JOURNAL OF MULTI-CRITERIA DECISION ANALYSIS

J. Multi-Crit. Decis. Anal. (2012)

Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/mcda.1471

Integration of Analytic Hierarchy Process with Regression

Analysis to Identify Attractive Locations for Market Expansion
PREETI PRIYA* and ANAND VENKATESH
Institute of Rural Management Anand (IRMA), Anand, Gujarat, India

ABSTRACT
Selection of new geographies in which to expand is a key decision for businesses aspiring to go beyond the opportunities in the
existing markets. The conventional approaches of market selection can only provide a set of systematic steps for problem solving
without considering the relationships between the decision factors. Decision models based on statistical techniques are able to
examine the relationship between decision factors but are unable to effectively assist decision makers in identifying the most
promising market, particularly in terms of prioritizing across decision factors. Analytic Hierarchy Process (AHP) is a commonly
used approach for choosing alternatives by prioritizing across multiple decision factors. The typical AHP modelling requires
knowledge of criteria and/or alternatives along with their relative weights, generally elicited from field experts. Quite often, firms
encounter situations where decision makers are aware of only the overall objective and a set of earmarked geographies for setting
up market locations while being relatively unaware of decision criteria and relative weights. This precludes using AHP to identify
promising market locations. This paper conceptualizes a market selection decision model that integrates AHP with statistical
modelling techniques to identify the attractive market locations for the purpose of expansion. The model first uses principal
component analysis and multiple regression to determine significant decision criteria and their weights. Thereafter, it applies
AHP to prioritize the market locations across the decision criteria. This integrative approach is illustrated for identifying the
attractive locations in rural markets for a steel firm in India. The major advantage of this approach is that unlike the existing
models, it works in situations when firms have not enough knowledge about factors for evaluating alternative market locations.
Another key advantage of the proposed model is that of economizing resources for data collection on variables representing
decision factors. Copyright © 2012 John Wiley & Sons, Ltd.

KEY WORDS: Analytic Hierarchy Process; market selection; regression analysis; multi-criteria decision making

1. INTRODUCTION very difficult to compensate for negative results arising

Geographical expansion into new markets is a key
strategic option for business organizations to outstrip
opportunities in the existing markets. Numerous reasons
have been cited to underscore the importance of market
selection decisions in a firm’s growth strategy (Corey,
1975; Ingene and Lusch, 1980; Zoltners and Dodson,
1983; Davidson et al., 1984; Mahajan et al., 1985; Kuo
et al., 2002). First, only few firms will have the resources
to actively pursue all the markets available to them. Even
if resources were available, these firms would not be able
to justify doing so because of large and long-term invest-
ments involved in entering a new market. Because
entering a new market requires a substantial financial
commitment for an extended period, errors in market
selection decision are not easily reversible. Second,
choice of a market is essentially about selecting competi-
tive, technical, social and political environment in which
the firm would compete. Once the choice is made, it is
*Correspondence to: Dr Preeti Priya, Assistant Professor
(Marketing), Institute of Rural Management Anand (IRMA),
Anand, Gujarat, India, 388001. E-mail: preeti@irma.ac.in
from poor location decisions. Third, the right market
could be advantageous for the firm’s marketing strategy,
as it would determine the number and types of consumers
attracted to the firm’s products and/or services. Thus,
selection of new geographies for market expansion pur-
pose turns out to be a critical decision. As a consequence,
firms need to undertake an in-depth investigation of the
potential of new markets.
Two broad categories of analytical techniques
providing support in the firms’ market selection
decision-making process are found in the extant
literature (Rogers and Green, 1979; Sands and Moore,
1981; Beaumont, 1987; Lea and Menger, 1991;
Morphet, 1991; Coates et al., 1995; Green and Kreiger,
1995; Dugmore, 1997; Rogers, 1997; Schaffer and Green,
1998; Hernandez and Bennison, 2000; Kuo et al., 2002):
(i) Conventional approaches using simple methods
such as check lists, analogues, etc.
(ii) Modelling-based approaches such as multiple
regression (MR), cluster analysis, discriminant
analysis, Analytic Hierarchy Process (AHP), neural
networks, etc.

