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CHAPTER 9

TRADING-AREA ANALYSIS

CHAPTER 9
Trading Area Analysis: Benefits / Use of GIS p. 229-230
Trading Area Segments: Primary, Seconday, Fringe p. 234

Delineating Trading Areas: 3 main methods p. 237

Reilly's Law of retail gravitation


116

8 Chief Factors to consider in a Retail Trading Area Table


9-1 p. 240
117

Huff's Law of shopper attraction pp. 238-239


118

119

120

Multiple Choice - Terminology/Concept


1.

The least flexible element of a retailers strategy is _____.


a. pricing
b. promotion
c. store location
d. product line

2.

A trading area can best be defined as _____.


a. the geographic area containing the customers of a particular retailer or group of retailers for
specific goods and services
b. those competitive stores that interchange customers
c. a specific cluster of similar stores
d. stores that are located in a free-trade zone

3.

A clear description of a trading area allows a retailer to determine _____.


a. customer shopping frequency
b. its overall store image
c. the focus of promotion activities
d. private-brand strategy

4.

The determination of trading-area overlap is most important for which retailer?


a. chain
b. supermarket
c. independent
d. department store

5.

Which system combines digitized mapping with key locational data?


a. geographic information system
b. primary trading-area analysis
c. secondary trading-area analysis
d. TIGER

6.

The primary trading area generally encompasses what percent of a stores customers?
a. 5 to 10
b. 10 to 25
b. 25 to 50
d. 50 to 80

121

Multiple Choice - Terminology/Concept


7.

The trading area with the highest average purchase by a customer is the _____.
a. parasite
b. primary trading area
c. secondary trading area
d. fringe trading area

8.

The most widely dispersed group of customers can be found in which trading area segment?
a. trading-area overlap
b. secondary trading area
c. primary trading area
d. fringe trading area

9.

The trading-area segment from which a retailer draws customers from the longest distances is the
_____ trading area.
a. secondary
b. satellite
c. fringe
d. primary

10.

A department store in a major shopping center can be classified as a(n) _____ store.
a. parasite
b. destination
c. unsaturated
d. saturated

11.

A store that does not create its own traffic is a _____.


a. fringe store
b. low trading-area overlap store
c. parasite
d. primary trading area store

12.
a

13.

Which type of store does not have its own trading area?
unsaturated
b. saturated
c. parasite
d. destination
The store location of a coffee shop in a hotel lobby can best be described as _____.
a. overstored
b. understored
c. parasite
d. saturated

122

Multiple Choice - Terminology/Concept


14.

In a regional shopping center, the store with the largest trading area is a _____.
a. shoe store
b. variety store
c. department store
d. supermarket

15.

An example of an economic trading-area barrier is _____.


a. travel distance
b. travel time
c. high sales-tax rates
d. travel difficulty as measured by road conditions

16.

Primary, secondary, and fringe trading areas for an existing store can be described on the basis of
_____.
a. trading-area overlap with existing stores
b. the average dollar purchases at a store by people from given geographic locales
c. customer attitudes
d. the frequency of large orders

17.

Which marketing research company identifies communities on the basis of lifestyle clusters?
a. A.C. Nielsen
b. Sales & Marketing Management
c. Editor & Publisher
d. Information Resources Inc. (IRI)

18.

The most quantitative type of computerized trading analysis is _____.


a. the regression model
b. the analog model
c. the gravity model
d. license-plate analysis

19.

The traditional means of trading-area delineation for a new store is _____.


a. Huffs model
b. Gautschis model
c. license-plate analysis
d. Reillys law of retail gravitation

20.

In Reillys law of retail gravitation, the point of indifference is _____.


a. the customers perceived similarity between two competing retailers
b. the geographic breaking point at which shoppers are indifferent to shopping at either of two
cities
c. the limit of a citys trading area
d. determined solely by the merchandising effectiveness of a citys retail operations

123

Multiple Choice - Terminology/Concept


21.

c
22.

23.

