Spatial analysis

An Experian white paper

March 2011
Lost in space? How spatial analysis
can direct your market strategy

In these times of growing marketing This paper provides a concise

complexity, fierce competition explanation of the strategic
and an uncertain economic future, importance of spatial analysis and
businesses need to reassess its most important applications.
priorities and sharpen strategic Moreover, the development of a
business plans. The challenge of spatial sensibility is shown to be
steering your company through an critical to the establishment, and
environment of increasingly marginal furtherance, of a successful market
and dispersed opportunities means and customer strategy.
one thing get back to basics.

The key to this knowledge lies in a

full understanding of your customer This paper explores five areas:
base where they live, what they
want, and how they behave. If you
combine this insight with high quality
market intelligence you can then
A. What is spatial analysis?
begin to select and exploit the right B. From data to insight
opportunities for your business.
C. From insight to strategy
Whilst this might sound like old
news, our challenge to you is whether D. Bringing it together
you have embraced and exploited
the benefits of spatial analytics in E. Getting started with spatial analysis
this process. Spatial analytics is a
method of deriving rich actionable
insight from customer and market
data and it could represent an
important means to navigate your
way through the current economic
gloom, and plot a course towards
profitability and growth.

Spatial analytics is a method of deriving rich

actionable insight from customer and market
data and it could represent an important
means to navigate your way through the
current economic gloom, and plot a course
towards profitability and growth.

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A. What is spatial analysis?

1. A short definition

Spatial analysis utilises statistical, modelling, and mapping techniques, to reveal, measure, and predict,
the geographical phenomena that influence the ability of a business to fulfil its profit making objectives.

It can provide decision makers with a vital injection of objective insight concerning the nature of their
customer base and the dynamics of their marketplace. Indeed, many high profile consumer facing
organisations embrace spatial analysis, using it to validate their strategic market plans and tailor their
customer propositions.

However, for many, it remains unexplored territory - a spatial frontier in itself. Without a clear appreciation
of the value of spatial analytics, decision makers are often feel ill-equipped to make a fully informed
business case for investing in spatial tools and expertise.

2. Who is it for? A geographical appreciation of your

market will be particularly relevant if
A more appropriate question is - you rely on attracting consumers to
who isnt it for? If you have physical outlets; yet, spatial insight
customers, and you care about where is not the sole preserve of bricks and
they live, how they behave, what mortar operators. Any business that
products and services to offer them, seeks to attract consumers, whether
and how to best communicate your its primary means of engagement is
messages, then spatial insight can through direct mail, catalogues, the
help your business. internet, or a store, has much to gain
from spatial analysis.
Many customer facing organisations,
from a variety of sectors, actively 3. Five good reasons
engage in spatial analysis:
to conduct spatial
Retailers: high street, shopping analysis
centre, retail park, superstore,
and convenience, operators 1. Identify the key customer
Distributors: organisations and market variables that drive
reliant on sales through performance
partner outlets 2. Assess the value of target
Property: retail, office, and consumers and rank geographical
industrial agents; investors, opportunities accordingly
developers, and centre operators 3. Ensure marketing initiatives
Leisure: pubs, restaurants, are consistent with the needs of
cinemas, bookmakers, event the underlying customer base
organisers, tourist attractions 4. Allocate sunk costs associated
Professional services: financial, with property estates and
legal, and medical operators; marketing projects to their best
other service providers possible uses
Public sector services: health 5. Achieve competitive advantage
centres, libraries, and other in a crowded market - identify
public service providers great opportunities first

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4. Driving strategic Figure 1: From data to actionable insight, the strategic importance of spatial analysis
(Copyright Experian Ltd)
direction
...at multiple geographical scales...
Robust spatial insight relies on
robust spatial data these can be National Regional District catchment Location
broadly categorised as, existing
customer information, target
consumer information, and wider ...drives insight regarding...
marketplace information (Figure 1).
Target customer groups Catchment areas Market intelligence
Interrogated at various geographical
scales, these variables will reveal a
host of insights about your business,
including the profile of existing and ...helping you to...
prospective target customers, the
Identify drivers of business performance
extent of your catchment areas, and
key market and location factors that
influence how you trade.
...and carry out important activities...
This insight will help you identify Market prioritisation Predicting performance Customer communication
the primary market and customer
drivers behind your performance, and
empower you to shape the strategic ...which fulfil your strategic objectives
activities by which success is
measured: Revenue Profitability Growth

