Trade area definition
 

Quantifying and understanding the supply and demand of goods and services in your trade area is foundational to evaluating the performance of existing facilities and also planning for future expansion.  The Trade Area Solutions core expertise is being able to estimate a network of trade areas using our spatial economic framework.  Its major advantage is that it ensures a complete and accurate supply and demand picture by accounting for the growing portion of consumer purchases between trade areas.  Please click here for a complete explanation of our trade area framework and its major benefits.

Trade Area Solutions also provides "quick and dirty" trade area definitions such as circles and customer point-of-sale derived polygons.  We believe, however, that these conventional trade area techniques are false economy.  Click here for a background as well as the major economic problems associated with conventional trade area analysis. 

Large urban trade area example

Small town trade area example

Supply/competitive analysis
 

Supply analysis helps you better understand how the competitors in your trade area service the total demand.  Competitors are mapped and a competitor area profile is built for each competitor which can include the following information: location, facility size and condition, hours of operation, site variables (accessibility, parking, visibility, traffic flow, ingress/egress, congestion) and in-store variables (merchandise selection, presentation, space and management).  These profiles normally begin with a business database and then are built using primary research.  They can be quite general or they can be very detailed depending on the specific application.

The competitor profile is used to develop a number of indices that are further used in the trade area definition framework, competitor market shares by product category, untapped market potential calculation and sales forecasting.  As a result, the more detail that is collected at this stage results in more detail and accuracy in final analysis.

Demand analysis

Demand analysis looks at the complete trade area market size.  Its purpose is to accurately calculate the market size by product category and better understand the demographic characteristics of your trade area.  Trade Area Solutions is very familiar with numerous data sources that allow an accurate estimate of consumer spending by specific category.  We have access to the most up-to-date consumer demand data with over 600 expenditure variables.  Consumer demand analysis also forms the foundation for future micro-level consumer research aimed at better understanding consumer purchasing behavior.

A consumer area profile of demographics and other characteristics is built for each trade area.  A sample of the factors we can profile include population, age distribution, number of households, ownership/renting, household disposable income, education, etc.  We have access to a number of different data sources including Statistics Canada Census statistics.  It is often useful to compare the above variables to a benchmark for a larger geographical area such as a province or a major urban center.

Customer analysis

Customer analysis looks at your customer base and compares them to the total demand.  The first step of this process is to map all the customers and then do a geographic analysis of where these sales are within the trade area.  In addition, customer point-of-sale data is also compared in relation to the trade area boundaries to analyze under penetrated regions of your trade area which can then be used to develop additional marketing strategies such as target marketing.  One type of analysis is a simple customer origin analysis.  It answers questions such as:  How far do our customers travel?, Where are they concentrated within the trade area?, and What is the impact of distance on sales?  A graphic of customers is produced (also used to validate the trade area) with a distance decay report.

Performance metrics

Analyzing the performance of a facility brings together and compares supply and demand.  Market share is one of the most common performance metrics and is calculated and analyzed by product category as data permits.  Customer point-of-sale data is mapped within the trade area and comparing against total market size statistics.  

The reality of business is that stores in different locations will have different market shares for a number of reasons including the impact of competition.  Market share statistics, however, don't include the impact of competition.  As a result, Trade Area Solutions also calculates an untapped market potential performance metric.  Untapped market potential is defined as target sales - actual sales.  Target sales are calculated as an important byproduct of the indices developed in the supply/competitive analysis.

The end result is is untapped market potential metric that includes the full impact of competitors within a trade area and allows for a direct comparison between a network of existing facilities, and new potential sites by individual goods and services despite very different competitive profiles.

The calculation of untapped market potential for both existing facilities and new potential sites through the use of the supply analysis (destination data) is an important advantage of our market research framework.  This often removes the need to spend additional resources on further site evaluation modeling or analysis such as a spatial interaction models (based on consumer origin data) to better forecast sales and/or calculate untapped market potential.

