Analysing the trade area

In the past, business endeavours often relied on the intuitive direction offered by the directors, who made assumptions about the market. If those assumptions were incorrect however, the consequences were far reaching and possibly damaging. That is the reason that many successful businessmen put their successes down to hard work and a great deal of 'luck'.

Thankfully, a relatively new analytical practise that is gaining popularity in the business world is going a long way towards turning 'luck' into less of a factor.

At the moment, this practise, known as trade area analysis, is regularly utilised in the fast moving consumer goods and retail segments, the mass media and franchised specialist stores. The success of this practise, however, provides a strong business case for all other industry verticals.

Trade area analysis is valuable in business today as it furnishes a company with more of the key ingredients needed for the proverbial 'winning recipe' through enabling the identification of numerous factors contributing to the success and/or underperformance of its various outlets.

Using the findings from a trade area analysis project, a business is better able to benchmark the performance of its outlets based on the markets served by them, identify and transform its underperforming outlets into profitable business centres by replicating the appropriate success factors there or rationalise those outlets which are not located in 'ideal' areas.

Internal characteristics that contribute to the 'winning recipe' generally include the size and layout of successful outlets, the portfolio of products and/or services represented there, the management style used at those outlets and the staffing and skills levels employed.

Customer characteristics stem from consumers' socio-economic rank (education, occupation, income and property value); life-stage (age and household/ family structure) and dwelling type (size, type and age of dwelling). These insights are easily outlined using Knowledge Factory's geo-demographic segmentation tool, ClusterPlus.

This external information is then ideally integrated with a business' internal datasets to
derive the maximum insight into the characteristics of the business' ideal customer.

Internal datasets often utilised in this process include: the value of customers' purchases; the products they are purchasing; the time frame of and between those purchases; the suburbs the customers live in; and which outlets they frequent.

One of Knowledge Factory's key differentiators in conducting trade area analysis projects lies in its ability to enrich a client's data with external statistics from the relevant data sets it has on tap and then drawing on the expertise and experience of its staff to perform accurate and comprehensive analyses on that enriched information.

At the same time, looking at the profile of an upcoming publication, Knowledge Factory has the ability to offer publishing houses an in-depth view of where potential readers are located, thereby enabling them to better target their subscription and readership drives areas, whether directly or through broad based marketing initiatives.

Companies generally understand which market segment their products or services appeal to. However, by drawing on the relevant segmentation and market information provided by external datasets, and identifying and analysing the key data and relationships pertinent to their most successful operations, organistations are armed with an actionable, scientific, trade area analysis.

This analysis clearly outlines the combination of factors that contribute to each store's success, taking into account the different markets served by each store.

The manner in which these consolidated findings are presented is also imperative, since they must be actionable at all levels within the organisation, right from the board of directors, through to national, regional and line management.

Ultimately the use of analytics in a practise such as trade area analysis is becoming a major driver in company strategy. This gives decision makers insight into how internal efficiencies can be improved on, the impact of various external factors and where future growth areas exist.

The analysis also allows the organisation to scientifically differentiate and direct
market activities and strategies to groups of consumers at a micro-market level.

While the depth to which trade area analysis is conducted is entirely up to the customer undertaking the excercise, generally the more comprehensive the analysis the more impactful the outcome. This lessens the risk when expanding into a new trade area and facilitates the path to improving operations in an underperforming trade area.

Companies need to balance the relatively small capital outlay such a solution requires, with the improved rates of success and returns it offers. Should the costs justify the means, it's smart business in anyone's books.