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Thread: How to determine a market/trade area.

  1. #1
    Cyburbian GeogPlanner's avatar
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    How to determine a market/trade area.

    Does anyone have a good source/methodolgy for determining a trade/market area for retail or consumer spending?

    Or are people just using municipal boundaries? So if you are trying to examine a Town's market area and potential are you just using that Town and the MSA, or is there a different and more detailed method?

    Much appreciated...my personal library really lacks in this area.
    Information necessitating a change of design will be conveyed to the designer after and only after the design is complete. (Often called the 'Now They Tell Us' Law) - Fyfe's First Law of Revision

    We don't believe in planners and deciders making the decisions on behalf of Americans. -- George W. Bush , Scranton, PA -- 09/06/2000

  2. #2
    Cyburbian Cardinal's avatar
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    Forget municipal boundaries. Data is available at the block level and that, at the least, is what you should use. Also, once you decide how to analyze the market, go to a site like Claritas and pay for their data - it is current and includes projections, expenditures by category, etc. - all of which retailers (and services) will want.

    Now, to decide how to define the trade area. First of all, who are you defining it for? Different businesses will have different trade areas. A neighborhood store may not have much of a trade area while Ikea will draw people from all over. Even in the same category, different companies will draw differently. A Sentry grocry store may serve a local market while people will drive fifty miles to shop at Woodmans. Does the business even serve a local market, or is it tourist-driven? There is no simple answer as in "this is the market area for Anywhereville."

    One of the easier and more mechanical approaches is a ring study. Pick a location and then draw a ring around it at whatever distance(s). Everything inside is summed up to define the trade area. For general purposes, this may be the best approach, and most web sites will let you define more than one distance so that you can comment on the population living within, say, five, ten or fifteem miles of the corner of State and Main.

    Another approach is to define the trade area based upon geographic boundaries. Is there a river or mountain range that can't be crossed? That is the limit of the trade area in that direction. A large gap between similar stores (or communities)? The boundary will fall in between.

    There are some resources that may help. The SBA has a whole series of short publications on market analysis. You may want to look these up.

  3. #3
    A trade area is typically delineated on the basis of area population, time-distance relationships, sales volume percentages, and/or the perentage breakdown of total customers drawn to the retail center. You would need to figure out the Primary trade area (pma) and secondary trade area (sma) The Urban Land Institute could help you with some general guidelines or rules of thumb for specific characteristics of the retail type you are studying. In other words, if you are studying a conveniance store, you might use a 5 minute driving time radius, but you might study a 15 mile radius around a suburban mall. Hope that helps!

  4. #4
    Cyburbian donk's avatar
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    My responses has two parts, the text book and the second is more real world

    Here is the best i was able to find, quickly, from my text books

    The law of retail gravitation (W.J. reilly, 1931)


    D(j)= d(i)(j) divided by {1 + the square root of P(i) divided by P(j)}


    D(j) = the distance from city (j) to thebreaking point
    d(i)(j) = the distance between the cities (i) and (j)
    P(i) = the population of (i) city
    P(j) = the population of j city.

    The text (The geography of world economy, Anthony de Souza, National Geographic Society, 1990) states this model is "analogous to Newton's law of physics".

    Related reading may include The Structure of Urban Systems, John Marshall, University of toronto Press(1989) More theory, less understandable then the above book.

    The reality now.

    People where I live travel a lot to do shopping. The market area, depending on the service is often as large as 500km. I have to agree with the others, look at the services that people travel for and figure out where they are going or where they are coming from to access these services.

    I have a few other books handy that I'll check for you. if you need more info on the equation provided let me know and I'll see what i can do.
    Too lazy to beat myself up for being to lazy to beat myself up for being too lazy to... well you get the point....

  5. #5
    Cyburbian mike gurnee's avatar
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    Holy nightmares! I haven't seen that crap since grad school!

    In my rural area, we check the license plates in parking lots to see how far people travel to shop.

  6. #6
    Cyburbian donk's avatar
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    Holy nightmares! I haven't seen that crap since grad school!
    I knew keeping those books would be good for something, other than wall paper.
    Too lazy to beat myself up for being to lazy to beat myself up for being too lazy to... well you get the point....

  7. #7
    Cyburbian Cardinal's avatar
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    Originally posted by mike gurnee
    In my rural area, we check the license plates in parking lots to see how far people travel to shop.
    That's good wotk for high schoolers or collge interns. You can double up on the information by also doing a downtown parking study from it.

    Many communities will sponsor a contest. Fill out a form with your name and address and you can win.... Then just plot the data. Back in about 1990 I was geocoding customer addresses from businesses that collect it, like video stores, pharmacies, etc. Of course, it is difficult to get your hands on this data.

  8. #8
    Cyburbian Jeff's avatar
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    I have always used the Law of Retail gravitation. For me it was always the easiest to follow.

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