Sales forecasting

Forecasting sales is one of the natural end products of trade area analysis.  Our advantage is that we don't forecast sales in isolation from major competitors.  We forecast sales for all major competitors with information from the supply/competitor analysis which ensures a much higher level of accuracy. 

Although there is no perfect prediction tool given the numerous factors and the potential for future change, the key is a high level of understanding of the supply and demand within the trade area.  Since our framework builds a complete supply and demand picture, sales forecasting is a natural byproduct of this process.  We also have extensive forecasting experience and have the ability to use a variety of intuitive, econometric, and GIS solutions when necessary.  Often the best and most accurate forecasting method is also the simplest.

The sales forecasting process utilizes the profiles and indices developed in the supply and demand analysis.  The key supply and demand drivers are identified and analyzed, which can then be fed directly into a firm's marketing strategy, as well as site selection studies.  We can also perform a complete probabilistic risk assessment of the sales forecasting results.

Trade area profiling/facility sizing

Trade area profiling involves the clustering of trade areas based on both supply and demand variables such as consumer variables, retail facility characteristics, market shares, sales, trade area size, and the nature and strength of competitors.  This becomes extremely valuable when analyzing the optimal size of a new facility.  One of the most common mistake in site selection is to allow the forecast of sales or untapped market potential to determine the size of a new facility.  The Trade Area Solution framework coupled with our supply and demand analysis sizes new potential sites so that sales forecasts can also accommodate capital expenditures and future operational costs.

Site selection/network planning

For organizations with multiple outlets, retail network optimization remains poorly understood.  The current conventional network optimization models are called location-allocation models.  These models have two components:  the location portion examines the location while the allocation component is not unlike a spatial interaction model (SIM) which predicts purchase behavior.  The major problem is that the trade area for location-allocation models is often an input into the model and often assumed to be a relatively simple conventional trade area.  This creates a major data gaps because the foundational supply and demand picture is incomplete and inaccurate.  Economics 101 provides background as well as the major economic problems associated with conventional trade area analysis.

The Trade Area Solution site selection and network planning services employ much of the analysis framework outlined above.  Our framework advantage is that it is a whole-of-system approach, which offers a seamless market analysis solution to locations with facilities (validated with customer point-of-sale data), new potential sites and network planning.  It ensures a complete picture and understanding of the market economics by filling in the missing regional supply and demand data gap.  This framework allows a direct comparison of existing facilities with potential expansion sites and a ranking of these site in terms of untapped market potential.  In addition, the framework allows us to analyze and model dynamic "what if" scenarios in uncertain business environments where the market potential and competitor actions or reactions are critical to the business plan.  Our business advantage provides a more complete explanation of our trade area framework and its major benefits.

Trade Area Solutions offers a wide range of detail for site selection and network planning projects.  We can build a site model that includes the key supply and demand drivers to better forecast sales and quantify the impact of the above internal trade area dynamics of customer purchase behavior relative to competitors.  Although there is no perfect prediction tool given the numerous factors and the potential for future change, the key is a high level of understanding of the supply and demand within the trade area.  We have the ability to use a variety of intuitive, econometric, and GIS solutions when necessary.  Often the best and most accurate forecasting method is also the simplest.  We provide site selection and network planning at any scale from a single store with a single product to a nationwide network with a large basket of goods and services.

Custom mapping

Trade Area Solutions uses GIS software for much of our analysis.  A natural extension, therefore, is a full range of GIS custom mapping solutions.  A visual representation of the geographical distribution of your customers, competitors and your trade areas can provides valuable insight into understanding your market.  Our maps are available in any size for walls, presentations, market research, or other needs.

Other analysis

Our market analysis framework involves a complete framework for analyzing the supply and demand for an entire system of trade areas.  This provides the foundation for other custom analysis specific to your firm.  For example, proximity analysis can help you better understand the dynamics of your trade area and the strengths and weaknesses of your site and your competitor's site.  It can also help you understand the geographic factors and barriers within the trade area that potentially affect your sales.  This can help you design marketing programs to overcome these issues.  Trade Area Solutions offers a full range of custom analytics.

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