5. What are spatial data? True insight is only revealed once Spatial data are highly pliable, and can
you start to apply socio-demographic be analysed at any strategic scale. A
Spatial data are customer and profiles to your customers, or append retailer entering a new country will be
market variables that can be location quality indicators to your primarily concerned with understanding
represented and interrogated stores. Together, these variables the overall value of the national market,
geographically (Figure 2). Analysing will paint a rich picture of the social, while, at the other end of the spectrum,
the location of existing customers economic, and commercial, context in a convenience retailer will focus on the
and the consumers from which they which your business operates. relative value of markets at street-scale.
are drawn allows you to quantify your
Figure 2:Three broad categories of spatial data, and example enrichment variables
customer base. While data covering
(Copyright Experian Ltd)
your market locations will let you
consider location and market specific
factors of relevance to your business. Customer data Consumer data Market data

Unfortunately, not all businesses are Enriched by: Enriched by: Enriched by:
blessed with plentiful spatial data
Frequency of Socio-demographic Physical and
indeed, data on existing customers business segmentations manmade geography
can sometimes be hard to come by. Recency of business Affluence Market segmentation
Fortunately, what data you have can be Value of business Ethnicity and culture Competitor activity
enriched using a vast array of additional Type of product or Financial Complementary
consumer and market variables sourced service bought sophistication operator or activity
from spatial data providers. It is this Channel used Technological Location type,
process of data enrichment that truly (on-line, shop, sophistication quality, dynamics
brings your own to life. catalogue) Propensity to
consume

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B. From data to insight: four spatial activities

1. Profiling customers

The first priority of spatial analysis is the development of an intimate understanding of existing or
prospective customers. Without this insight it is not only difficult to get to grips with what drives your
business, but impossible to measure the potential value of market opportunities.

Customer addresses/postal information is typically drawn from transactional records (in-store, on-line
etc.), surveys, or loyalty schemes. Where you do not have access to real customer data, your prospective
consumer base can still be profiled but on a more assumptive basis.

You can easily understand the extent of your existing market by geographically pinpointing your customers
(Figure 3). However, it is only by going on to profile them using a range of enrichment data that you will
gain a clear view of who you are dealing with.

Figure 3: locating and profiling customers

(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)

This most basic of spatial activities

will allow you to:

Develop a portrait of your target

customers:
- Who are they, where do they
live, how do they behave, and
what do they want?

Identify changes in the shape of

your customer profile:
- Are new customer types
emerging?
- Have established types
diminished?

Understand differences between

groups:
- Do different groups buy
different products/services?

Identify geographical variances:

Profile existing or prospective customers by:
- Where are the hot spots and
cold spots?
Consumer segmentation, age, gender, life-stage, lifestyle, affluence,
income, attitude
Area of residence
Ethnicity, cultural background
Financial behaviour, economic resilience
Product/service bought, frequency of purchase, channel used, value
of purchase

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2. Creating catchment Figure 4: plotting the boundaries of catchment areas, and estimating market size and share
(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)
areas
Where you have stores, defining
the limits of individual catchment
areas is a natural progression
from locating customers or target
consumers (Figure 4). The insight
derived from this practice is so
powerful that it can underpin
almost all market strategy activities
conducted by store led businesses.

Catchment areas can be Use catchment areas to:

created using:
Assess market size
Real customer Visualise market
location data share across an area
Drive time bands Establish the boundaries
Distance radii of markets
Gravity models

The process of catchment creation is Monitoring the impact of Network optimisation, to ensure
the key to: competitor activity efficient coverage of all markets:
Monitoring the impact of - Reach the maximum number
Identifying regional differences marketing or activity or new of consumers through
within your business store investment minimum number of locations
Assessing your market value Predicting new store catchment - Where to close weak stores
and share of catchment areas areas
Establishing areas of untapped Planning of store/market support:
potential In turn, this insight can feed into - Vary products/services in
Identifying areas of market a number of important strategic line with customer base
saturation decision making activities: - Channel marketing efforts
Identifying areas of strong and into areas of greatest
weak performance Identification of high potential potential
Identifying strong and weak markets to be prioritised for - Choose appropriate form of
nodes in your store estate: future investment: communication (on-line,
Analysing overlaps between - Where to open new stores in-store, media etc.)
catchments and the potential - Where to invest in existing
for cannibalisation stores

