Trading Area

A trading area is a geographic area containing the customers of a retailer for specific goods or services. Or The geographic region in which a good or service is available and from which a company generates most of its sales. For example, a local retail store may have a trade area with a 50-mile radius.

Trading Area

Trading Area
Size and Shape are dependent on:
Size of Store Neighbouring stores Transportation network Population density Physical, social, and political barriers Location of Competition Merchandise uniqueness, low prices, superior service

Fragments of Trading Area

Primary-

50-80% of customers (less than 10 min.) Secondary15-25% of customers (less than 20 min.) Fringe/TertiaryRemainder of customers (15-50 min. away)

Fragments of Trading Area

Trading Areas and Store Type

Largest

Department stores Supermarkets

TRADING AREAS

Apparel stores
Gift stores

Smallest

Convenience stores

Techniques for Identifying Trading Areas

Customer Spotting License plates or traffic flow Customer records (credit cards, delivery records , service) Promotions (sweepstakes, contests, coupons) Customer surveys

Techniques for Identifying Trading Areas

Traffic Flow.or license plate survey Is the random canvassing of parking lots at major locations in town at different times on different days and over several weeks. The locations might include The downtown area, Major shopping destinations such as shopping malls and centers, Other popular establishments in town.

Techniques for Identifying Trading Areas

One should combined the results of vehicle license plates from the different locations to obtain a composite count of vehicles from surrounding areas and compare them to regional commuting data. Results from a traffic study will usually reveal the major areas that comprise the local trade area or market

Techniques for Identifying Trading Areas

Gravity Models
Huffs Law of Shopper Attraction
Attraction of a store in a metropolitan area depends on the size of the store (product assortment) distance, and sensitivity to time Bigger and closer are more attractive

Reillys Law of Retail Gravitation

Techniques for Identifying Trading Areas

Reillys Law
Reillys law is a rule-of-thumb used to ESTIMATE the distance customers will travel to PURCHASE goods and SERVICES after comparing price, quality, and style.

Techniques for Identifying Trading Areas

The law assumes that people desire to shop in larger towns, but their desire declines the farther the distance and time they must travel to get there. Thus, LARGER TOWNS DRAW CUSTOMERS FROM FARTHER DISTANCES THAN SMALLER TOWNS. The maximum distance a customer will travel to shop in a smaller town can be calculated using the following formula.

Techniques for Identifying Trading Areas

Reillys Law

Techniques for Identifying Trading Areas

Limitations of Reillys LawDistance is only measured by major thoroughfares; some people will travel shorter distances along cross streets Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance Actual distance may not correspond with perceptions of distance

Techniques for Identifying Trading Areas Huffs LawHuffs law of shopper attraction delineates trading areas on the basis of product assortment (of the items desired by the consumer) carried at various shopping locations, travel times from the shoppers home to alternative locations, and the sensitivity of the kind of shopping to travel time

Techniques for Identifying Trading Areas

Where: Aj is a measure of attractiveness of store j, such as square footage Dij is the distance from i to j an attractiveness parameter estimated from empirical observations is the distance decay parameter estimated from empirical observations n is the total number of stores including store j.

Techniques for Identifying Trading Areas

What % of customers will shop in city A for gift items?
Sq. ft. of selling space for gifts Travel time Sensitivity to travel time = 1 So: 5,000 ______10_______ = 500 = 27.9% 5,000 + 10,000 + 12,500 1791.67 10 15 20 28% of customers will shop in City What % of customers will shop in city A for gift items? A B C 5,000 10,000 12,500 10 min. 15 min. 20 min.

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

Benefits of Trade Area Analysis

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.

Factors that Impact Trade Areas

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.