The major assumptions of Reillys law are that two competing areas are equally accessible from a
major road and that _____.
a. each city has an equal population
b. each city is equally distant from shoppers at the point of indifference
retailers in the two cities are equally effective
d. consumers are willing to travel for lower prices
Huffs law of shopper attraction improved Reillys law of retail gravitation by adding a
consideration of _____.
a. customer demographics
b. product assortment of the items carried at various shopping locations
c. customer lifestyles
d. a stores promotional effectiveness
The lambda value ( ) in Huffs law is used to _____.
a. reflect the purpose of the trip and the type of good/service sought
b. measure sales tax differentials between adjacent counties
c. study actual and perceived travel times
d. measure road conditions

24.

An areas economic base refers to its _____.


a. population characteristics
b. GDP
c. sources of employment
d. population size

25.

A retailer seeking a stable economic environment should seek a trading area with a _____.
a. large military base
b. diversified economic base
c. large government facility
d. booming economy

26.

A major advantage of the Census of Population for use by retailers in trading-area analysis is
_____.
a. the small size of census tracts and blocks
b. its timeliness
c. its projections of population, retail sales, and income
d. its economic base analysis

27.

The Census of Population is conducted every _____ years.


a. 3
b. 5
c. 7
d. 10

124

Multiple Choice - Terminology/Concept


28.

A major disadvantage to the use of census data in trading-area analysis is its _____.
a. cost
b. being limited to city and state data
c. lack of comprehensiveness
d. dated nature

29.

The most important disadvantage to the use of the American Community Survey data in tradingarea analysis is _____.
a. the substantial cost
b. the use of projections
c. lack of timeliness
d. use of county-based vs. narrower geographic areas

30.

Which of the following is the best economic base?


a. affluent consumers
b. single, but growing industry
c. diversified employment
d. young, educated consumers

31.

Important economic base data for cities can be found in the _____.
a. Federal Register
b. American Community Survey
c. Census of Population
d. Editor & Publisher Market Guide

32.

An area that has too few retail stores to satisfy its populations needs is _____.
a. saturated
b. understored
c. not reaching its economic base potential
d. located at the point of indifference

33.

An area with a relatively large number of consumers per square foot of available store space is
_____.
a. understored
b. saturated
c. overstored
d. oversaturated

34.

A retailer with a relatively large trading area and higher than average profitability is most likely to
have which type of store location?
a. saturated
b. understored
c. overstored
d. oversaturated

125

Multiple Choice - Terminology/Concept


35.

An area that has just enough retail facilities to satisfy the needs of its population for a specified
good is _____.
a. saturated
b. overstored
c. understored
d. parasitic

Multiple Choice - Applied/Comprehensive/Integrative


36.

A retailers location strategy can be made more flexible through _____.


a. the use of longer-term leases
b. sale and leaseback arrangements
c. the use of renewal options versus a long-term lease
d. ownership versus leasing

37.

Which customers are generally not studied in trading-area analysis?


a. outshoppers
b. mail and telephone order shoppers
c. fringe trading-area customers
d. parasites

38.

When proposed and existing stores have a very high trading-area overlap, _____.
a. many additional customers will be attracted to the proposed store
b. few additional customers will be attracted to the proposed store
c. the proposed store will focus on geographic weaknesses in the existing store
d. advertising will have to be assessed due to possible promotional waste

39.

Under what condition would it be rational for the trading areas of two branch locations to
completely overlap?
a. when the retailer desires cost economics in promotion
b. when the retailer decides to switch store locations from one large store to two small stores
c. when a retailer pursues a mass marketing strategy
d. when each store has a different target market

40.

Which of the following is not a disadvantage associated with the use of TIGER maps?
a. Its Web site can be cumbersome to use.
b. Service on the TIGER site may be slow.
c. The maps cannot be tailored to reflect physical attributes of U.S. areas.
d. The maps do not include retail facilities, other commercial entities, population characteristics,
and so on.

126

Multiple Choice - Applied/Comprehensive/Integrative


41.

The most important trading area for a retailer to study is the _____.
a. fringe trading area
b. secondary trading area
c. primary trading area
d. trading-area overlap

42.

A retailer with a large fringe trading area should consider _____.


a. expanding the trading-area overlap
b. direct marketing opportunities to this segment
c. broadening the communitys economic base
d. establishing the point of indifference using Reillys law

43.

