Introduction to the Market Analysis Process

Bill Ryan University of Wisconsin-Extension Jennifer Russell and Kathie Brown, University of Illinois-Extension

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

Purpose of a Market Analysis

1. To support business development

with reliable data that accurately describes the market.

2. To research issues specific to your

particular community.
3. To provide a foundation for

developing economic development strategies for a business district.

Illinois communities currently participating in Downtown and Retail Market Analysis

Elmwood Germantown Hills Farmington Silvis Winchester

Poll
What is your role in downtown and business district analysis?
A. Extension educator B. Main Street or BID director C. City planner D. Economic development professional E. Retailer F.

Other

Poll
Has your community ever completed a downtown market analysis or other economic study? YES NO

http://fyi.uwex.edu/downtown-market-analysis/

Part I. Understanding the Market

Trade Area Analysis

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

Why Create a Trade Area?

1. Reasonable area for generating reports that

examine local resident characteristics

2. Opportunity for businesses to learn where they

might be able to expand their own trade area

3. A basis for market potential calculations (supply

and demand estimates)

Poll
The average Wal-Mart Trade Area in the U.S. includes how many people?
A. 10,000 B. 35,000 C. 85,000 D. 500,000

Trade Area Considerations

A trade area is the geographic area from which a community generates the majority of its customers. A community may have both a convenience and a destination trade area.

Factors to Consider:
Population Proximity of competing

Tools to Use:
Focus groups Mapping using geographic

centers Local mix of businesses Local destination attractions Traffic patterns

features (distances, highways, drive-times, etc.) Mapping using customer addresses and zip codes

Rings

Drive Times

Equal Competition Areas

Using Customer Zip Code Data

Reillys Law of Gravitation

Using Customer Address Data

Using Multiple Methods

Market Segments and Trade Areas

Local customers Primary driver of local sales in most communities Focus of your convenience and/or destination trade areas Non-local In-commuters and workers Tourists Seasonal residents Discussion: Which market segments are important to your

community?

Part I. Understanding the Market

Demographics and Lifestyles

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

Demographic Analysis
Types of Data
Population/households Age Income Education Occupation Ethnicity Residence

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Data Sources
Public Sources:
US Census Bureau State and University Data Centers

Private Sources (examples):

ESRI Claritas Others

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Population/Households
What it tells us:
Market size Future growth Average number of people that live together (household).

Trends in the U.S.: 309M in 2010, double that of 1950 Average Household Size of 2.58 What does the data say about Winchester?

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Age
What it tells us:
Predominance of certain age categories (each with different

personal expenditure preferences Under 18 Over 65

Trends in the U.S.:

13.3% were 65 and older

In 2011 vs. 8.1 % in 1950 (US Census) What does the data say about Winchester?

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Income
What it tells us:
Distribution of income in the trade area as an indicator of

spending power

Trends in the U.S.:

Median Household Income of $50,500 (US Census, 2011) 32.5% earn more that 75,000 Impact of the Great Recession

What does the data say about Winchester?

Lifestyle Analysis
Demographic segments may have a lot of similarities, but
$75K income, home owner, enjoys live music, drives a Volkswagen

Photo UW-Madison University Communications, Jeff Miller

$40K income, renter, buys two books a month, drives a Pontiac

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Lifestyle Segmentation Systems

One segmentation system offered is called Community Tapestry (from ESRI Business Information Solutions)
Households in each trade area can be segmented

into unique clusters that describe their demographic, lifestyle, media and purchasing characteristics
Includes Market Potential Indices that examine

spending propensity for a wide variety of goods and services

Sample buying habits and preferences

Heartland Communities

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Spending Potential
Estimates for a trade area are based on demographic data and available from:
Private data firm reports Extension's Gap Analysis

Calculator

Spending Potential Using Private Firm Reports

Potential sales in the trade area are also available through purchase from private data firms based on their internal models. See the Food and Home (mostly grocery stores) example below:
Food at Home: Total $ Average Spent Spending Potential Index $49,306,088 $4,024.00 90

Data Note: The Spending Potential Index represents the amount spent in the area relative to a national average of 100. Source: Consumer Spending data are derived from the 2005 and 2006 Consumer Expenditure Surveys, Bureau of Labor Statistics. ESRI

Spending Potential Using the Gap Analysis Calculator

Grocery store calculation:
U.S. sales per capita by based on the U.S. Economic Census ($1,631) The ratio of local trade area per capita income to U.S. per capita income ($25,537/$26,739) Trade area population (29,897) Multiplication of above figures is equal to the Potential Sales in Trade Area ($46 million)

Part I. Understanding the Market

Conducting Surveys and Focus Groups

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

Poll
Which of the following is the most important concern to local retailers in your community?
A. B. C. D. E. F.

How to co-exist with big-box stores How to sell over the Internet How to capture more tourist business How to encourage residents to buy local How do we deal with the recessions impact on consumer spending? How do we respond to changing demographics

Business Owner Research

Business owner research engages the business community in the market analysis process. It invites business owners to share their perspectives regarding the current and future economic health of a business district.

Elmwood, IL
Home of Lorado Taft

Sample Questions - Business Owner Research

What business challenges are you facing? Red flags? What business incentives or assistance would be helpful? Characteristics of your business: category, years of operation, space occupied, employment, etc. Market characteristics: busiest times, impact of community events, advertising effectiveness, target markets, etc. Toughest competition and the products or services that differentiate your business. Businesses that complement your business the most and those you would most like to see come downtown.
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Consumer Research
A market analysis should include local research to fully understand the uniqueness of your particular market and its consumers.

