanding trade areas helps with site selection, targeting marketing and improving sales performance.

1. Lecture 13
Trade Area Analysis

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 store's performance
Introduction

3. Percentage Distribution

4. Percentage Distribution

5.  Trade area analysis and mapping tells:
 Where a store's customers are coming from
 How many customers you have in a trade area
 Where to look for more customers
Aid Site Selection & Target Marketing

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.  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 competition
Factors to be Considered for TAA

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 deliveries
Demand Density

9.  Procurement
 Merchandise Management
 Store Location
 Transportation
 Information
Supply Density

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 investigation
Common Errors in Store Location

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
store's trade area
 Use as a key input into customer profiling
Benefits of TAA

12.  Three Theoretical approaches:
 Radial (Ring) Studies
 Gravity Models
 Drive Time Analysis
Techniques of TAA

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 commission
Radial (Ring) Studies

14. Radial (Ring) Studies

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 location's 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 Analysts
Gravity Model

16. Gravity Model

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 system
Drive Time Analyses

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 technology
Drive Time Analyses

19. Drive Time Analyses

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,
1998
References