Direct marketing should be used to increase sales to the _____.


a. trading-area overlap
b. secondary trading area
c. primary trading area
d. fringe trading area

44.

The trading area that generally encompasses the greatest geographic area (in terms of square
miles) is the _____.
a. fringe trading area
b. trading-area overlap
c. secondary trading area
d. primary trading area

45.

A store with the largest trading area in a shopping center is a(n) _____.
a. parasite store
b. destination store
c. independent retailer
d. leased department

46.

Which statement concerning destination stores is not correct?


a. A destination store has a larger trading area than a traditional retailer.
b. The presence of a destination store in a major shopping center has no effect on the trading
area of parasite stores.
c. Reillys law does not reflect higher trading areas for a destination store.
d. Huffs law does not reflect higher trading areas for a destination store.

47.

Which of the following retailers is most likely to be a parasite in a shopping center?


a. high-fidelity specialty retailer
b. mens shoe store
c. snack bar
d. department store

127

Multiple Choice - Applied/Comprehensive/Integrative


48.

The trading area of an existing store can best be estimated through examining _____.
a. the American Community Survey
b. customer delivery records
c. pedestrian and vehicle traffic
d. Census of Population data

49.

A supermarket has developed an analog model to aid in its site-selection process. The model
contains variables such as _____.
a. traffic counts, visibility, and manager ability
b. trading-area population and expected market share
c. disposable income, retail sales, and population
d. competition, store size, and total retail sales

50.

A department store uses a regression computer site-selection model. This model contains data on
the following variables: _____.
a. distance to store and store size
b. disposable income, retail sales, and population
c. traffic barriers, store size, and traffic counts
d. trading-area population and expected market share

51.

Which computer-based site-selection model generally includes the largest number of variables?
a. analog
b. gravity
c. regression
d. interactive

52.

Reillys law is an example of a(n) _____ model.


a. regression
b. analog
c. gravity
d. trend

53.

Huffs law is an example of a(n) _____ model.


a. regression
b. analog
c. gravity
d. trend

54.

Reillys law and Huffs law are examples of what type of computer site-selection model?
a. regression model
b. digital model
c. analog model
d. gravity model

128

Multiple Choice - Applied/Comprehensive/Integrative


55.

The point of indifference between two cities or communities can be studied _____.
a. based on economic base characteristics
b. using the index of retail saturation
c. using census data
d. based on the buying power index

56.

The distance between city A and city B is 25 miles; city A is 1/16 the size of city B. The point of
indifference between the two cities is _____ miles from A and _____ miles from B.
a. 15; 10
b. 18; 7
c. 20; 5
d. 22; 3

57.

Based on Reillys law, a city with a population of 40,000 would draw people from how many
times the distance as a city with 10,000 population?
a. 1.5 times
b. 2 times
c. 3 times
d. 4 times

58.

Two cities have populations of 10,000 and 160,000. Based on Reillys law, the point of
indifference is 40 miles from the larger city. What is the total distance between each city?
a. 40 miles
b. 45 miles
c. 50 miles
d. 60 miles

59.

Two cities that have equal populations are 40 miles apart. Based upon Reillys law, the point of
indifference _____.
a. is midway between each city
b. is 10 miles from the first city
c. is 15 miles from the first city
d. cannot be determined from the information provided

60.

Reillys law of retail gravitation can be improved through the use of _____.
a. perceived travel time
b. distances on major thoroughfares
c. convenience in driving
d. distance on different types of roads

129

Multiple Choice - Applied/Comprehensive/Integrative


61.

The major refinement in Huffs law versus Reillys law is Huffs use of _____.
a. a point of indifference
b. sensitivity of the kind of shopping to travel time
c. mileage versus driving time
d. small versus large cities

62.

The primary trading area can be delineated in Huffs law of shopper attraction by studying the
_____.
a. probability of consumers shopping at a location
b. point of indifference between two communities
c. average purchase made by consumers
d. traffic counts in different locations

63.

There are three shopping locations with 300, 500, and 1,000 square feet of space allocated to
lighting accessories. A group of potential customers lives 5 minutes from the first location, 10
minutes from the second location, and 15 minutes from the third location. The retailer estimates
the effect of travel time to be 2. The probability of consumers shopping at location 1 is _____
percent.
a. 21
b. 23
c. 45
d. 56

64.

