Geodemographic Analysis

 Location
Analysis with a
Gravity Model
Geodemographic Analysis:
Gravity Model

 Tool for location decisions:

Assessment of the potential value of a planned new site or a
planned expansion (users: city planners, real-estate
appraisers, retailers).

 Integration of geo-codes with other information:

 microlevel data
 socioeconomic/demographic characteristics
 (census data) on shoppers
 location of competing sites, drive times,
etc.
 site (retail center)-specific factors

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Analysis 2006 - 2
 The Gravity Model:
A Discrete Choice Model

Probability that an individual i will choose a store j of a

set of N competing stores

α β
Vij Sj / Dij
Pij   α β
 Vin  S j / Dij
nN nN
where:
Sj=Index of store attractiveness (eg, Gross Leasable Area).
Dij=Distance of store j from center of zone i (eg, MicroGrid).
=Attractiveness coefficient.
=Distance coefficient (“distance decay factor”).
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Analysis 2006 - 3
 Gravity Model—
Example Computations
Store image
(Index averagesDistance from (Store Image)  Choice
to 100) Geographic Unit (Distance)  Probability (Pij)


Store 1 100 520.0 0.17
Store 2 100 333.3 0.29
Store 3 75 237.5 0.32
Store 4 125 525.0 0.22

Store 1 100 5 4.0 0.10
Store 2 100 311.1 0.29
Store 3 75 218.8 0.48
Store 4 125 5 5.0 0.13

Store 1 100 52000.0 0.18
Store 2 100 33333.3 0.29
Store 3 75 22812.5 0.25
Store 4 125 53125.0 0.28
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Implementing the Gravity Model
(New Site Location)

1.Define market area.

2.Obtain data about competition (eg, store size, storage

image).

3.Compute distances form each store to each zone.

4.Calibration of the gravity model in each area given current

market shares.

5.Use the estimated coefficients (eg, distance decay and site

attractiveness exponents) to evaluate different prospective
locations for the new site.

6.Assess the validity of the market share estimates.

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Analysis 2006 - 5
Advantages/Limitations of the
Gravity Model

+ Accounts for competition

– Assumes that “distance matters”

– Independence of irrelevant alternatives

(IIA)

– No natural or social barriers

– Computational burden and relatively high

level of complexity

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Analysis 2006 - 6