How is Geographic Information system used for Marketing Research?
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
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
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
(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.
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
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
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
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
(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