How is Geographic Information system used for Marketing Research?

Answer 1

Geographic information systems are quickly becoming a standard in business and marketing research. A geographic information system (GIS) is decision support computer software that stores, displays, and analyzes geographic data. GIS decision support software, which can be either desktop or web based, allows users to present and interact with data on or from a map. Much of the mapped data come from the U.S. census and/or the American Community Survey. Typically the data are purchased along with software from a GIS supplier such as Claritas, ESRI (Environmental Systems Research Institute), or Map Info. Many marketers also purchase data on consumers' projected product expenditures. Expenditure estimates are derived by combining census data with data from sources such as the Consumer Expenditure Survey of the U.S. Bureau of Labor Statistics. Other data are often purchased and integrated into GIS systems as well.

For instance, GDT provides data on street locations and traffic, and Acxiom (www.acxiom.com) provides data on competitor store locations and sales. Many businesses also integrate internal company data such as store locations, store sales, and customer addresses.

GIS is an excellent analytical tool for business and marketing research. GIS software allows researchers to integrate multiple data sources, create interactive maps, and run powerful analyses. Businesses depend on GIS to learn more about existing and potential new markets, assess the customer base and competitive situation, and identify expansion and consolidation opportunities. They use GIS to ensure that local stores meet local needs and to forecast sales. GIS is also used to identify neighborhoods most likely to respond to local (e.g., direct-mail) advertising and to determine the most effective advertising messages for these neighborhoods.

1. Mapping and Targeting Customers

(a) Geocoding With GIS we are able to add information to area maps, such as customer locations, demographic information, crime reports, traffic flow data, zip code boundaries, cable network coverage, and countless other details that make a more realistic representation of that area. Maps are created by plotting data that have been geocoded. Geocoding is the process of assigning latitude and longitude map coordinates to a particular address.

(b) Micro Marketing Marketers use GIS maps to better understand and analyze the lifestyles and product preferences of people living and/or working in various neighborhoods. This knowledge enables marketers to adjust their marketing mix to best reflect the preferences of their local customers. Tailoring the marketing mix for a local neighborhood target market is called micro marketing.

(c) Area Map A key benefit of GIS is the ability to combine multiple data sources and create an accurate and meaningful map of the data. An area map generally begins with familiar geographic boundaries such as cities, counties, and/or zip codes. A Block Group is far smaller than a zip code and is the smallest area for which detailed demographic information is available from the U.S. census.

The Ace store address and the customer addresses obtained from its in-store survey were then imported from a Microsoft Excel spreadsheet and plotted on the same map. ESRI's ArcView GIS software automatically assigned each address's latitude and longitude coordinates and displayed them precisely on the map, using geocoding. Most leading GIS software applications are bundled with address geocoding capabilities, as well as geographic boundaries such as zip codes and Block Groups.

(d) Trade Area Identification The next step Ace used in creating its GIS map to show the trade area being serviced by the Paradise Valley hardware store. A trade area is the geographic area surrounding a store where the vast majority of its customers come from.

There are many methods for defining a business's trade area. However, when a business has a customer address list, it generally plots those addresses on a map. Then it defines its trade area by drawing a circle that includes approximately 70 to 80 percent of its customers. This approach avoids using too large a trade area, which might skew the analysis. The center of the circle is the business's street address. The radius of the circle roughly indicates the drive time or travel time to the business (e.g., three or five miles). In other words, the radius indicates the distance most customers are willing to travel to the business from any direction around it.

(e) Micro Merchandising In this case, Ace promoted security products that it already sold in its stores to appeal to high-income buyers. When stores customize the products on their shelves to meet the needs of local customers, they are engaging in micro merchandising. Micro merchandising is a common practice in the retail industry and explains why different stores in the same retail chain often stock different selections. The goal is to stock products that are most likely to sell in the local neighborhood or trade area.

