The process of estimating or measuring store trade areas provides a fundamental basis for understanding the geographic extent and characteristics of store patronage, target marketing, cannibalization studies and identifying market opportunities in support of site selection.
Since its inception, Geographic Information System (GIS) technology has been used to approximate or model retail trade areas. Traditionally, radial ring-based studies, drive time analyses or gravity models are used to summarize and characterize store patronage areas and demographics.
The recent availability in-house customer level point-of sale data has created a new way for retail organizations to explore and evaluate the spatial characteristics of their customer base and the marketplace. These data are now being used operationally to map store trade areas, determine geographic buying profiles, aid in the evaluation of spatial factors which may influence demand, and derive predictive indices for future market growth.
This paper provides a review of traditional GIS based trade area analysis techniques, and introduces a revolutionary new approach that is based on the use of customer level point-of-sale data.
Trade area analysis is a methodology, process or technique that provides a basis for understanding, (visualizing) and quantifying the extent and characteristics of known or approximated trade areas.
Trade area analysis provides the foundation for:
Traditionally, trade area analysis is performed using theoretical techniques that are used to approximate the potential patronage area. Theoretical approaches are used in those cases where actual customer level data is not available. Three types of theoretical approaches are commonly employed, including:
Donald B. Segal, GISP, is an expert in the area of Geographic Information Systems (GIS) and Spatial Analytics as applied to retail trade area delineation, site selection, and demographic analyses. He has worked with spatial data for over 35 years and has developed a unique understanding of trade areas, and the effects of competition and other factors on trade areas and store performance.
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