Business GIS for Everyone

This blog takes an informal look into the debates and methods related to business GIS and mapping

Translating Big Analysis into Big Understanding (and Big Dollars): Part Two

Author: Dr. Murray Rice

Our last blog post introduced the idea of Business GIS cutting through market complexity to enable businesses to better visualize and identify their core markets. The analytical focus of the last post (and for us again today) is the growing field of spatial or geodemographic segmentation. As we defined it last time, spatial segmentation brings dozens of variables into analysis simultaneously, producing a complex but understandable picture of the spatial structure of local, regional, and national markets (think of the Harris County map discussed in the last post).

In the terms used in the previous post, our focus was all on phase 1 (broad, generic analysis) with very little on phase 2 (specific attention paid to the business’ own customer data). We turn now to adding this business focus to the insights provided by the broad market analysis.

Turning an Abstract Idea into Specific Benefits: Spatial Segmentation and Marketing Plans

Spatial segmentation relies on the power of combining information from multiple sources. Of course, the spatial segmentation scheme that is one crucial foundation draws in many variables to provide a robust context for the analysis. But the job is not done yet: we need data from our business to make this segmentation analysis really shine. At minimum, segmentation analysis relies on a customer database of some type that will be analyzed alongside the segmentation framework. If we have no customer data, our analysis ends up having nothing specific to say about opportunities for the business. It is possible to benefit in very general ways from a segmentation analysis without specific business data, but the most powerful situation is to involve the business’ own data as much as possible. We need data that the business has collected about its interactions with individual customers.

Such a database can come in many forms, and include many diverse types of information. The most valuable datasets for a given firm to maintain in a database intended for geodemographic analysis includes those that speak to the most important things that businesses do for their customers. So a shoe store will benefit from having a database of shoe purchases by individual customers, while a car maintenance business will benefit from having a database of the specific maintenance services it provides to its individual customers, including a record of the brands and types of cars each customer owns. Similarly, it would be wise for sporting goods retailer to keep track of the various unique sports played in the neighborhoods and communities served by each of its stores. The more specific a business’ database is about the products and services it has sold to each customer, the more valuable it is for the business.

Despite the necessity and value of maintaining sales records for each customer, on its own even these sales records are not sufficient to complete a geodemographic analysis. For maximum benefit, the database needs to include a geographic location for each customer. Having this location element is crucial, because it allows the analysis to generate insights based on the community context of the sales data.

The following explains what this means and how businesses can make use of this idea.

A Sample Use of Location and Community Data in a Segmentation Analysis

As we already know, a segmentation analysis is built from the ground up from detailed community databases. However, one good pathway to application makes use of community data in one additional way. Analysis of the population present within the businesses market area block by block and community by community provides a basic creative population and household numbers. In parallel, tracking the number of customer individuals and households provides a unique opportunity to consider population numbers and customer numbers in tandem. The result? A detailed map of the business’ market penetration (or market share) across the area.

Map 1 provides an example of a market penetration map analysis. It highlights in graphical terms the zones that contain the highest numbers of customers for a given business as a percentage of the total population of each neighborhood. What is especially noteworthy from this map is the specific zones it identifies as being home to the most prolific customers of all neighborhoods in the area. The high-penetration zones are the focus of Map 2.

What does this have to do with segmentation analysis? Map 3 takes the analysis one step further by identifying the geodemographic segments that are present specifically in the peak market zones. The fact that these segments are present in peak market areas in one metropolitan region is a powerful clue that these segments might also be relied upon to perform well in other metropolitan regions.

Map 1: Overall Market Penetration (or Market Share) Map

Map 2: Focus Exclusively on the Peak Market Zones (Very High Penetration) for the Business

Map 3: Geodemographic Segments Present in the Peak Market Zones Only

So the application here is to take the geodemographic segments identified as part of peak markets in an established region for a business and locate those same segments in a region the business is considering for expansion. Map 4 illustrates this application by illustrating the distribution of peak market segments from the San Antonio analysis in Map 1 to 3, as these segments transfer to the Houston area.

Map 4: Identifying the location of peak market segments from San Antonio in the Houston area

We can see from this analysis that the new market being considered, Houston, looks very promising based on the market segments transferred from San Antonio. There are many households in Houston that fall in the same categories that are good markets for the business in San Antonio. This is a positive sign for expansion to Houston, but as with any major decision other perspectives and analytical results must be considered to ascertain the true promise of a Houston expansion. For example, presence of competition and availability of suitable real estate in the Houston market would be other key factors to study further before committing to a Houston expansion.

For Further Consideration…

Remember that the above is only one sample application that can be implemented using segmentation analysis as a starting point. The best way to create more applications is to jump in and start playing with a segmentation database to see for yourself what segmentation analysis can do.