Professional Documents
Culture Documents
UNIT – II
Unit Structure
Learning Objectives
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Understand Trade Area Analysis;
➢➢
Identify the theories on Retail
Introduction
81
Notes
Trade area analysis provides the foundation for
➢➢
Understanding the geographic extent and characteristics of store
patronage.
➢➢
Spatially assessing performance.
➢➢
Performing competitive analysis.
➢➢
Evaluating market penetration and market gap analysis.
➢➢
Target marketing.
➢➢
Merchandising.
➢➢
Identifying/quantifying effects of cannibalization.
➢➢
Developing and exploiting demographic profiles.
➢➢
Site suitability and site selection studies.
82
Notes
These trading areas are dependent on distance and do not always
have to be concentric in nature
Since most of the retail sales especially in big cities take place
at stores, the selection of the store location and analyzing trade area
becomes essential. Retailers emphasize on trade area analysis because of
the following reasons:
83
Notes
d) It helps in highlighting geographic weaknesses. For example,
trading area analysis reveals that people from trans-river hesitate
to come to city shopping areas due to pick-pocketers and thieves
in evening. Further, comprehensive study reveals the fact that
this is because of improper lighting arrangements and absence of
police personnel. Therefore, shopping center could exert political
pressure to make the area well lit and crossing safer.
(1) Entry or exit of a retail store will cause the trade area of nearby
stores to change
84
Notes
(ii) Trade area analysis is not only time exercise It is in setting up a
new retail store. It plays a vital role for improving their sales and
marketing performance
(iii) Any change in product offering will have its impact on trade areas,
population shift, competitors’ existence and overall profitability of
nearby stores
Theories on Retail
85
Notes
In 1931, William J. Reilly was inspired by the law of gravity to
create an application of the gravity model to measure retail trade between
two cities. His work and theory, The Law of Retail Gravitation, allows us
to draw trade area boundaries around cities using the distance between
the cities and the population of each city.
Reilly realized that the larger a city the larger a trade area it would
have and thus it would draw from a larger hinterland around the city.
Two cities of equal size have a trade area boundary midway between the
two cities. When cities are of unequal size, the boundary lies closer to the
smaller city, giving the larger city a larger trade area.
Reilly called the boundary between two trade areas the breaking
point (BP). On that line, exactly half the population shops at either of the
two cities.
The formula is used between two cities to find the BP between the
two. The distance between the two cities is divided by one plus the result of
dividing the population of city b by the population of city a. The resulting
BP is the distance from city A to the 50% boundary of the trade area.
86
Notes
Model depends heavily on the calculation of distance. This tool can use
two conceptualizations of distance - traditional Euclidean (straight-line)
distance as well as travel time along a street network.
➢➢
To delineate probability-based markets for store locations in the
study area\
➢➢
To model the economic impact of adding new competitive store
locations
➢➢
To forecast areas of high and low sales potential, which can guide
new store location placement or refined marketing or advertising
initiatives
Sj
Aij =
Tij λ
Aij
Pij = n
∑A
j =1
ij
87
Notes
Third, annual customer expenditures for item k at store j can now
be calculated.
m
E jk = ∑ (Pij Ci Bik )
j =1
E jk
M jk = m
Β
∑ (C B
i =1
i ik )
88
Notes
The formula of Retail Saturation Index Theory is:
IRS:
certain types of goods within a retail shopping district
saturation index;
After taking decision on the location and market potential the retailer
has to select the site to locate the store based on the following parameters,
such as
➢➢
Traffic Accessibility of the market is also a key factor
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The total number of stores and the type of store that exist in the
area Amenities
➢➢
To buy or to lease
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The product mix to be offered by the retailer
Summary
89