Received 17 June 2011

Copyright © 2012 John Wiley & Sons, Ltd. Accepted 22 February 2012
 P. PRIYA AND A. VENKATESH
These approaches generally vary in the subjectivity
involved in selection and interpretation of variables, in
their data and computational requirements and in the
degree of technical expertise required to use them. The
conventional approaches of checklists or analogue-
based market decision models are able to provide only
a set of systematic steps for market selection decisions
without considering the relationship between the
decision factors. On the contrary, statistical modelling-
based decision models are able to examine the
relationship between decision factors but are unable to
effectively assist decision makers in identifying the
most promising market, particularly in terms of
prioritizing across decision criteria and alternative
market locations. A commonly used approach for
choosing alternatives by prioritizing across multiple
decision criteria is the AHP.
In AHP-based models, the decision factors are
known a priori. However, in dealing with decisions
related to market expansion, firms may encounter
situations where they are aware of the decision
objective (i.e. identification of attractive geographies
for market expansion) and of decision alternatives
(i.e. set of markets under investigation), but the
decision criteria (variables on which markets should
be evaluated for their attractiveness) are unknown
to them. In such cases, AHP cannot be used in
isolation because of lack of knowledge of variables
that could serve as decision criteria. However, as
mentioned earlier, multivariate dependence tech-
niques like regression analysis can help in identify-
ing the factors influencing the market potential of
geographies for a given product. Hence, it would
be useful to develop a market selection decision
support model that leverages the strengths of both
statistical modelling and AHP. This research
attempts to develop a market selection decision
support model for situations where there is insuffi-
cient knowledge about variables to be used as
decision factors. This is accomplished by integrating
AHP with the statistical techniques of principal
component analysis (PCA) and MR. The proposed
model consists of three modules: (i) identification
of probable decision factors using PCA; (ii) isolation
of key decision factors using MR; and (iii) prioriti-
zation of market locations across decision factors
using AHP.
The structure of paper is as follows: the paper
starts with a review of the relevant literature on
techniques used for supporting market selection
decisions. In the subsequent section, we present the
proposed model. Thereafter, we present an example
of the model’s application in context of market
Copyright © 2012 John Wiley & Sons, Ltd.
selection decisions for steel retailing in rural India.
Concluding remarks are made in the last section of
the paper.
2. TECHNIQUES FOR MARKET SELECTION
A comprehensive review of techniques to support
market selection decisions undertaken by Hernandez
and Bennison (2000) identifies six broad categories.
This classification is based on variation across para-
meters such as (i) subjectivity involved in selection
and interpretation of decision factors; (ii) data and
computational requirements; (iii) technical expertise
required to use the techniques; (iv) cost involved; (v)
level of decision making at which they are most
appropriate; and (v) appropriateness for use in
Geographical Information Systems. The first group
of simple ‘experience’ or ‘retail nose’ (Beaumont,
1987) is essentially a set of subjective and intuitive
guidelines or heuristics developed from the knowl-
edge about the sector. The second group of techniques
includes ‘checklists’ and ‘analogues’ (Rogers and
Green, 1979; Rogers, 1997), which comprises a list
of arbitrarily chosen variables considered to have an
influence on the business operations of the firm. The
third approach that involves multivariate dependence
techniques of MR (Morphet, 1991; Rogers, 1997),
discriminant analysis (Sands and Moore, 1981), etc.
has been used in a variety of fields. Such statistical
models have been mostly used in market selection
analysis to ascertain the factors that would affect the
business performance of the firms and also to assess
the degree of their influence. The subjectivity involved
in such models is less as compared with the conven-
tional methods of checklists, analogues, etc. The fourth
group comprises multivariate interdependence techni-
ques of cluster analysis and factor analysis (Green
and Kreiger, 1995; Schaffer and Green, 1998). These
techniques are applied to group the market locations
on a number of variables, which are presumed to be
affecting the business performance of the firms. The
fifth group of techniques, namely spatial interaction
techniques (Ghosh and Craig, 1986; Lea and Menger,
1991; Dugmore, 1997), attempts to forecast the
business performance of firms in a particular market
based on consideration of various factors related to
consumer demographics and psychographics relevant
for firm’s operations. The sixth group comprises
knowledge-based techniques of expert systems, AHP,
neural networks, fuzzy logic, etc. (Coates et al., 1995;
Murnion, 1996; Kuo et al., 2002). These are the most
J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 INTEGRATION OF AHP WITH REGRESSION ANALYSIS
recently developed techniques used in market selection
decision making.
In these techniques, decision factors are either arbi-
trarily chosen by the decision makers or alternatively,
choice of decision factors is based on expert knowledge
about them in relation to the decision outcomes.
However, firms confronted with decisions related to
market expansion may encounter situations where they
are aware of the decision problem (i.e. identification of
attractive geographies for market expansion) and of
decision alternatives (i.e. set of markets under investiga-
tion), but the decision factors (variables on which
markets should be evaluated for their attractiveness)
are unknown. We did not come across an attempt to
overcome this problem of ignorance about decision
factors in the extant literature.
In the next section, we present our proposed model
to support market selection decisions for situations
where there is insufficient knowledge about variables
to be used as decision factors.
3. PROPOSED MODEL
The proposed model (Figure 1) consists of three
modules: (i) identification of probable decision factors
Figure 1. Proposed model to support market selection decisions.
Copyright © 2012 John Wiley & Sons, Ltd.
using PCA; (ii) isolation of key decision factors using
MR; and (iii) prioritization of market locations across
decision factors using AHP.
3.1. Module I: identification of probable decision
factors using principal component analysis
Variables pertaining to various socioeconomic aspects
such as demography, infrastructure and economy
reflect the market potential of a geographic location
for a product or service. These variables could be
construed as demand drivers for the product or service
and therefore be used to evaluate the attractiveness of
locations for market selection. In many cases, neither
qualitative nor quantitative information about the role
of such variables in determining market potential is
forthcoming. Therefore, there is no a priori reasoning
for selection of an arbitrary set of variables as poten-
tial demand drivers of the concerned product or
service. Moreover, these variables could be correlated
