The definition of a trading area is based on customer origin mapping that shows the store's ability to attract customers.
Ghosh (2) indicates that data for this mapping can be gathered by three survey methods: 1) customer interviews, 2)
customer records, or 3) license plates. By which ever method collected, the data is then plotted on a map to visually see
the customer distribution. Customer origin maps can be used for may types of analysis. Ghosh (2) outlines five
applications: 1) delineating trade areas into primary, secondary, and fringe areas, 2) discovering customer
characteristics to better meet customer needs, 3) targeting advertising and promotion through the appropriate media
using the proper campaign, 4) gauging competition by identifying overlaps in trading areas and oversaturated markets,
and 5) planning expansion so as not to cannibalize existing stores.
Each of these applications include combining business demographics with GIS technology to answer complex
questions in a simplistic easy to digest visual format. Trading areas can be designed by a radius out from the store
based on a variety of criteria: 1) primary, secondary, and fringe trade area definitions, 2) milage distances set in 1/2
mile, 1 mile, 1 1/2 miles, 2 miles, etc., and 3) actual drive time or distance to the store following the road patterns
calculated and plotted on the screen through a network routing package. This last option would take into account the
natural and man-made barriers that would effect time and distance factors and thus influence patronage.
Using GIS technology, trade areas can be designated by different colors. Customers can be designated by different
symbols depending on various characteristics. For example, the primary trade area could be blue, secondary yellow,
and fringe red with circular symbols representing those people with incomes under $25,000 and square symbols
representing those people with incomes of $25,000 and over. The map would then visually indicate the composition of
each area by income level thus helping the store owner see the composition of his/her customer trade area. Other
variables can be substituted for income such as age, education, or expenditure patterns. In addition, these characteristics
can be combined on the map for a more detailed analysis of the data.
The competitive environment is a major area of interest to small retailers. The map overlays of the trading area of one
store with competitive stores' trading areas show areas of intensive competition in the marketplace. At times stores may
have trade area overlaps from more than one competitor indicating that relocation or aggressive promotion may be
necessary to compete in this area.
GIS mapping is particularly useful for expansion decisions. The trading areas of new stores can be superimposed on the
same map to evaluate overlapping areas. Large overlapping areas indicate the location is an inappropriate site for
consideration of a new store. Potential new store sites can also be overlaid with competitors. Large overlap of
competitors with each other or with a proposed new store location may indicated that the area is overstored already and
another site would be preferable.
When choosing a store location the characteristics of various trading areas need to be evaluated and compared. With
GIS mapping population density, household size and population changes can be combined on one map to help make a
decision on the most appropriate site in this particular situation. This method can visually take into account not only the
factors listed above but also show the size and shape of a number of trading areas at one time. Using these maps small
business owners can easily target the markets that offer the highest concentration of their best prospects.
Demand and Sales Forecasting
Forecasting is an area that is generally overlooked by small business retailers. It is considered to be to complicated and
costly to engage in for practical purposes. However, some rather simplistic forecasting can be accomplished through
linking incidence rates to consumer projections (3). For example, divide sales from the Census of Retail Trade for a
particular product, such as children's apparel, by the number of households of a specific type, such as families with
children. Now, multiply that factor by the number of households with children in a particular census tract and the result
is the estimated sales of children's apparel in that census tract. Future sales are adjusted by projecting changes in
households with children and adjustments in the consumer price index. Profits can be projected by subtracting out cost
of goods an expenses. By linking projection for the market area to incidence rates, forecasts can be produced.
Another popular simplistic forecasting method that can be used by small businesses is the analog method (2). This
method uses a similar store in terms of size, store service, priding, merchandising policies, level of competition, and
site characteristics that is already in operation. By using customer spotting and secondary sources of information trade
area and market penetration information are determined for the present location. The analog then serve as the basis for
developing sale forecasts for the new store.