Gravity Analysis for Location Planning
GIS-based Sales Forecasts for Every Store
The basic idea of gravity models is that geographical proximity is not the sole reason for a customer to visit a store, but there are more determinative factors. Gravity models take these numerous individual location factors into consideration in the analysis. GIS analyses thus make location-specific sales forecasts possible.
Gravity Analysis Answers The Following Questions
- What revenue can I expect if I open a new branch location here?
- What are the customer flows?
- How will customer behavior change when new locations are opened or existing ones closed?
What is Gravity Analysis?
With the help of gravity models, interaction probabilities are calculated between supply (location of the provider) and demand (usually the customers). This methodological approach is used to analyze the extent to which existing customer potential can be bound to the supply locations. The special benefit is the consideration of the potential reduction due to competitors, the distance and attractiveness of the offer.
The basis of all gravity models is the following consideration: All the analyzed market participants (e.g. your own branch locations, competitor locations, etc.) attract potential, whereby the decision of a customer to consume at a certain location is determined by the attractiveness of this location and its surroundings. This complex causal network can be represented by the gravity model. As a result, a more distant location can attract more customers than a closer one if it appears more attractive to the customers. The attractiveness parameters can be, for example: Sales area, accessibility, parking availability, store atmosphere, marketing activity and the like.
As a result, a probability of consumption between 0% and 100% is calculated for every potential (e.g. number of inhabitants in a street section) for each supply location, thus simulating consumer behavior. Based on the simulated behavior, it is possible to generate revenue forecasts for each branch location. The prerequisite for the calibration of the model is the presence of performance indicators (e.g. sales per location), as well as the inclusion of realistic customer decisions (e.g. from customer surveys, customer cards, etc.) that are incorporated into the model.
Strengths of Gravity Analysis
- Flexible model for the representation of probable customer flows, taking the competition situation into consideration
- By simulating new branch locations or the closure of current branch locations (actual vs. target state), the consequences can be objectively analyzed and quantified.
- The analysis focuses on the perspective of the customer decision.
- Fully automated in ArcGIS and QGIS
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