to each other, further confounding the problem.
Let X1, X2, . . ., Xn be n location-specific variables for
k locations (n ≤ k) measured on an interval scale. Data
on location-specific variables can be collected through
secondary and/or primary sources. While secondary
data are the statistics, which have been gathered for a
previous purpose and not for the immediate study at
J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 P. PRIYA AND A. VENKATESH
hand (e.g. Government Census Statistics), the primary
data are collected for the purpose of research at hand
through surveys, observation, etc.
Let R be an n
n matrix containing the correla-
tions of pairs of these variables. Using these variables
directly as explanatory variables in a MR model to
explain the market potential would be incorrect
because of high levels of multicollinearity likely to
be prevailing among them. In such circumstances, it
is desirable to manage, analyse and understand such
data by reducing them to their common factor patterns
(Rummel, 2010). These factors concentrate and index
the dispersed information in the original data and can
therefore replace the numerous characteristics without
much loss of information. We propose to use the
technique of PCA with varimax rotation to classify
the location-specific variables into groups with similar
characteristics. From the n location-specific variables,
we would extract components C1, C2, . . ., Cm (m ≤ n)
that are mutually orthogonal to each other. This, in
turn, generates a component loading matrix A of order
n
m, which indicates correlations between variables
and components. A component is interpreted from the
variables that are highly correlated with it, that is those
having high loadings on it.
Each component would be viewed as a potential
demand driver for the product. Once we have
extracted components and interpreted them, what
remains now is to quantify, that is assign a score to
each of them. These scores are contained in the
component score matrix, which is generated as
follows; first, we compute the component score
coefficients matrix B, which is a product of the inverse
of the correlation matrix R, and the components
loadings matrix A:
B ¼ R1 A
The component score is a weighted sum of the
standardized values of the variables, the weights being
the component score coefficients. This is expressed in
matrix form as:
F ¼ ZB
where Z is the matrix containing the standardized
scores on the original set of variables for the k
locations. These components have the dual virtue of
containing almost the same information as the original
set of variables yet being mutually orthogonal. The
component scores would serve as independent
variables in the second module wherein the method
to isolate key decision factors explaining market
potential using regression analysis is explained.
Copyright © 2012 John Wiley & Sons, Ltd.
3.2. Module II: isolation of key decision factors
using multiple regression
After the probable decision factors have been
identified using PCA, key decision factors can be
isolated using MR. The component scores of the
decision factors as derived through PCA would be
introduced as independent variables in the regression
analysis. The dependent variable would be such that
it captures the demand in the market. Data on the
demand for the concerned product in the market
locations under investigation could be collected
through a survey of retailers or consumers. Demand
for a product can be mathematically expressed as a
linear function of m components:
D ¼ B0 þ B1 C1 þ B2 C2 þ . . . . . . . . . :: þ Bm Cm þ u
where D stands for demand for the product of interest
in a given market location; B0, B1, . . ., Bm are the
population regression coefficients; and u is the
stochastic error term.
These regression coefficients can be estimated
using ordinary least squares technique. This yields
the estimated regression equation:
Dest ¼ b0 þ b1 C1 þ b2 C2 þ . . . . . . . . . :: þ bm Cm
where b0, b1, . . ., bm are estimated regression
coefficients, whereas Dest is the estimated value of
demand in a particular location. Only the statistically
significant components would be considered as the
relevant factors to assess the market potential of a
location.
Multiple regression can well establish that a set of
independent variables explains a proportion of the
variance in a dependent variable through a signifi-
cance test of R2, the coefficient of determination. It
can also establish the relative predictive importance
of the independent variables by comparing their
standardized regression coefficients, which are also
known as beta weights (Garson, 2011). These standar-
dized regression coefficients for the statistically signifi-
cant factors would be used as inputs later to prioritize
geographies across decision factors using AHP.
3.3. Module III: prioritization of market locations
across decision factors using analytic hierarchy
process
Analytic hierarchy process is one of the extensively
used multi-criteria decision-making methods. The
key advantage of this method is the relative ease with
which evaluation of alternatives is handled across mul-
tiple decision criteria. AHP involves the principles of
decomposition, pairwise comparisons, priority vector
J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 INTEGRATION OF AHP WITH REGRESSION ANALYSIS
generation and synthesis in a very simple manner
(Saaty, 2006). In its simplest form, the AHP structure
includes a goal, decision criteria and choice alterna-
tives ordered into a hierarchy. We propose to build
the AHP hierarchy (Figure 2) in the following manner.
The goal in the AHP would be to prioritize market
locations to facilitate market entry decisions of a firm
interested in expanding its territorial reach. The decision
criteria in the hierarchy would be the statistically
significant factors identified through regression
analysis. The alternatives would comprise a set of
geographies considered by the firm as part of its market
expansion strategy.
After setting up the AHP, the next step is to
compute the relative weights of decision factors.
There are two possible approaches for this. One can
take subjective assessment of these decision factors
and proceed with computation of their relative
weights. Alternatively, one can use the standardized
regression coefficients of the factors as obtained in
the regression analysis. Because there is insufficient
knowledge about the decision factors, subjective
assessment would suffer from low reliability, and
hence, we propose to use the standardized regression
coefficients for derivation of priorities. Here, it is
worth noting that the proposed approach is a departure
from the conventional AHP methodology of deriving
criteria weights using the nine-point Saaty scale
(Saaty, 2006).
We now mathematically describe the computation
of criteria weights. Let there be p statistically signifi-
cant criteria (p ≤ m). Let these be indicated by C1,
C2, . . ., Cp. Let bi denote a statistically significant
standardized regression coefficient corresponding to
Figure 2. Analytic Hierarchy Process for multi-criteria assessment of market locations.
Copyright © 2012 John Wiley & Sons, Ltd.
criterion i (i = 1, 2, . . ., p). The AHP weight for each
criterion is derived by normalizing the bis as follows:
bi
wi ¼ 8i ¼ 1; 2; . . . ; p
P
p
bj
j¼1
It can be seen that
X
p
wi ¼ 1
i¼1
Let Wc be the vector of the criteria weights
computed by normalizing the standardized regression
coefficients. We have
 
