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How is Geographic Information system used for Marketing Research?

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2011-02-11 06:08:20

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


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