Retail Marketing

Trading Area Analysis

Rohit Pai (201911035)

1. Segments of a Trading Area

Generally, a trading area may be divided into primary, secondary and tertiary zones. The

primary zone is the first layer of any trading area that provides 60-65% of its customers. It is

close to the store and includes nearby colonies and residential areas. The secondary zone is

the geographical area that contains around 20% of the total customers of the respective store

in terms of customer sales and merchandise demanded.

The tertiary zone/fringe trading area commonly known as outermost circle contains the

remaining 10- 15% customers, who occasionally visit the store and shop. These are the

customers who travel a long way to reach the store because their nearby stores are not able to

fulfil the local demand. Further, there are some forces of attraction that lure the customers

from tertiary zone such as wide merchandise assortment, lower pricing policy, payment

options and high-level customer service.

Whatever the continent, country may be, each trading area may be studied under three

zones:

2. Destination vs Parasite Stores

Destination Store –
Destination stores are retail stores that combine several attributes to make it very attractive
to the consumers. It prompts the consumers to make a special visit to the store for shopping
even if the location is not very convenient for the consumers.

It is basically a giant store that provides their customers that combines elements like, large
categories of department stores, large size of shopping malls, discount deals of discount
stores, unique and innovative ways of displays and interactions, fun of recreation centers etc.
It appeals to the consumer to such an extent that it diminishes the line between a store and fun
destinations in consumer’s mind.
EXAMPLES
Suppose, there is a company called “SKATER’S”, selling Skates and sports accessories.
Skater’s built a skating rink along with a place to eat and providing a wholesome
environment for a family to enjoy. Then this store is attracting consumer as a destination to
enjoy as well a place to shop. Thus, this store is a destination store.

How to become a Destination Store?

The key to become a destination store lies in the following considerations:

1. Retail location:

Once a new-comer retailer asked from a successful retailer “what is the secret of your

success?” He answered that the most important consideration is the ‘location’. No doubt,

some locations are better than others in some aspects.

It includes convenience, cleanliness, proximity to residential area, quality, selection,

customer service and handling the customers. For instance, to have a franchisee of ‘Agarwal

Sweet Corner’ in NCR, Delhi, requires you to have a corner shop located either at the end of

the road or street.

2. Service that attracts:

Somebody said, today is the world of retailing, it is not the product but the customer service

that gives you the profit. A product is available in different types of stores or shops but if the

customer prefers to go to a particular store then the answer is simple – it’s the welcome and

way of handling that attracts the customer to visit a particular store.

If all retailing factors are equal and same like quality, price, presentation and selection of

goods displayed between your retail store and other nearby stores, then you will find it is

‘customer service’ that makes your store a dream (destination)store.

Here is a list that can be beneficial to make your store customer savvy:

a. Proximity to your store;

b. Does your store meet what is publicized and presented within the store?

c. Does your store invite strangers or casual shoppers from outside?

d. Are your windows neatly cleaned and displays kept up regularly?

e. Do you have enough parking place;

f. Have you heard customers talking about your customer service;

g. Convenience.

Each retailer is not fortunate enough to have a good location. Sometimes, you have no

shortage of funds and human resources but suitable location is not available in the area where

you have planned to open a retail store. Here you have nothing to do about a bad location

except make it convenient to the customers. Convenience here implies ‘can a shopper get in

and out of the store quickly and easily?’ For a retailer, it means, blend of full and self-service

system, variety of merchandise assortments, regular fill up of racks and provision of customer
complaint handling.

3. Unique Signage:

Signage is a non-living thing that speaks much and have long lasting impact on the

customers’ memory, whatever people have opinion about McDonald’s Restaurants, one can

find their signage a kilometre away and those golden arches speak enough to kids and compel

their parents to visit without questioning.

In retail competition, nothing is less important in a destination store than badly presented

signs in the stores, signs and windows that are never cleaned, falling apart or otherwise

ignored. This is not to be considered in case of a single store but is important if you are
planning to open more than one outlet. If you can create a unique identity that shoppers

believe and relate to, it will help you (retailer) to a large extent in case of multiple outlets.

Parasite Store –

A parasite store is a small store/outlet, which neither has its own floor area nor its own

customer traffic. The size, nature and timing of these stores, depend on people/ visitors who

are drawn to that location for their own reason. The reason for their visit may be to meet

government officials, attending a Seminar or Conference in a Hotel, or Railway/Airline

booking.