Wc ¼ w1 w2 . . . . . . . . . wp ′
The magnitude of weights thus derived would
indicate the relative importance of an individual
factor; the higher the weight, the more important is
the factor for prioritizing market locations.
The next step is to assess each alternative (market
location in this case) on each of these decision criteria
separately. Because each decision criterion is a combi-
nation of more than one variable as derived through
PCA, we are confronted with the issue of evaluating
alternatives with reference to these variates. One could
prepare a composite score across all the variables
loading on to a component and then compare the
alternatives on these scores. Rummel (2010) observes
the involvement of a variable in the component
proportional to its weight in the component matrix.
J. Multi-Crit. Decis. Anal. (2012)
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 P. PRIYA AND A. VENKATESH
This means that the more involved the variable in
explaining a component is, the higher is its weight
and hence can be chosen to represent the component.
We propose to select variables with maximum loading
across the decision factors as such representative
variables for the following two reasons. First, it helps
in easier computation during synthesis of factor and
alternative weights to derive the AHP scores for
alternative locations. Second, in cases where the firm
is evaluating new market locations during future
periods, it would need to collect data only on these
representative variables and not on all the variables
that constitute the factor.
Let Zi1, Zi2, . . ., Zik be values of the ith representative
variable of component Ci (i = 1, 2, . . ., p) for k market
locations of interest. Because these variables are
measured at the interval scale, it is possible to compute
alternative weights with respect to the p attributes. For
the jth location (j = 1, 2, . . ., k), we would have the
weight for the ith variable as follows:
Zij
vij ¼ 8i ¼ 1; 2; . . . ; p
P
k well researched in terms of factors influencing
Zij
j¼1
Repeating this procedure for all k locations for the
ith variable, we would generate the following vector:
vi ¼ ½vi1 vi2 . . . . . . ::vik ′8i ¼ 1; 2; . . . ; p
Using this approach for all variables, we would
generate the following k
p matrix of alternative
weights for all the decision factors:
 
