A trade area analysis is an important part of business planning. The trade area analysis shows where your customers live in relation to your existing or potential business site(s). The trade area analysis compares the number of customers by distance from a business site to the number of households in the study area. This yields the market penetration rate (number of customer households to total households) or open market rate enabling you to pinpoint a radius drive time that defines your trade area.

This information is vital to:
  1. Knowledgeably invest in marketing and sales campaigns such as direct mail or cable TV advertising
  2. Evaluating new sites to relocate your existing business to be closer to your current customers or expanding into a new area where prospective customers live
  3. Selling or purchasing a franchise
  4. Negotiating a lease
  5. Profiling your customers using the Tapestry segmentation system and then identifying where prospective customers live who have spending habits like your best customers
Define Your Trade Area
To define the boundaries of your trade area, you need:
  • A business site or a small sample of potential business sites.
  • Electronic customer address information such as point of sale transactions, credit card records, check customers, exit interviews, or warranty cards.
This information is used to produce a trade area analysis report with maps.

Analyzing Your Trade Area
The table below depicts a sample trade area analysis for the ABC Company new store location. The customer penetration rate is the number of customers divided by the number of households. The table below shows that 25 percent of customers are within one mile of the site at a penetration rate of 24.7 percent; and 50 percent of customers are within 2.32 miles of the site with a penetration rate of 6.7 percent. The action plan for the ABC Company is to concentrate building penetration in the second tier from 6.7 percent to a higher rate.

Illustrative Table
The following illustrative table shows the customer to distance distribution even more clearly. See a larger version of the table. See a larger version of the chart.

Illustrative Map

From this data, you can identify and map your ideal trade area. See a larger version of the map.

Ideal Trade Area Results
  • Trade Area:13.49 miles
  • Number of Customers:1,871
  • Total Households:250,486
  • Market Penetration Rate:0.7% of the households
  • Open Market (prospective customers):99.3% of the households
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