BATANGAS STATE UNIVERSITY

COLLEGE OF ENGINEERING, ARCHITECTURE, AND FINE ARTS

MUPD 614 - Concepts and Techniques of Urban and Regional Planning

Manuscript - Market Area Analysis

Submitted to:
JOSUE O. MIRABITE, EnP
Lecturer/Professor

FALTADO, LARA GALE : 21-06702

July 2023
Market Area Analysis

The market area analysis is a comprehensive examination of a specific

geographical region to understand its market potential and opportunities. This analysis

aims to provide businesses with valuable insights into the market dynamics, customer

behavior, competition, and growth prospects within the designated area.

The analysis begins with an introduction, outlining the purpose and objectives of

the study. It also describes the scope and methodology used to gather data and conduct

the analysis.

The market overview section provides a detailed understanding of the market

area. It includes information about the region's size, population, and demographics.

Additionally, relevant economic factors such as income levels and employment rates are

explored to gauge the overall purchasing power and market stability.

The competitive analysis delves into the main competitors within the market area.

Their market share, strengths, weaknesses, and competitive strategies are assessed to

understand the competitive landscape. This information is crucial for businesses to

identify their positioning and differentiate themselves effectively.

Understanding the target customers is a key aspect of the market area analysis.

The customer analysis section focuses on identifying the characteristics, preferences,

and purchasing behavior of the target customer segments. By analyzing customer

trends and demand patterns, businesses can align their offerings to meet customer

expectations effectively.
 Conducting a SWOT analysis is an integral part of the market area analysis. This

analysis assesses the internal strengths and weaknesses of businesses within the

market area, as well as external opportunities and threats that may impact their

operations. It helps businesses gain a holistic perspective of their market position and

make informed decisions.

Determining the market potential and growth opportunities is crucial for

businesses to capitalize on untapped potential. The analysis examines the market's

size, trends, and future prospects. It identifies specific growth opportunities and

emerging market segments that businesses can target to expand their customer base.

Based on the findings, the report concludes with recommended marketing

strategies. These strategies encompass positioning, branding, pricing, distribution, and

promotional tactics that align with the market area analysis. Implementing these

strategies can help businesses leverage the identified opportunities and gain a

competitive advantage.

In summary, the market area analysis provides businesses with valuable insights

into the market dynamics, competition, customer behavior, and growth opportunities

within a specific geographical region. Armed with this knowledge, businesses can make

informed decisions and formulate effective marketing strategies to succeed in their

target market.
What is Market Area Analysis?

A market area is a surface over which a demand or supply offered at a specific

location is expressed.

Market threshold

Minimum demand necessary to support an economic activity such as a service.

Since each demand has a distinct location, a threshold has a direct spatial dimension.

The size of a market has a direct relationship with its threshold.

Market range

The maximum distance each unit of demand is willing to travel to reach a service

or the maximum distance a product can be shipped to a customer. The range is a

function of transport costs, time, or convenience in view of intervening opportunities. To

be profitable, a market must have a range higher than its threshold.

Single market area

Its shape in an isotropic plain is a simple concentric circle having the market

range as the radius.

 The above figure considers a fairly uniform distribution of customers on an

isotropic plain and a single market where goods and services may be purchased. There

are different thresholds according to the variety of products or services that can be

offered on the market.

Market Size and Threshold

There is a direct relationship between market size and threshold, which impacts

the geography of retail. Each urban center needs a threshold population that varies

according to its size to support its activities.

Market

Profitability

A market area has a range and a threshold that determine the profitability of the

economic activity that is generating it. The threshold is the minimal market area an

activity must have to stay in operation. It represents the spatial threshold of profitability

where spatial attributes such as population density and income have an important

influence in its assessment. The range is the effective market area of an activity from

which it draws its customer base.

Economic Definition of a Market Area

A market depends on the relationships between supply and demand. It acts as a

price-fixing mechanism for goods and services.

Demand is the quantity of a good or service that consumers are willing to buy at

a given price. It is high if the price of a commodity is low in relation to its usefulness,

while in the opposite situation – a high price – demand is low.