V ¼ v1 v2 vp
Finally, we would synthesize the matrix of criteria
weights Wc with the matrix of alternative weights to
get a k
1 matrix W, where
2 3
v11 w1 þ v12 w2 þ . . . : þ v1p wp
W ¼ VWc ¼ 4 v21 w1 þ v22 w2 þ . . . . . . þ v2p wp 5
vk1 w1 þ vk2 w2 þ . . . . . . þ vkp wp
The matrix W is interpreted as a comprehensive
scorecard for all the alternative locations of interest.
Each of the k elements of W indicates the final score
for an alternative. This would serve as the basis of
comparison of alternative market locations. The
greater the score, the more attractive the location is
Copyright © 2012 John Wiley & Sons, Ltd.
for market expansion. More specifically, the element
of W having the highest magnitude corresponds to
the ‘most attractive’ market location and so forth.
4. MODEL APPLICATION
The situation chosen to illustrate the model’s appli-
cation involves designing a system to identify the
rural market entry points for retailing of steel pro-
ducts in India. These markets would be developed
by a major steel producer (the firm is one of the
largest steel producers in India and wishes to remain
anonymous) in India to achieve the 2020 vision of
National Steel Policy, that is doubling the annual
per capita consumption of steel in rural areas from
the current levels of 2 kg. Rural India is character-
ized by 600 000 villages of varying sizes and infra-
structure spreads across 5000 blocks. The block is
a cluster of villages earmarked for rural administra-
tion and development. Rural areas that account for
more than two-thirds of India’s population are not
demand for products like steel. Because of lack of
in-depth knowledge about the demand drivers in
rural markets and comparatively high cost of serving
these markets, the company believed in following a
systematic approach for entering rural markets. It
decided to enter the rural markets by setting up
retail outlets at the block level and not at the village
level. Because blocks are also large in number, it
was essential to prioritize the blocks in terms of
their market potential as part of the company’s
market expansion strategy. The promising blocks
were identified using our model as described in the
previous section. First, we discuss the procedure
for data collection and then describe how we identi-
fied the demand drivers using PCA and MR. We
thereafter detail the process of prioritizing the blocks
across these demand drivers using AHP.
4.1. Data collection
Seventy-eight blocks were randomly chosen from
eight different Indian provinces: two each from the
northern, southern, eastern and western regions of
the country to represent the socioeconomic, geo-
graphic and cultural diversity of the country. A retail
survey was carried out in these blocks to estimate
the retail demand for steel therein. Although data on
most of the location-specific variables were collected
from published sources like Government of India
Census 2001, few others were measured through the
market survey.
J. Multi-Crit. Decis. Anal. (2012)
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 INTEGRATION OF AHP WITH REGRESSION ANALYSIS

4.2. Identification of probable demand drivers for
steel using principal component analysis
On the basis of discussions with the retailing experts
in steel trade and a review of literature of market
selection practices in India (RK Swamy/BBDO Guide
to Market Planning, 2008), we chose to start with 17
location-specific variables capturing the demographic
and socioeconomic aspects of the blocks (Table I).
PCA with varimax rotation on these 17 variables
yielded six components explaining 87.96% of total
variance in the data. Interpretation and nomenclature
of components were largely based on variables
loading on to a particular component (Table II). The
components identified were (i) rural prosperity; (ii)