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3. Gathering market Figure 5: gathering micro-level intelligence
(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)
intelligence
Spatial analysis is essentially a
process of intelligence gathering. The
development of a robust picture of your
customers and a clear understanding
of market dynamics can only happen
once you bring together all variables
of relevance to your business. This
process cannot be overstated in
competitive markets, market knowledge
really is power.

At the macro-scale, market demand

data should be collected by catchment
area. However, because the difference
between success and failure can be
the matter of just a few yards, high
quality micro-scale intelligence must
also be collated (Figure 5). Indeed,
where rental liabilities are high and
lease commitments stringent, a poorly
chosen location can become a long-
term, debilitating problem. Micro-scale intelligence can be derived from a variety of sources including,
your own surveys, location databases, footfall surveys, and bespoke pitch
quality scores. It allows you to:

Assess overall location quality:

- Where is the best possible location within a market?
- What other retailers and operators are here?
- What does the competitive landscape look like?
- How many of my existing stores are in poor or great locations?

Understand the impact of local changes:
- How has a new development impacted one site, compared to others?
- How has, or will, competitor activity affect me?

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4. Identifying drivers of Typically, regression analysis This insight can be used to:
is used - a statistical technique
business performance that analyses the relationship Intervene in poor performing
between any number of independent markets with positive
By profiling consumers, establishing
variables (i.e. competition, consumer underlying variables
your catchments, and compiling market
demographics) and a dependent Provide the rationale to rank
intelligence, you will yield a substantial
variable (i.e. EBITDA, turnover, and prioritise future investment
database of variables. These must be
market share). This method will show opportunities
sifted through to isolate those that are
you how the value of the dependent Segment your existing store
of greatest importance to your business
variable changes when one of the estate based on performance,
- which of these factors are responsible
independent variables is varied and set different strategies
for driving performance?
allowing for causal relationships to be Benchmark performance for
inferred. different types of locations, and
Many businesses approach this
set justifiable targets
question by undertaking a performance
The audit process should distil a Develop a sales prediction
audit. This approach will help you
database of market and customer model to forecast optimal
isolate and quantify the statistical
variables into a manageable short- performance of existing and
significance of your customer and
list of factors that drive successful new locations
market variables in driving store
performance providing you with
performance, as measured by typical
a blueprint for success. It is these
success factors such as profit, market
variables that must be replicated as
share, and turnover (Figure 6).
you grow and develop your business.

Figure 6: conceptual model of performance drivers, for a retailer

(Copyright Experian Ltd)

Exernal factors driving performance

Footfall
Access/parking
Quality

Customer segments
No. of competeing shops
Market size by category
Catchment Pitch Competition Distance
Expenditure per head
No. of complementary shops
Internet penetration

Revenue and
Measure of success
profitability

Age of fit-out Mystery shop score

Rent and rates Staff apraisal score
The shop Operations
Shop-fit Stock management
Size Conversion

Internal factors driving performance

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C. From insight to strategy: three spatial initiatives

1. Customer engagement

Understanding who your customers are, and where they are within your catchment, enables you to identify
high concentrations of your target customers (Figure 7). This insight empowers you to not only direct
promotional and advertising resources to the right places, but the right messages to the right consumers.

Figure 7: planning marketing activity Customer insight can also trigger

(Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material) tailored product and service
strategies where offers are
adjusted according to the needs of
local markets. This is a necessary
step for any business reliant on a
niche offer; however, generalist
operators can also benefit from
a tailored approach. For example,
where a market is characterised by
an older and affluent catchment, a
retailer may benefit from offering
specialist brands and higher staffing
levels. Alternatively, in a younger
less affluent catchment, a more
mass-market offer is likely to be
appropriate.