Demand can generally be influenced by the following factors:

● Utility

● Income level

● Inflation

● Taxation

● Savings

Supply is the number of goods or services that firms or individuals are able to

produce, taking into account a selling price.

Supply can generally be influenced by the following factors:

● Profits

● Competition

According to the market principle, supply and demand are determined by the

price, which is an equilibrium between both. It is often called the equilibrium price or

market price. This price is a compromise between the desire of firms to sell their goods
and services at the highest price possible and the desire of consumers to buy goods

and services at the lowest possible price.

According to conventional economic theory market price is fixed by the following

mechanism:

Demand

The demand curve D illustrates the variation of a demand Q in relation to the

variation of a price P. This function is often characterized by an inversely proportional

curve where demand drops when the price increases (and vice-versa). If the price of a

good or service is too high (P1), the demand drops (Q1), while in the opposite situation

(low price; P2), the demand grows (Q2).

Supply

The supply curve S illustrates a supply variation according to a variation of price

P. This function is characterized by a directly proportional curve where supply increases

as the price increases. Supply grows (Q1 to Q2) when the price increases (P1 to P2)

since profits would be higher.

Equilibrium Price

The intersection of the demand curve D and the supply curve S represents the

equilibrium price Pe where a quantity Qe of goods will be sold. Changes in the market

regarding demand or supply (moving curves D or S to the left or the right) will change

the equilibrium price.

Competition over Market Areas

Competition involves similar activities trying to attract customers from a similar

pool. Although the core foundation of competition for a comparable good or service is

the price, there are several spatial strategies that impact the price element. The two

most common are:

Market coverage

Activities offering the same service will occupy locations in view of offering

goods or services to the whole area. This aspect is well explained by the central place

theory and applies for sectors where spatial market saturation is a growth strategy

(convenience stores, fast food, coffee shops, etc.). The range of each location is a

function of customer density, income distribution, transport costs, and the location of

other competitors.
 Range expansion

Existing locations try to expand their ranges in order to attract more customers.

Economies of scale resulting in larger retail activities are a trend in that direction,

namely the emergence of shopping malls. Taken individually, each store would have a

limited range. However, as a group, they tend to attract additional customers from wider

ranges. First, a complementarity of goods or services is offered. A customer would thus

find it convenient to be able to buy clothes, shoes, and personal care products at the

same location. Second, a diversity of similar goods or services is offered (more choice)

even if they compete with one another. Third, other related amenities are provided, such

as safety, food, indoor walking space, entertainment, and parking space.

Geographic Information Systems and Market Areas Analysis

Geographic Information Systems (GIS) have become fundamental tools for

evaluating market areas, especially in retailing. With basic data, such as a list of

customers and their addresses (or ZIP codes), it is relatively simple to evaluate market

areas with reasonable accuracy. This task would have been much more complex

beforehand. With GIS, market area analysis left the realm of abstraction to become a

practical tool used by retailers and service providers in complex real-world situations. In

the spatial representation of a GIS, the market area is a polygon that can be measured

and used to perform operations such as intersection (zones of spatial competition) or

union (area serviced). Among the major methods a GIS can be used to evaluate market

areas are:
 Concentric circles - The simplest method since it assumes an isotropic effect of

distance in all directions. The radius represents the maximum distance a customer is

willing to travel. It is useful to have a rough overview of the situation when limited

information is available.

Share by polygon - When data is available at the zonal level, such as the ZIP

code, the market area can be expressed as a market share for each zone.

Star map - Composed of straight lines between each customer and location. It

thus requires information and the location of each customer. It indicates the extent and

the shape of the market area and is particularly relevant for distribution systems where

relationships between distribution centers and their customers are shown.

Spatial smoothing - A trend surface based on the location of actual customers.

The higher the density of customers (the importance of each customer can be

weighted), the higher the membership to a market area.

 Transport distance - Particularly useful for retailing or any activity that depends

upon consumer accessibility or timed deliveries. A measure of transport distance, often

driving time in minutes, is calculated on-road segments radiating from the facility

location. Under such circumstances, the market area is a direct function of the

efficiency, connectivity, and accessibility of the local transport systems.

Manual polygon - Based on the local knowledge, common sense, and

judgment. It may implicitly consider other methods.