Table I. List of location-specific variables

Serial no Variable Variable label Unit of measurement Data source
1 Banking penetration BNK No. of rural households with bank accounts GOI Census
2 Bus network BUS No. of villages GOI Census
3 Tap water TAP No. of villages GOI Census
4 Educational institutions EDU Number GOI Census
5 Electrified tube wells/wells ELEC IRRI Number GOI Census
6 Healthcare institutions HCARE Number GOI Census
7 Irrigated land IRRILND Hectare GOI Census
8 Rail network RAIL No. of villages GOI Census
9 Retailing—agricultural inputs AGRIRET Number Market survey
10 Retailing—construction CONSRET Number Market survey
11 Retailing—durables DURRET Number Market survey
12 Road network—asphalt roads ROAD Kilometre GOI Census
13 Rural households RURHH Number GOI Census
14 Rural residents RURRES Number GOI Census
15 Telephone connections TELE No. of rural households GOI Census
16 Vehicle ownership VEHOWN No. of rural households GOI Census
17 Villages VILL Number GOI Census

GOI, Government of India.

Table II. Rotated component matrix

Component 1 Component 2 Component 3 Component 4 Component 5 Component 6
Rural Rural Rural Rural public Rural social Rural physical
prosperity population retailing transport infrastructure infrastructure
Variables (RURPROS) (RURPOP) (RURRET) (RURPTR) (RURSINF) (RURPINF)
ELECIRRI 0.884
IRRILND 0.851
VEHOWN 0.781
TELE 0.757
BNK 0.664
RURRES 0.921
RURHH 0.853
VILL 0.811
CONSRET 0.940
DURRET 0.918
AGRIRET 0.625
RAIL 0.958
TAP 0.822
BUS 0.643
EDU 0.777
HCARE 0.773
ROAD 0.972
Component loadings with values greater than 0.5 are reported in the table for better visual presentation.

Copyright © 2012 John Wiley & Sons, Ltd. J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 P. PRIYA AND A. VENKATESH

rural population; (iii) rural retailing; (iv) rural public
transport; (v) rural social infrastructure; and (vi) rural
physical infrastructure. The components could be
viewed as potential demand drivers for steel products
in the rural areas.
The standardized regression coefficients enabled
comparison of demand drivers of differing magnitudes
and dispersions. Rural retailing was the most influen-
tial factor (b = 0.816, p = 0.000) followed by the factor
indicating rural prosperity (b = 0.340, p = 0.000).

4.4. Prioritizing blocks for rural market entry

4.3. Isolation of key demand drivers for steel using using analytic hierarchy process
multiple regression We used the statistically significant factors from
The retail consumption as estimated from the sur- regression as decision factors in AHP. We derived
vey data for each block was regressed on the six the relative weights of decision criteria by means of
components identified through PCA. These six pairwise comparison. For example, the standardized
components accounted for 82% of variance in the regression coefficient of rural retailing is 0.816 and
steel retail demand (R2 = 0.82), which was significant that of rural prosperity is 0.340. Thus, the relative
at p = 0.001 level. Rural retailing, rural prosperity, importance of rural retailing vis-à-vis rural prosperity
rural public transport and rural social infrastructure is (0.816/0.340) = 2.4. Proceeding so forth, we gener-
were found to be statistically significant predictors ated a symmetric matrix of pairwise comparison of
at p = 0.05 level. These four statistically significant decision criteria and used the eigenvector approach
factors were construed to be the key demand drivers as detailed in AHP literature to obtain the relative
for steel products (Table III). weights of the factors (Table IV).
Rural retailing is the most important criterion
Table III. Standardized regression coefficients followed by rural prosperity, rural social infrastructure
and rural public transport. Having obtained the criteria
Standardized
Factors coefficients (b) p-value
weights and the relative ranking of the criteria, we ana-
lysed decision alternatives, that is blocks across each
(Constant) 0.0000 criterion. Rummel (2010) suggests that a component
Rural prosperity (RURPROS) 0.340 0.0000 can be well represented by the ‘most involved’ vari-
Rural population (RURPOP) 0.004 0.9540
able, that is variable that has the largest factor loading.
Rural retailing (RURRET) 0.816 0.0000
Rural public transport (RURPTR) 0.134 0.0380
We identified the ‘most involved’ variable to represent
Rural social infrastructure 0.129 0.0460 the component isolated as the key decision factor. The
(RURSINF)
Rural physical infrastructure 0.062 0.3230 Table VI. An illustration of computation of alternative
(RURPINF) weights for a district
Alternatives Electrified irrigation Alternative
(blocks) (wells/tube wells with electricity) weights
Table IV. Normalized regression coefficients as priorities Block 1 276 0.126
Block 2 250 0.115
Relative weights
Block 3 266 0.122
Decision factors (priorities)
Block 4 76 0.035
Rural prosperity (RURPROS) 0.239 Block 5 583 0.267
Rural retailing (RURRET) 0.575 Block 6 448 0.205
Rural public transport (RURPTR) 0.094 Block 7 284 0.130
Rural social infrastructure (RURSINF) 0.091 Grand total 2183 1.000