Segmenting geographical markets in

accordance with dominant consumer
types allows for:

Merchandising of stores
according to local demand
Selection of different brands/
fascias for different types of
market
Employment of specialist staff
for particular locations
A spatial approach to your Use spatial insight to:
Deployment of market specific
marketing strategy will help in-store promotions and
Target specific consumer types
you to optimise your targeting initiatives
with specific messages
activities, whether they are, Select media advertising
door drop, media, or store, opportunities that best match
customer locations
based. Clearly defining who
Select most appropriate channel
you market to and when will of engagement dependent on
help you minimise wastage consumer type
and to invest your scarce Carry out local in-store
initiatives and advertising
capital based on a justifiable
Reduce wastage associated with
rationale. blanket marketing campaigns

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2. Market prioritisation Figure 8: using success factors to establish a prioritised market investment list
(Copyright Experian Ltd)
By establishing key success drivers
you have a clear set of parameters by
which to rank and benchmark future
market opportunities. This is a vital
strategy for businesses seeking to
expand their networks.

The process of prioritising markets

can be carried out with varying levels
of sophistication, either through
the development of static market
ranking tools or more complex
interactive gravity models. Whatever
method you choose, you must treat
your primary success drivers, such
as target customer segments,
ideal competitive landscape, and
The development of a full understanding of the scope of your market will ensure you
favoured location dynamics, as
can put in place a solid growth strategy for your business.The generation of a market
relative weights by which to score
hit-list should guide any market representation plan, be the channel of consumer
opportunities. By manipulating engagement a physical store, on-line, catalogues, or direct mail.
these weights in accordance with
the relative impact each variable Use this approach to:
has on your performance, you can Establish a prioritised new store opening plan
quickly establish a prioritised market Identify the quantity of potential opportunities within a new geographical market
investment list (Figure 8). Identify notable gaps in an existing store portfolio and the need for infill stores
Justify individual opportunities for further research and eventual investment
Highlight strong markets with poor stores, where operational improvement or
3. Predicting performance marketing support is required

Spatial insight can be exploited

to help you accurately predict the Figure 9: modelling your commercial environment
performance of future investment (Copyright Experian Ltd, Navteq 2009 Q4. Based upon Crown Copyright material)
opportunities, or changes to your
store network this is a key reason
why many businesses engage in
spatial analysis.

This is a sophisticated spatial

analysis activity, which typically
involves the development of various
analytical techniques such as
regression analysis, analogue
benchmarking, and gravity models.
The success of any approach is
predicated on a robust supply of
spatial data, to ensure your market
predictions reflect reality as closely
Use this approach to:
as possible.
Predict the impact of changes to your commercial universe
Separate great opportunities from mediocre or risky investments
A predictive approach allows for the Understand how much more you should be achieving from existing markets
testing of any number of strategic Build strong and justifiable cases for your investment decisions
what if scenarios (Figure 9). Optimise network coverage and predict the point where diminishing returns will
impact your business

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D. Bringing it together:

1. Developing a market representation strategy

The insight gained from spatial analysis can inform a wide range of initiatives; however, your ultimate aim
should be to combine these various strategic threads into your business formal Market Representation
Strategy. This masterplan will utilise spatial insight to inform how you grow your business, deal with
opportunities, exploit potential, and remedy weaknesses (Figure 10).

Figure 10: Market Representation Strategy for a retail chain

(Copyright Experian Ltd)

Market representation strategy to optimise customer opportunities

Strategy for Strategy for existing markets

new markets

High potential Crown Jewels Top earners High potential

Open flagship stores Ensure max. support Trial new concelts Expand range/service

Mid potential Low potential

Open standard stores Invest selectively

Low potential Poor performers

Use catalogue/on-line Transform, close

Possible solutions may range from opening new store locations and closure of weak locations, to targeted marketing and
regional adjustment of product and service offers. Ultimately, the plan will formalise your strategic intent for every market in
which you are, or expect to be represented. In essence it should demonstrate how your scarce resources will be allocated to
their best possible use.

