Trading-Area Analysis

Submitted to: Submitted by: Group 13

Dr. T.K.Chatterjee
Alok Anand
(201911003)
Anamika Mishra (201911004)
Deven Atul Joshi (201911009)
           Rohit Jappu Pai (201911035)
                                                            Shivam Juneja (201911039)
                                                            Lakshay Jhalani (201912070)
                                                            Tanay Dubey (201912096)
 Trading-Area
• What is Trading area??
A geographic area where we find the customers of a particular firm or group
of firms for specific goods or services.
For example: People living nearby a restaurant or hotel.
 Key criteria for an ideal Location
• Population size and traits
• Competition
• Transportation access
• Parking availability
• Nature of nearby stores
• Property costs
• Length of agreement
• Legal restrictions
 Choosing a Store Location
• Evaluating alternate geographic (trading) areas in terms of residents and
existing retailers
• Determining if to locate as an isolated store or like an organised shopping
center
• Selecting the location type
• Analysing the alternate sites present in a particular retail location type
 Benefits of Trading-Area Analysis
• Discovery of consumer
demographics and socioeconomic
characteristics
• Opportunity to determine focus of
promotional activities
• Opportunity to view media
coverage patterns
• Assessment of effects of trading area
overlap
• Ascertain whether chain’s
competitors will open nearby
• Discovery of ideal number of
outlets, geographic weaknesses
• Review of other issues (e.g.
transportation)
 Geographic Information System (GIS)
• Framework for gathering, managing and analyzing data.
• It analyzes spatial location and organizes layers of information into
visualizations using maps and 3D scenes.
• Reveals deeper insights into data, such as patterns, relationships, and
situations.
 How GIS works?
• GIS technology applies geographic science with tools for understanding
and collaboration.
•  It helps people reach a common goal: to gain actionable intelligence from
all types of data.
 GIS and retail
• Used to find the best location
• To gain insights about customers
• To find the rationale behind purchases happening at a particular place.
Segments of a Trading Area
Destination Stores vs Parasite Stores
Trading areas and store types
 Delineating Trading Area of an Existing Store

• Secondary Data
• Primary Data
 The Trading-Area of a New Store

• Trend analysis
• Consumer surveys
• Computerized trading-area analysis models
Computerized Trading-Area Analysis Models

• Analog Model
• Regression Model
• Gravity Model
 Analog Model
• Potential sales are estimated on the basis of following parameters:
i. Revenues for similar stores in existing areas
ii. Competition at prospective location
iii. New store’s expected market share
iv. Size and density of the location’s primary trading area
 Regression Model
• It uses a series of mathematical equations
• Potential store sales is the dependent variable
• Population size, average income, the number of households, nearby
competitors, transportation barriers, traffic patterns are some independent
variables
• Based on dependent variable and independent variables it shows the
association
 Gravity Model
• Based on the premise that people are drawn to stores that are closer and
more attractive than competitors’ stores
• Distance between consumers and competitors, the distance from
consumers to a given site and store image is included in this model
 Reilly’s Law
• Establishes a point of indifference between two cities or communities, so
that trading area can be determined
• Two assumptions on which it rests are:
i. Two competing areas are equally accessible from a major road
ii. Retailers in the two areas are equally effective
 Reilly’s Law
 
• Algebraically expressed asD ab=
𝑑
Pb
1+
Pa√
Where, Dab = Limit of the city A’s trading area
d = Distance in miles along a major roadway between cities A &
B

Pa = Population of city A
 Exercise: Reilly’s Law
• Cities A and B are 45 miles apart. City A has a population of 400,000 and
City B has a population of 100,000. According to Reilly's law, what is the
point of indifference?
 
• Ans: Use the formula, D ab=
𝑑
Pb
1+
Pa √
 Solution (Contd.)
•   45
Dab= =30 𝑚𝑖𝑙𝑒𝑠
100,000
1+

City A
√
400,000
30 miles Point
of
10 miles
City B
indiffe
rence
 Limitations of Reilly’s Law
• Distance is only measured by major thoroughfares; some people will
travel shorter distances along cross streets
• Travel time does not reflect distance traveled. Many people are more
concerned with time traveled than with distance
• Actual distance may not correspond with perceptions of distance
 Huff’s Law
• Delineates delineates trading areas on the basis of the product assortment
(of the items desired by the consumer) carried at various shopping
locations, travel times from the shopper’s home to alternative locations,
and the sensitivity of the kind of shopping to travel time
Where,
• Expressed as Pij = Probability of consumer’s traveling
from home
Sj = Square footage of selling space
Tij = Travel time from consumer’s home
λ = Parameter used to estimate the effect
of travel time
n = Number of different shopping
locations
 Exercise: Huff’s Law
• Compute the probability of consumers’ traveling from their homes to
each of three shopping areas: square footage of selling space—Location 1,
15,000; Location 2, 20,000; Location 3, 25,000; travel time—to Location
1, 15 minutes; to Location 2, 21 minutes; to Location 3, 25 minutes;
effect of travel time on shopping trip— 2
Where,
• Ans: Pij = Probability of consumer’s traveling
from home
Sj = Square footage of selling space
Tij = Travel time from consumer’s home
λ = Parameter used to estimate the effect
of travel time
n = Number of different shopping
locations
 Solution (Contd.)
•  

The probabilities of consumers, traveling to locations 1, 2, and are 43.9 %, 29.8% and 26.3
%, respectively.
Elements in Trading-Area Selection
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Population Size and Characteristics

Total Size and Density
Age Distribution
Average Education Level
Percentage of Residents
Owning Homes
Total Disposable Income
Per-Capita Disposable Income
Occupation Distribution
Trends
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Availability of Labor
Management
Management Trainees
Clerical
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Closeness to Sources of Supply

Delivery Costs Number of Wholesalers
Promptness Availability of Product
Lines
Number of Manufacturers Reliability of Product lines
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Economic Base
Dominant Industry Freedom from Economic Fluctuations
Extent of Diversification Availability of Credit and Financial
Facilities
Growth Projections
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Competitive Situation
Existing Competition Short and Long Run Vision
SWOT Analysis of Competitors Level of Saturation
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Availability of Store Locations

Number and Type of Store Locations Owning vs Leasing
Access to Transportation Zoning Restrictions
Costs
 Chief Factors to Consider in Evaluating Retail
Trading-Areas

Regulations
Taxes Minimum Wages
Licensing Zoning
Operations
 The Digital Opportunity For Small Retailers

• Small retailers contributes to 85%

• Lack of scale
• Use own resources and delivery system
• Social Commerce plays vital role here
 Indian Retail Sector
• Increasing market with increasing retailors
• Projected to overtake US E-commerce, till 2034
• Emergence of Kiranas
• Mobile Commerce
• Artificial Intelligence and Machine Learning
Change in Trend - Retail
Thank You Sir !!