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Lecture 6

Lecture 6-February 12-Trade Area Analysis-Market Delimitation

Course Code
Herbert Kronzucker

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Lecture 6: February 12
Trade Area Analysis: Market Delimitation
1. Introduction: Geography matters in retail success.
A question of where to locate?
which country?
which city/cities?
where within the city?
Trade (market) Area - Intra urban
Which site within the market area (site selection)
2. Techniques for Market Area Delimitation/Assessment
Thiessen Polygon (distance)
Converse Breakpoint Method (distance and size/attractiveness)
Huff Model (distance/size/probability) - overlapping markets
Market Penetration techniques (eg. Applebaum)
Actual/ What is? ie Customer spotting.
3. Relevant Concepts:
Friction of distance, distance decay.
Disincentive nature of distance.
Location and competition (Hotelling Model)
Utility (Proximity, size, attractiveness)
Simplifying assumptions
Thiessen Polygon Technique: For Trade Area and Service Area Delimitation
1. Basic principles: Establishing "boundaries" between centres (line of indifference)
When a census tract is partially in a trade area we can:
Centroid Method - 1) identifiy the centre of the census by drawing diagonal. If centre is inside the trade
area then look at the whole census tract,
2) If central location is outside the trade area, then throw census tract out.
Problem: the residential area may be outside the trade area but the centre inside the trade area. The census
tract might have an irregular shape.
Grid Method: calculate how much of the census tract is in the trade area by using small grids. If more
than 60% of it is inside the trade area, then that partial census tract is part of trade area.
There is assumption in that 60% of the geographical area is 60% of the population. So assume that there is
uniform distribution but usually CTs are unevenly distributed.
Fig 11.3 - Trade area for Brewer's retail stores: Ottawa.
Normative and the Thiessen model are nearly the same because the beer stores are all the same. It meets
the assumptions of the model.
Same product, quality, price, service.
Model assumes that you are just going to the nearest store and that you know where the nearest one is.
Model useful when you apply a change in strategy for it shows the impact of the change.
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