There are three shopping locations with 300, 500, and 1,000 square feet of space allocated to
lighting accessories. A group of potential customers lives 5 minutes from the first location, 10
minutes from the second location, and 15 minutes from the third location. The retailer estimates
the effect of travel time to be 2. The probability of consumers shopping at location 2 is _____.
a. 17
b. 21
c. 23
d. 42

65.

There are three shopping locations with 300, 500, and 1,000 square feet of space allocated to
lighting accessories. A group of potential customers lives 5 minutes from the first location, 10
minutes from the second location, and 15 minutes from the third location. The retailer estimates
the effect of travel time to be 1. The probability of consumers shopping at location 2 _____.
a. is 28 percent
b. is 34 percent
c. is 38 percent
d. cannot be determined from the information provided.

130

Multiple Choice - Applied/Comprehensive/Integrative


66.

The optimal type of economic base is a _____ economic base.


a. specialized
b. commercial
c. governmental
d. diversified

67.

Retailers seeking to study the population characteristics of small trading areas should utilize
_____.
a. the Census of Population
b. the American Community Survey
c. Editor & Publisher Market Guide
d. Survey of Buying Power

68.

Blocks and census tracts are important units in the Census of Population to small retailers since
_____.
a. this data is free
b. this data is timely
c. retailers can combine blocks and tracts to resemble their trading area
d. online computer tapes are available

69.

A consultant found that an areas economic base was heavily diversified with a mix of different
types of industrial employment sources. The consultant learned this from _____.
a. Survey of Buying Power
b. Editor & Publisher Market Guide
c. Census of Population
d. Sales & Marketing Management

70.

Retailers are often unable to earn an adequate return on investment in which type of location?
a. overstored
b. saturated
c. understored
d. zone of indifference

True-False - Terminology/Concept
71.

Store location decisions are usually short-term decisions.


(F; Moderate; p. 227)

72.

The description of a trading area is the first stage in an analysis of a retail store location.
(T; Challenging; p. 227)

73.

The trading-area overlap region represents customers who are served by two or more branch units
of a chain.
(T; Moderate; p. 229)
131

True-False - Terminology/Concept
74.

The notion of trading-area overlap is particularly relevant to chains.


(T; Moderate; p. 229)

75.

Geographic information systems enable retailers to see graphical depictions of trading-area


characteristics for current, proposed, and competitor locations.
(T; Challenging; p. 230)

76.

The fringe trading area has the highest density of customers to population.
(F; Challenging; p. 234)

77.

A retailers most loyal customers comprise its fringe trading area.


(T; Challenging; p. 234)

78.

Two types of stores can have different trading areas even though they are located in the same
shopping district/center.
(T; Challenging; p. 234)

79.

A destination store has a larger primary, secondary, and fringe trading area than other stores in the
same shopping center.
(T; Challenging; p. 234)

80.

A store that has no trading area of its own is a parasite.


(T; Moderate; pp. 234-235)

81.

If the use of credit varies among different geographic areas, credit-card customer analysis will
accurately reflect a stores trading area.
(F; Challenging; p. 236)

82.

In general, retailers prefer an area to have a specialized (as opposed to a diversified) economic
base.
(F; Challenging; p. 240)

83.

The major advantage of Census of Population data is that they are available annually.
(F; Moderate; p. 243)

84.

Each retailer is unable to earn an adequate return on its investment when an area is overstored.
(T; Challenging; p. 247)

85.

An areas level of saturation can be calculated by examining average sales per retail store, store
sales per capita, and sales per square foot of selling area.
(T; Moderate; p. 247)

True-False - Applied/Comprehensive/Integrative
86.

The size of a retailers trading area is based solely upon residents, not employees in office
buildings or factories.
(F; Moderate; pp. 228-229)

132

True-False - Applied/Comprehensive/Integrative
87.

Geographic information systems enable retailers to easily scan a wide variety of potential
locations.
(T; Challenging; p. 230)

88.

