Professional Documents
Culture Documents
March 2011
Lost in space? How spatial analysis
can direct your market strategy
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A. What is spatial analysis?
1. A short definition
Spatial analysis utilises statistical, modelling, and mapping techniques, to reveal, measure, and predict,
the geographical phenomena that influence the ability of a business to fulfil its profit making objectives.
It can provide decision makers with a vital injection of objective insight concerning the nature of their
customer base and the dynamics of their marketplace. Indeed, many high profile consumer facing
organisations embrace spatial analysis, using it to validate their strategic market plans and tailor their
customer propositions.
However, for many, it remains unexplored territory - a spatial frontier in itself. Without a clear appreciation
of the value of spatial analytics, decision makers are often feel ill-equipped to make a fully informed
business case for investing in spatial tools and expertise.
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4. Driving strategic Figure 1: From data to actionable insight, the strategic importance of spatial analysis
(Copyright Experian Ltd)
direction
...at multiple geographical scales...
Robust spatial insight relies on
robust spatial data these can be National Regional District catchment Location
broadly categorised as, existing
customer information, target
consumer information, and wider ...drives insight regarding...
marketplace information (Figure 1).
Target customer groups Catchment areas Market intelligence
Interrogated at various geographical
scales, these variables will reveal a
host of insights about your business,
including the profile of existing and ...helping you to...
prospective target customers, the
Identify drivers of business performance
extent of your catchment areas, and
key market and location factors that
influence how you trade.
...and carry out important activities...
This insight will help you identify Market prioritisation Predicting performance Customer communication
the primary market and customer
drivers behind your performance, and
empower you to shape the strategic ...which fulfil your strategic objectives
activities by which success is
measured: Revenue Profitability Growth
5. What are spatial data? True insight is only revealed once Spatial data are highly pliable, and can
you start to apply socio-demographic be analysed at any strategic scale. A
Spatial data are customer and profiles to your customers, or append retailer entering a new country will be
market variables that can be location quality indicators to your primarily concerned with understanding
represented and interrogated stores. Together, these variables the overall value of the national market,
geographically (Figure 2). Analysing will paint a rich picture of the social, while, at the other end of the spectrum,
the location of existing customers economic, and commercial, context in a convenience retailer will focus on the
and the consumers from which they which your business operates. relative value of markets at street-scale.
are drawn allows you to quantify your
Figure 2:Three broad categories of spatial data, and example enrichment variables
customer base. While data covering
(Copyright Experian Ltd)
your market locations will let you
consider location and market specific
factors of relevance to your business. Customer data Consumer data Market data
Unfortunately, not all businesses are Enriched by: Enriched by: Enriched by:
blessed with plentiful spatial data
Frequency of Socio-demographic Physical and
indeed, data on existing customers business segmentations manmade geography
can sometimes be hard to come by. Recency of business Affluence Market segmentation
Fortunately, what data you have can be Value of business Ethnicity and culture Competitor activity
enriched using a vast array of additional Type of product or Financial Complementary
consumer and market variables sourced service bought sophistication operator or activity
from spatial data providers. It is this Channel used Technological Location type,
process of data enrichment that truly (on-line, shop, sophistication quality, dynamics
brings your own to life. catalogue) Propensity to
consume
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B. From data to insight: four spatial activities
1. Profiling customers
The first priority of spatial analysis is the development of an intimate understanding of existing or
prospective customers. Without this insight it is not only difficult to get to grips with what drives your
business, but impossible to measure the potential value of market opportunities.
Customer addresses/postal information is typically drawn from transactional records (in-store, on-line
etc.), surveys, or loyalty schemes. Where you do not have access to real customer data, your prospective
consumer base can still be profiled but on a more assumptive basis.
You can easily understand the extent of your existing market by geographically pinpointing your customers
(Figure 3). However, it is only by going on to profile them using a range of enrichment data that you will
gain a clear view of who you are dealing with.
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2. Creating catchment Figure 4: plotting the boundaries of catchment areas, and estimating market size and share
(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)
areas
Where you have stores, defining
the limits of individual catchment
areas is a natural progression
from locating customers or target
consumers (Figure 4). The insight
derived from this practice is so
powerful that it can underpin
almost all market strategy activities
conducted by store led businesses.
The process of catchment creation is Monitoring the impact of Network optimisation, to ensure
the key to: competitor activity efficient coverage of all markets:
Monitoring the impact of - Reach the maximum number
Identifying regional differences marketing or activity or new of consumers through
within your business store investment minimum number of locations
Assessing your market value Predicting new store catchment - Where to close weak stores
and share of catchment areas areas
Establishing areas of untapped Planning of store/market support:
potential In turn, this insight can feed into - Vary products/services in
Identifying areas of market a number of important strategic line with customer base
saturation decision making activities: - Channel marketing efforts
Identifying areas of strong and into areas of greatest
weak performance Identification of high potential potential
Identifying strong and weak markets to be prioritised for - Choose appropriate form of
nodes in your store estate: future investment: communication (on-line,
Analysing overlaps between - Where to open new stores in-store, media etc.)
catchments and the potential - Where to invest in existing
for cannibalisation stores
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3. Gathering market Figure 5: gathering micro-level intelligence
(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)
intelligence
Spatial analysis is essentially a
process of intelligence gathering. The
development of a robust picture of your
customers and a clear understanding
of market dynamics can only happen
once you bring together all variables
of relevance to your business. This
process cannot be overstated in
competitive markets, market knowledge
really is power.