A Coffee Parlour in a Shopping Centre, a Magazine and Newspaper Stall in a Hotel Lobby

and a Hair Salon/Beauty Parlour in a PVR Cinema Complex, all are examples of Parasites.

The purpose for using the term ‘parasite’ is to convey the sense that customers visit these

locations not because of their presence but patronize these stores while they are there.

Parasite store depends on existing traffic flow of a shopping centre or retail business area. In

actual, as such, it has no identity of its own and standing in the line of retail business.

Customers visit these stores not because of its sales promotion efforts, customer service, store
image and merchandising efforts, but the circumstantial visits made by the customers to these

hosts (shopping complexes, malls, hotels, government offices, public places or railway/Metro

stations).

Characteristics:

a. It does not have its own trading area.

b. It does not have its own customer traffic flow.

c. Its activities are dependent on the main host;

d. It usually has less/no competition within the host area.

e. It has limited product range.

3. Trading areas and store types

Types of Retail Stores

1. Department Stores
This type of retail outlet is one of the most complex types of establishments that offer a wide
range of products. It can be compared to a collection of smaller retail stores managed by one
company. Department stores are well-known for offering products at different pricing levels
and for the variety of products that they offer. Some of the common examples of department
stores include Macy’s, Shoppers Stop, and Kohl’s.

2. Specialty Stores
Specialty stores are retail establishments that focus on one or two specific categories of
products. They are known for having a very narrow product line. A characteristic trait of
customers of specialty stores is that they are generally less price-driven. These outlets
specialize in a given type of merchandise like men’s clothing, children’s clothing, and
sporting goods.
3. Supermarkets
Supermarkets are one of the most common types of retail outlets. They are large,
departmentalized, self-service stores that specialize in food and some non-food items. FMCG
products are the main focus in such stores when compared to consumer durables. The product
assortment is given great importance in supermarkets as the products need to be displayed in
a manner such that customers get attracted to them, and they sell faster.

4. Convenience Stores
Usually located in residential areas, convenience stores offer a limited range of products at
premium prices due to the added value of convenience. They are generally small
establishments that have limited depth in their product line. Such outlets are known for giving
super-fast service with a focused approach.

5. Discount Stores
As the name clearly suggests, discount stores give considerable discounts on the products that
they sell. Discount stores compete on the basis of low prices, high turnover, and high volume.
One of the best examples of this type of retail format is Walmart whose tagline boasts of
saving money.

6. Hypermarkets or Super Stores

Hypermarkets are one step ahead of supermarkets. These stores are huge in size and have
many different categories under their belt. These stores are generally not found in malls,
rather they are the size of malls themselves. Popular examples of this format of stores are
Tesco, Asda, and Costco.

4. Delineating Trading Area of an Existing Store

The size, shape, and characteristics of the trading area for an existing store or group of stores
can be learned accurately with the help of secondary and primary data based on store
records, contests, recording license plate numbers, surveys, and so on. Time biases must be
considered in amassing data. Results should be mapped and customer densities noted.
5. The Trading-Area of a New Store

Potential trading areas for a new store must often be described in terms of opportunities,
rather than current patronage/expenditure and traffic. Trend analysis and consumer surveys
may be used. Three computerized models are available for planning a new store location:
analog, regression, and gravity. They offer several benefits.

A. Trend analysis:

Trend analysis is to find patterns in data, such as ups & downs. A “trend” is an upwards or
downwards shift in a data set over time. In retail, this analysis of past trends in sales or
revenue; allows to predict the future market. This analysis useful for budgeting and
forecasting. Total sales of any business on a trend line may obtain some significant
information.

Advantages of overall trend analysis

1. Mostly used for budgeting and forecasting.

2. To determine are we meeting our sales goals.
3. Provides easy, measurable way to track our progress.
4. Inform the increase in sales at what percentage from last year or over the year.

B. Consumer Survey:

Consumer Survey is a source to obtain information about consumer satisfaction levels with
existing products and their opinions and expectations regarding new products and
services. These surveys are key sources of crucial information from the consumers which in
turn can heavily impact a company’s overall performance. It helps the marketers to gain real-
time insights if done correctly. It is conducted through filling paper questionnaires, face-to-
face interviews and online consumer surveys.

C. Computerized trading-area analysis models

i. Analog Model

ii. Regression Model

iii. Gravity Model

Two techniques for delineating new trading areas are Reilly’s law, which relates the
population size of different cities to the size of their trading areas; and Huff’s law, which is
based on each area’s shopping assortment, the distance of people from various retail locales,
and the sensitivity to travel time. (Which will be explained by my friend Alok).