Week 3: Trade Area Delimitation Techniques
Trade Area Delimitation
- Is the process of identifying the spatial limits of a market population served by a retail or commercial facility
- Refers to the spatial extent (or distribution) of customers around an individual store or a network of stores.
- Can be viewed as a contiguous area(or polygon) around a store (supply point) that contains the majority of the customers or potential customers
- Also known as market area or customer catchment area.
- Also viewed as the way of mapping the confines of interaction betweena set of store locations and the customers that patronize them.
- Interaction can be measured in different ways:
o Number of Customers,
o Number of Transactions
o Dollar Value of Transactions-how much money is coming from that area
- It has a spatial dimension and geographical boundaries, though boundaries are not always clear
- Trade Areas vary in size and shape.
- Factors that affect trade area size and shape are:
o Store size (attractiveness)
o Settlement patterns (residential density) – eg. where we work, break in between classes
o Transportation network
o Barriers to movement – eg. where we work, break in between classes
o Presence of competitors (which provide alternative locations and intervening opportunities)
- Can be used to provide information for trade area analysis
o Characteristics of consumers/customers
o To screen development potential
o Assess existing stores performance
- Can be conceptualized and defined in different ways.
Who Uses Trade Area Delimitation
- Retailers/commercial service providers (Retailers want to know who their customers are)
- Commercial property developers
- Real estate department of retail chains
- Leasing companies
- Location analysts working for the above
- Marketing firms who do advertising for businesses
- Educators who train students in the profession of marketing geography, retail geography, and business geography
Trade Area Delimitation Approaches
1. Spatial Monopoly (Deterministic)
- Makes a clear-cut assumption about the spatial dimension of the trade area
- Trade areas are polygons, each having definite boundaries; they do not overlap
- Assumes all customers come from this area; (those living outside are excluded from consideration)
2. Market Penetration (Probabilistic)
- Makes no clear-cut assumption about the spatial dimension of the trade areas
- Trade areas are not polygons; theyhave no definite boundaries and are able to overlap
- Partially assign persons (households, CT etc.) to stores, with the assumption that people do not always go to the closer store
- Treats trade areas as the surface of probabilities: primary (60%) and secondary (60-80%) etc.
3. Dispersed Market (Customer profiling)
- The supplier is often highly specialized. (e.g., specializing in one or two lines of imported furniture, selling a narrow selection of books, or serving a
widely scattered ethnic group.)
- There is no obvious spatial concentration of customers; customers are widely dispersed.
- Distance decay relationship is weak
- Trade area is defined through customer profiling (i.e., age, income, ethnicity and life style.)
A. Secondary data : the most commonly used are census data
- less expensive; and need less effort to acquire
- can be used to identify potential customers, but many of these potential customers do not necessarily patronize the store. So, the demographic profiles
produced are not real customer profile report.
B. Primary data: compiled by retailers
- collected at POS (either based on credit card transactions or by sales associates asking postal codes and phone numbers)
- Through customer data analysis, retailers develop a customer profile consisting of demographic, social and economic attributes.
- They can also use this profile to search for suitable sites in new markets.
Used Defined Trade Areas
- Also called “rules of thumb”. It is hand-drawn around a given store, from which the analyst believes the majority of customers are attracted.
- Relies on the level of experience and expertise of the person who defines the trade area. It assumes that the person has knowledge of customer base and
how far they travel.
- It is highly subjective, not scientific.
- Quality can be improved if limited customer spotting data are available and used as reference.
- Usually used to define trade area for a single store
- There are two types of such trade areas:
o Unconstrained trade area that do not follow census geographies (but may follow physical barriers)
o Boundary constrained
o Unconstrained trade -Census Track(CT)
Circular Trade Area
- The easiest, quickest and least expensive method - Trade area defined by a circle using pre-defined radius (usually walking distance or driving distance)
- Assuming the transport surface is unifor