Table V. ‘Most involved variable’ across key decision factors

Factor Most involved variable Factor loading of the variable
Rural prosperity (RPROS) Electrified irrigation 0.884
Rural retailing (RURRET) Construction retail stores 0.940
Rural public transport (RPTRANS) Rail network 0.958
Rural social infrastructure (RSINF) Educational institutions 0.777

Copyright © 2012 John Wiley & Sons, Ltd. J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 INTEGRATION OF AHP WITH REGRESSION ANALYSIS

Figure 3. An illustration of multi-criteria assessment of market locations using Analytic Hierarchy Process.

four variables as listed in Table V—electrified irrigation rail network (RAIL) and educational institutions
(ELECIRRI), construction of retail stores (CONSRET), (EDU)—were chosen to represent the components for

Copyright © 2012 John Wiley & Sons, Ltd. J. Multi-Crit. Decis. Anal. (2012)
DOI: 10.1002/mcda
 P. PRIYA AND A. VENKATESH
computing weights for alternative market locations
across each decision factor.
Because we had objective measurements of these
variables, we did not compare the blocks by means of
pairwise comparison matrix of each of these
variables, as is the norm in many AHP studies. We nor-
malized the arithmetic proportion of block scores on
each of the four variables representing the decision fac-
tors to get the priority weights for each of the blocks.
Here, it would be pertinent to explain this by means
of an illustration for only one district comprising
seven blocks. Table VI gives the detail of computation
of alternative weights for the decision factor ‘rural
prosperity’, represented by the variable ‘electrified
irrigation’ in the study.
After computing the alternative weights for decision
factors separately, we synthesized the alternative weights
with the decision factor weights by multiplying the two
matrices—decision factor weight matrix and alternative
weight matrix (Figure 3). This produced a matrix com-
prising final scores for the seven illustrated blocks across
the multiple decision factors. These scores indicated the
merit of a block in the context of decision objective. The
higher the score, the more attractive and the more pro-
mising is the block to be chosen as entry point for market
expansion in rural areas. As shown in Figure 3, block 7
with a score of 0.276 is apparently the most attractive
block in the given set. It is worth pointing out that block
5 that has higher weights than block 7 across all decision
factors except for rural retailing finishes second to block
7 in the overall analysis. This is primarily because rela-
tive weight of the rural retailing is the highest among
the decision factors present in the AHP and block 5 has
a substantially lower score (0.272) on this criterion com-
pared with block 7 (0.326). The similar process could be
replicated for each of the districts to compute the market
attractiveness score of a block within a particular district.
5. CONCLUSION
We have presented a method to identify attractive loca-
tions for market expansion. The procedure is unique in
the sense that it facilitates the decision-making process
in situations where decision makers do not have suffi-
cient knowledge about the factors to be used for assessing
the potential of alternative market locations. In making
these decisions, the procedure integrates the multi-criteria
decision-making technique of AHP with multivariate
techniques like factor analysis and regression analysis.
Another key advantage for practitioners in using this
model is that of economizing resources for data
collection on variables representing decision factors.
Copyright © 2012 John Wiley & Sons, Ltd.
The basic procedure can be further enriched by incorpor-
ating supply side parameters such as operating costs of
markets across identified locations in the AHP and
reprioritizing the set of market locations using the
benefit–cost ratios generated by it.
Because market selection is a considerably impor-
tant component of market strategy for any business
firm, the procedure we have presented should prove
useful to companies aspiring to expand their markets.
Although we have applied the model in the context
of steel products and rural India, the model can be used
in many scenarios. For instance, this approach should
prove useful to business firms that are today planning
to expand their operations in emerging markets where
very little market research of prevailing demand condi-
tions for a product or service has been carried out.
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