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4. Identifying drivers of Typically, regression analysis This insight can be used to:
is used - a statistical technique
business performance that analyses the relationship Intervene in poor performing
between any number of independent markets with positive
By profiling consumers, establishing
variables (i.e. competition, consumer underlying variables
your catchments, and compiling market
demographics) and a dependent Provide the rationale to rank
intelligence, you will yield a substantial
variable (i.e. EBITDA, turnover, and prioritise future investment
database of variables. These must be
market share). This method will show opportunities
sifted through to isolate those that are
you how the value of the dependent Segment your existing store
of greatest importance to your business
variable changes when one of the estate based on performance,
- which of these factors are responsible
independent variables is varied and set different strategies
for driving performance?
allowing for causal relationships to be Benchmark performance for
inferred. different types of locations, and
Many businesses approach this
set justifiable targets
question by undertaking a performance
The audit process should distil a Develop a sales prediction
audit. This approach will help you
database of market and customer model to forecast optimal
isolate and quantify the statistical
variables into a manageable short- performance of existing and
significance of your customer and
list of factors that drive successful new locations
market variables in driving store
performance providing you with
performance, as measured by typical
a blueprint for success. It is these
success factors such as profit, market
variables that must be replicated as
share, and turnover (Figure 6).
you grow and develop your business.
Customer segments
No. of competeing shops
Market size by category
Catchment Pitch Competition Distance
Expenditure per head
No. of complementary shops
Internet penetration
Revenue and
Measure of success
profitability
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C. From insight to strategy: three spatial initiatives
1. Customer engagement
Understanding who your customers are, and where they are within your catchment, enables you to identify
high concentrations of your target customers (Figure 7). This insight empowers you to not only direct
promotional and advertising resources to the right places, but the right messages to the right consumers.
Merchandising of stores
according to local demand
Selection of different brands/
fascias for different types of
market
Employment of specialist staff
for particular locations
A spatial approach to your Use spatial insight to:
Deployment of market specific
marketing strategy will help in-store promotions and
Target specific consumer types
you to optimise your targeting initiatives
with specific messages
activities, whether they are, Select media advertising
door drop, media, or store, opportunities that best match
customer locations
based. Clearly defining who
Select most appropriate channel
you market to and when will of engagement dependent on
help you minimise wastage consumer type
and to invest your scarce Carry out local in-store
initiatives and advertising
capital based on a justifiable
Reduce wastage associated with
rationale. blanket marketing campaigns
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2. Market prioritisation Figure 8: using success factors to establish a prioritised market investment list
(Copyright Experian Ltd)
By establishing key success drivers
you have a clear set of parameters by
which to rank and benchmark future
market opportunities. This is a vital
strategy for businesses seeking to
expand their networks.
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D. Bringing it together:
The insight gained from spatial analysis can inform a wide range of initiatives; however, your ultimate aim
should be to combine these various strategic threads into your business formal Market Representation
Strategy. This masterplan will utilise spatial insight to inform how you grow your business, deal with
opportunities, exploit potential, and remedy weaknesses (Figure 10).
Possible solutions may range from opening new store locations and closure of weak locations, to targeted marketing and
regional adjustment of product and service offers. Ultimately, the plan will formalise your strategic intent for every market in
which you are, or expect to be represented. In essence it should demonstrate how your scarce resources will be allocated to
their best possible use.
2. Tools of the trade They will reveal the shape of your some of the activities discussed in
business, allowing you to identify this paper. These include GIS based
Geographical Information Systems patterns and relationships in your applications such as drive-time,
(GIS) customer data. Their power lies in the radii, and distance analysis; simple
Geographical Information Systems displaying of complex information in spreadsheet calculations; statistical
are visualisation tools, a means to a way everyone can understand - they analysis, and gravity modelling
an end that puts data on to maps. bring a business market to life. exercises. Increasingly, innovative
However, because they facilitate forms of Geographic Business
spatial analysis by showing us Spatial insight techniques Intelligence (GBI) software are also
the location of customers and Many spatial insight techniques deployed - these blend traditional
catchments, they are vital to the are used to explore the patterns spatial activities with cutting edge
strategic decision making process. revealed by GIS, and to conduct business analytics.
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E. Getting started with spatial analysis: four key considerations
Excellent spatial insight requires excellent data. So we recommend you begin with a thorough audit of
your existing assets. Your aim should be to develop as complete a picture of your existing and prospective
customers as possible. If you have customer data, the task of profiling records against social and
economic enrichment data should be straightforward. However, few businesses will have everything they
need at their fingertips, so be prepared to source much of your data.
Consider whether your focus is on: Bring insight together and develop an effective and efficient market
representation plan.
Optimise
Developing a general view of
your market for the first time
Entering new markets
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4. In-house or 5. Experians spatial
out-sourced? analysis services
It takes time to develop spatial With a highly experienced team
capability, sophistication will of account managers, consultants
improve step-by-step. Developing and analysts, and over twenty years
this capability in-house demands experience in spatial analysis,
investment in tools, data, and Experian has an excellent reputation
qualified personnel. for helping clients develop actionable
insight from market and customer
You need to think carefully about data. Experian provides a full-service
the best solution for your business. offer, from the provision of data to the
You may wish to work towards in- design and delivery of complex spatial
house resource, or instead utilise projects. Clients come from a broad
trustworthy partners. Even expert range of sectors including, retail,
in-house analysts seek the services leisure, finance, telecommunications
of spatial strategy consultants to and the public sector.
help source tools, data, and bespoke
analytical solutions.
Things to consider:
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