Sample Questions Consumer Research

When do you typically shop for non-grocery items? What restaurants or types of cuisine do you prefer? Which events have you attended in the last 12 months? How often do you come downtown and why? How often and why do they shop at competing locations? Which businesses would you patronize if opened downtown? Demographics: gender, age, address, income, etc. Attitudes about the downtown and the community.
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Secondary vs Primary Research

Secondary data is existing data which has been collected, including U.S. census data, county based economic data, school district data, health department data, etc. Primary data is information that you collect, including surveys, case studies, focus groups, interviews, pilot tests, observational studies, etc. Data can be collected from Consumers Business operators and property owners

Types of Primary Data Collection

Method Mail, phone, or online survey Pros Can generalize to the population Client control Data is in hand Depth of information Introduce new topics Quickly implemented Less costly (?) Client driven Gathering and verifying information Client engagement Cons Time consuming Expense of postage, printing, and data entry Collect only what is known Cannot generalize to population Need the right group Moderator skill Requires field work Variable implementation and interpretation

Focus Group

Mapping

Method Personal Interviews

Pros Flexibility in implementation Depth of information

Cons Need trained interviewers Variability in implementation Time consuming Costly Time consuming Limit to scope of information Limit to geography Variability in implementation Need lead time Need skilled facilitators All or nothing for the event Develops high expectations

Observation

Do it yourself Quick to design and implement Forces a focus Encourages engagement Immediate information Uses few staff

Facilitated Meetings

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Sample Surveys in the Downtown & Business District Market Analysis toolbox
Business Owner Survey Consumer Survey University of Illinois

Extension online tool may help in getting started:

http://www.communitydevelop ment.uiuc.edu/commsurvey/

The Survey Process

1. Define goals. 2. Develop and define method. 3. Ask: will this work within our constraints? 4. Develop survey instrument(s). 5. Identify population, select sample; develop contacts. 6. Test the survey instrument (often questionnaire). 7. Implement survey process. 8. Collect data. 9. Analyze data. 10. Prepare report.

Part I. Understanding the Market

Peer City Comparisons

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

Peer City Comparisons

Examining Similar Cities and their Business Districts is useful in identifying potential business opportunities and economic development strategies.

Identifying Comparable Places:

Similar in Demographics Similar in Location Similar in Urban and Rural

Identifying Successful Districts:

Knowledge from existing

Characteristics Similar Function

study group members Recognized downtown successes Research websites of downtown or Main Street organizations

University of Illinois Resource Community Swap

Community Swap process
Extension can assist in

pairs like communities with similar populations, demographics and amenities.

planning.
Exchange followed by a

Town Hall Meetings to discuss key findings.

Establish goals and

strategies based on new information.

Part II Analysis of Opportunities by Sector

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

II. Analysis of Opportunities by Sector

Examining Retail Opportunities

Includes tools for estimating demand and supply for selected business categories. Business opportunities are examined in terms of quantitative and qualitative factors
Demand Supply

Realistic Retail/Service Business Opportunities

Reasonableness Check

Retail Analysis Tool: Gap Analysis Calculator

Poll
In Wisconsin, the top three categories of business that line Main Streets include?
A. Grocery, drug stores and apparel shops B. Restaurants, bars and hair salons C. Hardware, furniture and home dcor stores D. Gas stations, auto parts and auto repair

Retail Analysis Tool: Business Mix Analysis

NAICS Description Full-service restaurants Beauty salons Drinking places (alcoholic beverages) Automotive mechanical & electrical repair Gift, novelty, & souvenir stores Other amusement (bowling, golf, fitness) Used merchandise stores Gasoline stations Appliance, television, & other electronics stores Grocery stores Barber shops Specialized building material dealers Jewelry stores Florists Automotive parts, accessories, & tire stores Number 7.9 6.7 3.9 2.2 2.0 1.9 1.8 1.7 1.7 1.6 1.3 1.3 1.1 1.1 1.1 Sales (000's) 5,378 1,451 1,224 854 729 791 810 5,527 3,322 13,973 148 2,240 830 413 1,550

/ Comparison with Wisconsin cities/villages with 5,000-10,000 Pop. (Average of 45 Downtowns)

Retail Analysis Tool: Innovative Downtown Businesses Clearinghouse

Case studies of downtown

retail and service businesses that:

build on downtowns

character and offer products and services not found in big box stores.
Searchable by Type of business Size of community

II. Analysis of Opportunities by Sector

Analysis of Other Property Uses

Includes techniques for estimating demand and supply for various downtown uses. To the extent possible, opportunities are examined in terms of quantitative and qualitative factors
Restaurants Arts and Entertainment Housing Office Space Lodging Light Industrial

Part III Putting Your Research to work

Funding - North Central Regional Center for Rural Development (NCRCRD) Seed Grant

III. Putting Your Research to work

Using Your Market Analysis

Market analysis findings can provide a solid and objective foundation for launching economic development strategies for your district.
Niche Development Space Usage Image, Branding, Marketing Business Retention/Expansion Business Recruitment Entrepreneurship Benchmarking

For More Information

Kathie Brown University of Illinois-Extension Email: brownlk@illinois.edu Jennifer Russell University of Illinois-Extension Email: perica@illinois.edu Bill Ryan University of Wisconsin-Extension Email: bill.ryan@uwex.edu