The major proportion of a retailers promotional effort should be directed at its primary trading
area.
(T; Moderate; p. 234)

89.

It is important for parasite retailers to delineate their trading area to properly direct their
promotional efforts.
(F; Challenging; pp. 234-235)

90.

In a shopping district, a destination store has the largest trading area, whereas a parasite has no
trading area of its own.
(T; Challenging; pp. 234-235)

91.

Trading-area delineation is more exact for new stores than for existing stores.
(F; Challenging; pp. 236, 237)

92.

Current traffic patterns (both vehicular and pedestrian) can be used to delineate the trading area of
a new store.
(F; Moderate; p. 237)

93.

In general, regression-based computer site selection models are simpler than analog-based
computer site selection models.
(F; Challenging; p. 237)

94.

City A is 4 times greater in population than city B. If the cities are 20 miles apart, the point of
indifference is 13.3 miles from city A based on Reillys law.
(T; Challenging; pp. 237-238)

95.

According to Reillys law of retail gravitation, if two cities have populations of 100,000 and
400,000 people and are 20 miles apart, the point of indifference is located 6.7 miles from the
smaller city.
(T; Challenging; pp. 237-238)

96.

Three shopping locations devote 1,000, 3,000, and 5,000 square feet to luggage. A group of
potential customers lives 5 minutes from the first location, 10 minutes from the second, and 20
minutes from the third. A luggage retailer estimates the effect of travel time to be 1. The
probability of consumers shopping at location 1 is 40 percent.
(F; Challenging; pp. 238-239)

97.

The best economic base for a retail area is a diversified economic base.
(T; Moderate; p. 240)

98.

Most data on the characteristics of residents of specific trading areas are primary data.
(F; Challenging; p. 243)

99.

A major advantage of the Census of Population is that data on blocks and tracks can be combined
to match the size and shape of a retailers trading area.
(T; Challenging; p. 243)
133

True-False - Applied/Comprehensive/Integrative
100.

An area can be understored with regard to one type of good or service and overstored with regard
to another type of good or service.
(T; Challenging; p. 247)

Essay
101.

Why is the concept of trading-area analysis so important for a retailer?


(pp. 228-230)

102.

What amount of trading-area overlap is optimal for a retail home-improvement center chain?
Explain your answer.
(p. 229)

103.

Describe the benefits to the use of geographic information systems over manual methods of data
collection and analysis.
(pp. 230, 233)

104.

a. Differentiate among primary, secondary, and fringe trading areas.


b. Which trading area is most important for a housewares retailer planning to open a mail-order
operation? Explain your answer.
(p. 234)

105.

Since a parasite does not create its own traffic, should it conduct a trading-area analysis? Explain
your answer.
(pp. 234-235)

106.

Explain how a computer retailer can delineate the trading area for an existing store using
secondary data.
(pp. 236-237)

107.

a. Differentiate among analog, regression, and gravity models for trading-area delineation.
b. What types of models are Reillys law and Huffs law? Explain your answer.
(pp. 237-238)

108.

a. Differentiate between the use of Reillys law and Huffs law in delineating the trading area of
a new store.
b. Compute the point of indifference using Reillys law when the population of city A is 10,000,
the population of city B is 160,000, and the distance between A and B is 15 miles.
(pp. 237-238)

109.

Three shopping locations have 1,000, 1,500, and 3,000 square feet of space devoted to mens fine
pipe and tobacco retailing. A group of potential customers live 5 minutes from the first location, 7
minutes from the second location, and 15 minutes from the third location. A retailer estimates the
effect of travel time to be 2. Compute the probability of consumers shopping at each location
using Huffs law.
(pp. 238-239)

134

Essay
110.

a. Is the study of an areas economic base still important when 60 percent of an areas residents
are state government employees? Explain your answer.
b. Is the study of an areas economic base still important when 60 percent of an areas residents
are retired? Explain your answer.
(pp. 240-242)

111.

What kind of data on population characteristics can a retailer obtain from the Census of
Population? From the American Community Survey? From Editor & Publisher Market Guide?
(pp. 243, 245, 246-247)

112.

Explain how a supermarket retailer can estimate the degree of market saturation for a given
location.
(pp. 247-248)

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