Posted in Operations & IT Articles, Total Reads: 16562
, Published on 12 August 2013
Catchment analysis is originally a study to identify an ideal location for establishment of a new retail outlet but it can be helpful to identify potential customer base in any geographical area for existing retail outlets. This study includes study about various geo-demographic factors like occupation, mother tongue, education standard etc. and help in understanding customer preferences, accessibility in buying, purchase intentions buying patterns and likelihood of buying for the group of products that the retailer deals with and level of competition in that area.
The final outcome of catchment area analysis provides the retailer an idea about number of customers who can visit the store and kind of products that will be in demand and the stock he need to maintain in order to meet the demand in selected location. Importance of catchment can be seen in the point that if all retail companies are offering same products and services within same price range and quality standards than we can easily say that the population within the catchment will do all its purchasing at the nearest centre. However in practicality it‟s not possible that different retail companies are same and people have to travel to their preferred destination for purchasing instead of their nearest one.
Differences between similar stores can affect the spending pattern in the present time, but it is important to see how changes in various demographic factors and infrastructure development in competing locations will have impact on such store in future. Catchment analysis pre-launch will ideally decide the product mix and formats of the stores, catchment analysis done from time to time will give information about what is happening and where to concentrate marketing energies to get more walk-ins.
The total catchment area, of a store is useful information to decide a store location and post store opening marketing energies focus. The catchment analysis is usually done to study the profile of consumers likely to visit in terms of income profile, current shopping destinations and the likely visit to the new store, which further can be helpful for business predictions and also useful in the " yes " or " no " decision.
Generally it can be considered that major retailers like department stores, furniture warehouses will be destination sites. These sites can attract people from greater distances because the items are not common purchases, are expensive or provide the opportunity where a number of purchases can be made from the one location. For these destination sites it is possible for consumers to travel more distance. Similarly a small neighborhood store, or a small departmental store, would have a catchment near very small area which can be no more than 1 or two kilometer distance. For retailers that offer the same or very similar products as their competitors are offering, unless there is very strong pricing differences a customer may not be prepared to travel pass the competition, he or she may select the nearest destination. Catchment analysis is useful like any other market research in showing retailers the opportunity and the direction to be taken.
Factors that influence consumers' decisions on where to shop include:
· Presence of various retailers · Volume, quality and product mix of retail offerings · Additional services and facilities · Leisure provision · Accessibility · Parking · Shopping Environment and ambience
Catchment Analysis is important due to following factors:
· Prime consideration of customer‟s store choice, based on nearness to home/work, linked with other domestic work · Strategic importance for sustainable competitive advantage. Merchandise, price, assortments can be changed but not location of a store. Competitors can‟t easily copy as they are precluded from locating there. · Entry of more and more companies in organized retail making difficult to find suitable location within budget. · Forms an important P of place for a long time for adequate assurance for a success. · It also influences the merchandise mix and interior layout of store. · It provides information about establishment of warehouse for online retailers.
Besides demographic factors, economic and infrastructural, cultural and competitive environment prevailing in catchment area also needs to be analyzed. Following are the factors which are analyzed for catchment area analysis.
1. Land Area 2. Schools 3. Population 4. Income Types 5. Age Distribution 6. Poverty Status 7. Household Size And Type 8. Departure Time For Work 9. Marital Status 10. Occupation 11. Family Size And Type 12. Working Women 13. Owner Occupied Housing 14. Fertility Rates 15. Rental Status 16. Vehicle Owners 17. Language Spoken 18. Telephone Subscribers
Above variables help location decision and also product line potential e.g. toys shop location for children, economic factor i.e. unemployment will affect purchasing power in that area, per capita income data helps in projecting demands for various merchandise. Economic stability of area can be estimated from household incomes and expenditure patterns, buying power index and effective buying incomes are calculated to arrive at fairly accurate analysis of catchment area.
The shape of organized retailing in India has undergone several changes over the last few years and a more changes are expected in the near future. Retailers are making a push to get to the developments, which have the first entrant advantage in a location, and are trying to get the best rental deals for longer time periods. They understand that location and viable lease rentals are two very important ingredients for their success. On the other hand, developers are rushing in to make sure that they are among the first entrants in a catchment area with good retail potential as that strategy has spelt success in the past. Also, they are keen to have the right tenant mix in their developments in order to attract repeat visits by clients. Consumer is the ultimate reason for existing of any business. Companies can invest hugely in their projects, but it‟s the customers who will give them return on their investments.
There are lots of examples of such failure where companies were not able to exactly know who their customers are. Since a company does not know about their target customer profile its difficult or sometimes impossible to decide product offering, pricing strategy and in that case promotional expenses will also be a waste if they don‟t know exactly to whom they are communicating. Getting answer to this type of questions can be difficult but catchment area analysis can be helpful in such kind of situations. A company can get good return on its employed resources only if it knows its market in terms of customer profile and competition level. In catchment area analysis, first part is area mapping of desired location and studies various geo- demographic variables in that particular area. Thus finding competitors location, potential customers and kind of flow between competitors and potential customers. For this we need to quantify the sizes and potential of local market areas. With the help of catchment area analysis, companies can know best location for establishment of their store, target and potential customer base.
Type of catchment area
With the help of catchment area analysis we can divide the total area into following four kinds of catchment areas
1 Primary Catchment It is the nearest area around any retail store. As it will have maximum number customer visiting store from this area. People in this area will be having demand for all kind of product offering from specific retail store.
2 Secondary Catchment This area is little far away from primary area. Generally people from this area will have less visits than primary area and will have less demand. As there can be other stores in their neighborhood. It can be within 5 kilometer radius from the store.
3 Tertiary Catchment Tertiary area is more far away from the store, may be within 10 to 20 kilometer radius. Retail store will have marginal number of customers from this area. Usually selected or some loyal customers with specific demand will only visit the store.
4 Outer Catchment In this area companies don‟t have a kind of customer presence. People from these are rarely or very less number of time visit the store. This way, Catchment area analysis helps in scanning the environment and understanding the type of consumers and their needs. On the basis of these needs and the types or customers, the allocation of retailers, marketing activities are carried out.
Retailing is becoming an important part of one‟s daily life. In present time a retail store provide solution to all the needs and problem of everyone at one point. But this is not easy because deciding a location for retail establishment to creating satisfied customer is a very long process, during this process various each factor plays an important role. Ever increasing competition makes it difficult for established store to keep their market share, for that reason established retail companies have to continuously scan their environment to keep their market share safe and looking options for further growth and development. To conclude, retail stores need to have a continuous look over its surrounding environment so as to take advantage of available opportunities and being pro active to threats. And always trying to increase customer walk-in and focus on long term relationship with customer, which finally result in customer loyalty and profitability.
The Article has been authored by Mandeep Kumar, NITK Surathkal
If you are interested in writing articles for us, Submit Here