Catchment area simply explained
The retail catchment area
The catchment area is a crucial term adopted from regional planning to describe the geographical location where the retail trade draws its customers. The characteristics that define the size of the catchment area include, for example, population density and number, purchasing power and product range purchasing power, demographics of residents and passers-by, or the structure of competition. As a rule, the catchment area is enlarged by an agglomeration of competitors in the retail trade.
In economic geography, the catchment area refers to where retail customers originate. Since financial criteria are used to extend the catchment area, the size does not necessarily have to correspond to the general administrative structures. Each company in the retail sector must define and prioritize the catchment area's economic conditions according to its product range requirements. While the catchment area is concerned with the regional radiation of a company, infrastructure and internal aspects also play an essential role in the choice of location. Accordingly, operational key figures tend to be defined here, while marketing and advertising are the decisive areas of action for the catchment area.
Different levels of the catchment area
Core catchment area
The core catchment area defines the urban space easily reached from the directly adjacent residential neighborhoods. This area ensures business in the neighborhood and influx from pedestrian flows. The rate of regular customers (customer loyalty rate) is over 10% here. Location analyses by WHATALOCATION refer to the core catchment area. All persons within a radius of 250m around a location are analyzed. The site of passers-by on the same day at 3:00 a.m. is analyzed, as this is likely to be the person's residence. This data is then cross-checked or enriched by the mobile phone providers with the information from the mobile phone contracts. The anonymized results can then be used to make essential location decisions.
Narrower catchment area
The narrower catchment area includes places such as the city center, the old town, or city districts in general. Often, it can also include suburbs or neighboring communities. Since supply and demand in this urban area tend to shift toward supply, the customer retention rate here falls below 10%. Retailers orient themselves in the narrower catchment area primarily to the competition and offer that are of particular interest to potential customers.
Extended catchment area
The extended catchment area focuses on the customer potential that can be reached quickly from their homes. A good infrastructure is crucial for this. However, a customer retention rate of no more than 2% can often be achieved here. Offers in the extended catchment area are only perceived discontinuously. Retailers with special unique selling points or above-average suggestions can constantly motivate potential customers to travel for more than an hour. They deliberately take a journey to consume goods at a location.
Profitability of a catchment area increases with data from WHATALOCATION
Apart from general location factors and plans for expansion, demographics and purchasing power in the catchment area play an important role in retail sales. In the past, marketing managers in the retail sector deliberately developed their campaigns and plans below criteria, such as purchasing power or population density, as there was no way to validly capture the unique character of the catchment area until now. With the data from WHAT A LOCATION!, marketing managers, expansion managers, and portfolio managers can accurately capture the character of the people in the catchment area at different time intervals and plan extremely precisely to avoid scattering losses. For the first time, sufficient data of over 95% accuracy is available.
The purchasing power ratio shows how consumer behavior is above or below average purchasing power. In Germany, the differences can be as much as 80%. Marketing managers aim to activate at least 50% of the potential customers in the catchment area and create a purchasing power loyalty that fits demographically into the company's customer profile. This means that the loss of purchasing power at a location to the competition should not be higher than the inflow of purchasing power from other areas of the catchment area. The sales retention outflow serves as a critical figure for this.
The transport infrastructure, which creates good accessibility, and the customer frequency from all three levels of the catchment area naturally play a significant role.
The industry mix in the catchment area
Analyzing the branch mix and competition in the catchment area is more important for newcomers than for established retailers. Habits and everyday buying behavior play a significant role in day-to-day business. Sufficiently good economic indicators in the catchment area do not automatically lead to sales. Often, only product segments are occupied that other suppliers neglect or only small gaps in demand are filled. In order to precisely and adequately communicate the added value of its offer in the catchment area, new market participants often have to put in more effort than established companies.
Today, catchment areas can be determined with ease. On-site surveys or inadequate and out-of-date statistics no longer need to be consulted, thanks to the WHATALOCATION solution. All teams in a company can use the same data to respond to various use cases, thus avoiding wastage, maximizing the ROI of marketing campaigns, and successfully contacting potential customers from the defined target group at the location.
