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Trade Area Analysis (TAA)
Companies do many types of market research to determine the needs of

their customers and how to serve them most effectively. When companies
want to find out where to reach customers, they often use a tool called
trade area analysis.
A trade area is an area where most of a business's customers come from
or are located. The term retail trade area means the geographic area
which includes most of the customers for a retail store. Both the size and
shape of a trade area depend on many factors, including the type of
product or service being offered, the location of the store, and the
transportation infrastructure in the area. The outer edges of a retail trade
area can be thought of as the farthest distance that a customer is willing
to travel to reach the store.
What is trade area analysis?

Trade area analysis is a process that involves studying the economic
activity in a certain area. Businesses usually perform trade area analysis
to determine the most advantageous areas for new store locations. Trade
area analysis usually focuses on five factors:
1. Types of business: Companies often analyze what other businesses
are in the area they want to move into. This can tell them whether
they might fit in and whether they will face excessive competition.
2. Number of businesses/ concentration: Professionals may also note
the number of businesses within a given area to determine whether
the area can support increased commercial activity.
3. Number of potential customers: This is usually a simple calculation
of the number of potential customers who live in or pass through a
given area. It may also include demographic data like age, ethnicity
or economic status.
4. Patterns of movement: It's often important for companies to map
the daily travel of potential customers. This allows them to situate
businesses in heavily-trafficked areas.
5. Products being purchased: During the trade area analysis process, a
company might also study the type of commerce in an area.
Knowing what customers are buying can help businesses decide
whether they might fit into the local economy.
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Trade area analysis benefits:
Trade area analysis can have a number of benefits for companies looking
to relocate or open a new store. These are four of the most important
benefits:
Inventory and supply chain planning

Trade area analysis can be an effective tool for inventory planning. It
gives business leaders increased insights into the demographics and
purchasing habits of people in the area of a new store. This allows
companies to predict which products they are most likely to sell and when
demand will be highest. Collecting this information can help companies
determine how much inventory to maintain, which helps them meet the
needs of their customers more effectively.
It can also be an effective tool for supply chain management. Increased

customer insights allow businesses to schedule deliveries to coincide with
higher demand. When demand is lower, companies can use their insights
to reduce inventory, allowing them to save money.
Tailored marketing
One of the primary goals of trade area analysis is to investigate local
markets. This includes determining what type of customers live in an area,
what their needs are, how much money they have to spend and what
goods they are most interested in. Trade area analysis can also help
companies find out if an area has regular visitors. These factors allow
businesses to create focused marketing campaigns that are optimized for
an area's customers.
There are many ways for businesses to pursue personalized marketing

after a trade area analysis. For example, before opening, a company
might send out materials announcing its arrival and advertising products
that are popular in the area. Businesses can also use data from trade area
analysis to tailor their storefronts to a certain area. This might include
changing the size and layout, featuring particular products or modifying
their stores' aesthetics to mirror customer preferences.
Ready business intelligence

Business intelligence allows companies to gauge their competition and
remain strong in their market. Another benefit of the trade area analysis
process is that it allows companies to collect extensive business
intelligence before beginning a new project. This usually includes the
number of potential competitors, their primary target customers and
details on their offerings and business practices. This information can help
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company leaders decide whether their business can thrive in a certain
area and develop competitive strategies. It may also help them find ways
to serve unmet needs in their target demographics.
Better site selection

Trade area analysis is one of the most effective tools for choosing a good
business location. It Allows companies to find customers that are
interested in their products and that have the income to purchase them. It
also allows them to compare operating costs in different localities, learn
about potential competitive risks and mitigate them. This information can
help companies choose their ideal area from a set of potential locations.
There are several methods that can be used to define a retail trade area,
including the use of drive times, pure distance measurements, and data
related to the already existing businesses and neighborhood
demographics. Depending on the purpose of the trade area analysis,
different methods may be more appropriate. Also, different kinds of
businesses will have different sized and shaped trade areas. For example,
a grocery store or other retail business that sells items that need to be
replenished regularly may have a smaller trade area than a clothing store
or other business that sells items that can be purchased less frequently.
Huff’s model may be useful for helping us determine how many shoppers
we may get in each of these areas.
Huff’s model is a mathematical model that recognizes the correlation

between patronage and distance from the location of the store. So in
other words, the further a consumer is from your location, the less likely it
will be for that person to shop there. This model does not account for
other factors that may affect a customer patronizing your store, such as
having a product or service that is specialized, that they cannot get
elsewhere. It simply looks at the distance from the retail location.
This model can help you to determine areas with high and low sales
potential based on several factors including how many people live within a
certain radius of your proposed location and what the disposable income
is in this market. Incorporating the Huff model along with GIS and census
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information can give potential new businesses a great deal of information
about several possible sites.
In retail management, a radial study is a method for analyzing a retail

trade area by drawing a circle around a store and analyzing the
demographics of the people within that circle. It's a common method for
businesses with a single location, like gas stations or grocery stores
What is gravity model?

The gravity model is a spatial interaction model that predicts the volume
of interaction between different places based on their population size and
the distance separating them. It assumes a positive relationship between
population size and interaction volume, but an inverse correlation with
distance
Gravity models assert that groups of customers are drawn to certain
locations because of factors like the distance to market, distance between
markets, market population, the size of the retail establishment, the
location of competitors, etc.
Drive-time analysis is a retail trade area analysis method that uses data
from geographic information systems (GIS) mapping and transportation
networks to determine how long it takes to travel to a location. This
information is then used to create a trade area.
Drive-time analysis considers factors like traffic, road closures, and other
barriers that can affect travel time. The result is a polygon-shaped trade
area.
Drive-time analysis can be used to:
1. Plan customer visits with optimized routing
2. Identify customers within a radius or polygon
3. Optimize the sequence of visits
4. Generate turn-by-turn driving directions
5. Reduce travel costs
6. Improve productivity and ROI

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Trade Area Analysis (TAA)

Companies do many types of market research to determine the needs of

What is trade area analysis?

Inventory and supply chain planning

It can also be an effective tool for supply chain management. Increased

There are many ways for businesses to pursue personalized marketing

Ready business intelligence

Better site selection

Huff’s model is a mathematical model that recognizes the correlation

In retail management, a radial study is a method for analyzing a retail

What is gravity model?

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