2. Choosing New Store Sites Choosing the right products and customers for a business can certainly increase profits, but choosing the right location for a business is also critical to success. GIS helps firms determine which markets to enter, how many stores to put in each market, and where to locate each new store. In brief, firms use GIS to identify key factors leading to success in their current sites and then find other sites where these factors are also present.

(a) Defining the Trade Area. The first step in the new site selection process is to define the business's trade area or "reach." Connie's Cafe trade area was drawn as a circle with a five-mile radius; that is, it extended five miles around the store in every direction. Customer data collected from its "frequent diners program" showed that 80 percent of its customers lived or worked within a five-mile radius of the Connie's Cafe restaurant they frequented.

Management defined the trade area as a standard five-mile radius so it could directly compare sales forecasts across potential new store sites. Note, however, that the market data from which sales forecasts are derived are based on Census Block Groups. The next section discusses how Block Group data are obtained and transformed into trade area data.

(b) Extracting Relevant Market Data Marketing research companies as well as the U.S. Census Bureau collect market data on a regular basis, typically issuing annual reports. There are two main types of market data. Population data and dollar sales potential data. Population data indicate how many people live and/ or work in each geographic area and who they are in terms of their ages, incomes, and other relevant demographic information. Dollar sales potential data indicate how much these people are likely to spend on various products and services, typically in a given year.

(c) Sales Forecast Formula Management assessed the significance of several other factors that might contribute to business success. Business success can be measured in many different ways. The sales forecasting formula would look as follows:-

Estimated Annual $ Sales in New Trade Area Defined as a

5 - Mile Radius Around xxx Address

= Constant + (- 400,000 x Number of Casual-Dining Restaurants Already in Trade Area)

+ (.15 x Estimated Annual Dollar Sales Potential for Casual Dining in Trade Area)

This type of formula can be used to forecast sales at each proposed new store site. The sites can then be ranked from best to worst based on forecasted sales.

Standard GIS software allows managers to calculate a sales forecast for any new location provided the relevant market data have been added and a trade area defined. Managers use GIS to screen and rank previously identified sites, as well as to search for new sites by manually moving a trade area from location to location. The ability of GIS to integrate data and run calculations makes it an effective and versatile business tool for screening new site locations and identifying sites that merit a closer look.

3. Developing Local Advertising Campaigns Understanding customers and choosing the best locations for business are certainly important, but without a successful advertising strategy, the business may not stay on the map/ GIS can increase the effectiveness of advertising by helping businesses reach their target consumers while reducing their overall advertising expenditures.

(a) The PRIZM system, developed by Claritas Inc, segments or divides U.S neighborhoods into sixty-two different buyer types based primarily on U.S.Census Bureau demographic data. A PRIZM group is one of the sixty-two buyer types in the PRlZM system (e.g., Greenbelt Families, New Beginnings).

(b) Delivering the Advertisements: Direct Mail Versus Newspaper Inserts The final step in this process is to reach our target customers with Grand Marquis advertising. The two primary ways automotive marketers use to deliver advertising material to specific neighborhoods are newspaper inserts and direct mail.

Newspaper inserts are single or multisheet, typically fully-color advertisements that are tucked inside a daily or weekly newspaper. Direct mailings are similar style advertisements that are sent directly to your mailbox, typically in their own envelopes. Direct mail can reach 100 percent of the target market, including those who don't subscribe to newspapers. Also, direct mailings tend to be more attention grabbing than newspaper inserts. The biggest disadvantage of direct mail is the higher cost. Marketers must pay for the postage and envelope, on top of the actual cost of the advertisement. Newspaper inserts are far less expensive to distribute. However, newspaper inserts may be less noticeable and marketers can reach only those consumers who actually subscribe to the newspapers. Overall, a marketer must weigh the advantages and disadvantages of direct mail versus newspaper inserts, choosing the method that is more appropriate for the product and the goal of the advertising campaign.

by sachin pawar