2. Tools of the trade They will reveal the shape of your some of the activities discussed in
business, allowing you to identify this paper. These include GIS based
Geographical Information Systems patterns and relationships in your applications such as drive-time,
(GIS) customer data. Their power lies in the radii, and distance analysis; simple
Geographical Information Systems displaying of complex information in spreadsheet calculations; statistical
are visualisation tools, a means to a way everyone can understand - they analysis, and gravity modelling
an end that puts data on to maps. bring a business market to life. exercises. Increasingly, innovative
However, because they facilitate forms of Geographic Business
spatial analysis by showing us Spatial insight techniques Intelligence (GBI) software are also
the location of customers and Many spatial insight techniques deployed - these blend traditional
catchments, they are vital to the are used to explore the patterns spatial activities with cutting edge
strategic decision making process. revealed by GIS, and to conduct business analytics.

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E. Getting started with spatial analysis: four key considerations

1. Customer and location data

Excellent spatial insight requires excellent data. So we recommend you begin with a thorough audit of
your existing assets. Your aim should be to develop as complete a picture of your existing and prospective
customers as possible. If you have customer data, the task of profiling records against social and
economic enrichment data should be straightforward. However, few businesses will have everything they
need at their fingertips, so be prepared to source much of your data.

Consider the following: Developing a plan to expand 3. Level of intervention

quickly
Do you have access to customer Trying to get more out of your You should consider the level of spatial
data? If so, what form is it in? existing markets intervention that will be most suitable
How much do you have? Can A need to understand the to fulfil your strategic objectives. The
it be geographically fixed drivers behind your business exact triggers for spatial analysis
(contain addresses and/or Developing the ability to predict required by two businesses will
postcodes). performance seldom be the same, but it is possible
Are there restrictions in Renewing your business and to identify broad levels of intervention
using this data, such as selecting investment candidates and sophistication (Figure 11).
customer confidentiality?
How up to date is your data? Figure 11: sequence of spatial interventions what level of sophistication suits your needs?
Does it need to be cleaned and (Copyright Experian Ltd)
reformatted before use?
Are there glaring gaps and how
easily can these be filled? Profile customers, track changes, campaign analysis, choose
communication methods, identifying hot spots, identifying weak and
Is it feasible to begin collecting
customer data? If so, investigate Market strong nodes, consider cannibalisation, identify competitor impacts,
base plan product/service support.
the right method for your
business (surveys, transactions
etc.)?
Identify the customer, market, and location factors driving business
Think about your commercial or
performance.
retail landscape, if you are to Drivers
build up a full picture of market
demand (socio-economics,
market values etc.) and market
supply (outlet locations etc.), Identify and prioritise best market opportunities, based on drivers.
then what will your data short- Prioritise
list look like?

2. Your strategic objectives

Direct investment process using market insight and performance drivers
to predict future performance.
The type of spatial analysis most Predict
relevant to your business will depend
on your current strategic objectives.

Consider whether your focus is on: Bring insight together and develop an effective and efficient market
representation plan.
Optimise
Developing a general view of
your market for the first time
Entering new markets

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4. In-house or 5. Experians spatial
out-sourced? analysis services
It takes time to develop spatial With a highly experienced team
capability, sophistication will of account managers, consultants
improve step-by-step. Developing and analysts, and over twenty years
this capability in-house demands experience in spatial analysis,
investment in tools, data, and Experian has an excellent reputation
qualified personnel. for helping clients develop actionable
insight from market and customer
You need to think carefully about data. Experian provides a full-service
the best solution for your business. offer, from the provision of data to the
You may wish to work towards in- design and delivery of complex spatial
house resource, or instead utilise projects. Clients come from a broad
trustworthy partners. Even expert range of sectors including, retail,
in-house analysts seek the services leisure, finance, telecommunications
of spatial strategy consultants to and the public sector.
help source tools, data, and bespoke
analytical solutions.
Things to consider:

Is your intention to conduct a

one-off piece of analysis, or to
set up a spatial strategy?
What is your time-line for
developing a spatial analysis
strategy?
Do you have existing analytical
capabilities, or do you need to
set up infrastructure?
Would you prefer to utilise third
party expertise?

About the author

James Miller is a Lead Consultant within Experians Marketing

Information Services team. He trained as an economic
geographer and has over ten years commercial experience,
having worked at the heart of market strategy within both the
retail (Comet Group plc and DSGi) and property (Cushman &
Wakefield) sectors. He has a strong background in deriving
actionable insight from spatial and consumer data to drive major
business decisions and projects for retailers, investors, and
other customer focused businesses.

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