Site Analytics Team JP Morgan Chase / Bank One 06/29/2004 Overview
Total Page:16
File Type:pdf, Size:1020Kb
Optimizing the Market Coverage for Retail Chains A Case Study Jay Zhang, Ph.D. Email: [email protected] Site Analytics Team JP Morgan Chase / Bank One 06/29/2004 Overview This case study demonstrates the use of GIS and location-allocation models to maximize the market coverage with minimal investment. It is part of a comprehensive study for a retail chain. Some slides were removed for confidentiality reasons. Standard versions of Location-allocation models were initially used but proved ineffective. The model performed much better when Huff Spatial Interaction Model was incorporate into the model. Questions answered in the project How many branches do we need for each major market? Where should we put these stores? What trade area does each location cover? 1 Location-Allocation Models LA Models are mathematical models that select an optimal set of locations to meet your business objective Depend on your objective, there are three primary LA models: p-median model – finds optimal locations so that they are most convenient for your customers (minimize average travel distance, time). Set covering model – calculate the number of facilities required so that a specified % of customers are covered (within certain distance). Maximum covering model – given a set number of facilities, find optimal locations so that the coverage is maximized. 2 Location allocation model illustrated Squares are candidate locations; Circles are demand points; Size of the circles represent the amount of demand at each location; See next slide for data requirements for LA models. 3 Data for Location-Allocation Model Requires four sets of data: Candidate locations Demand points Amount of demand Distance from each demand point to each candidate location 4 How many stores are needed in each market Service level desired: average travel distance within 4-5km Current service level: travel distance Vancouver 5.5km Edmonton 5.1km Calgary 7km p-Median Model: Average Travel Distance as a Function of Number of Facilities, p for Calgary (Based on TPR) 8.0 Shopping Mall Locations 7.0 All Locations ) 6.0 m (k Current TELUS Stores (3) e c 5.0 an st i D 4.0 el av r T 3.0 e ag er v 2.0 A 1.0 0.0 012345678910 Number of Facilities, p 5 Standard Implementation of Location- Allocation Model 6 Maximum Covering Model for Calgary Distribution of 1 Suggested TELUS Store Locations in Calgary (Based on TPR) #Y Market Mall Strathcona Square % #Y Calgary Tower #Y Chinook Mall TELUS Geomatics Coverage Distance - 4.5 km % 1 Suggested Store (Mall Locations) #Y Current TELUS Stores (3) Calgary EAs 7 Distribution of 2 Suggested TELUS Store Locations in Calgary (Based on TPR) #Y Market Mall % Village Square Ctr Strathcona Square % #Y Calgary Tower #Y Chinook Mall TELUS G eom atics Coverage Distance - 4.5 km % 2 Suggested Stores (Mall Locations) #Y Current TELUS Stores (3) Calgary EAs 8 Distribution of 3 Suggested TELUS Store Locations in Calgary (Based on TPR) #Y Market Mall % Village Square Ctr % Strathcona Square #Y Calgary Tower #Y Chinook Mall % Glenmore Landing TELUS Geomatics Coverage Distance - 4.5 km % 3 Suggested Stores (Mall Locations) #Y Current TELUS Stores (3) Calgary EAs 9 Distribution of 4 Suggested TELUS Store Locations in Calgary (Based on TPR) #Y% Market Mall % Village Square Ctr Stadium Ctr % #Y Calgary Tower #Y Chinook Mall % Glenmore Landing TELUS Geomatics Coverage Distance - 4.5 km % 4 Suggested Stores (Mall Locations) #Y Current TELUS Stores (3) Calgary EAs 10 Distribution of 5 Suggested TELUS Store Locations in Calgary (Based on TPR) #Y% Market Mall % Village Square Ctr Dragon City Mall #Y% % Calgary Tower Westbrook Mall #Y Chinook Mall % Glenmore Landing TELUS Geomatics Coverage Distance - 4.5 km % 5 Suggested Stores (Mall Locations) #Y Current TELUS Stores (3) Calgary EAs 11 Maximum Covering Model for Calgary (Mall Locations) % Market Coverage for Calgary (4.5 km) Maximum Cover Model (4.5km): Mall All Current % Market Coverage as a Function of Number of Facilities, p for Calgary (Based on TPR) p % Cove r 100.0 1 17.8 24.2 - 2 29.3 39.8 - 90.0 3 37.7 55.0 29.4 4 44.4 68.6 - 80.0 5 50.6 77.5 - 56.8 84.3 - 70.0 6 e 7 61.5 91.8 - ag 60.0 8 65.3 96.1 - ver 9 68.7 98.2 - Co t 50.0 10 71.0 99.1 - e k r a 11 73.6 - - 40.0 12 75.1 - - % M 30.0 13 76.2 - - Shopping Mall Locations 14 76.5 - - 20.0 15 77.5 - - All Locations 16 77.7 - - 10.0 17 78.2 - - Current TELUS Stores (3) 0.0 18 78.4 - - 0 5 10 15 20 25 30 35 40 45 50 19 78.5 - - Number of Facilities, p 20 78.5 - - 46 78.5 - - 12 Integrating Huff Spatial Interaction Model 13 Integrating Huff’s Spatial Interaction Model When several alternatives exist, the probability a person will shop at a particular store is directly proportional to the perceived utility of that store. A store’s perceived utility is proportional to the attractiveness of the store (e.g., bigger stores have larger attraction), and inversely proportional to the distance the person has to travel. α S j d β = ij P α ij n S j ∑ β j=1 dij 14 Distribution of 5 Suggested TELUS Store Locations 5 Suggested TELUS Store Locations in Calgary (And Potential Market Territory) (Based on Maximum Benefit Model) in Calgary $T #Y$ Market Mall Marlborough Mall $T $ $T #Y$ Calgary Tower $T #Y$ Chinook Mall $T 5 Suggested Store Locations TELUS Store Territory Marlborough Mall Southcentre Mall $ 5 Suggested Store Locations $T $ Market Mall * #Y Current TELUS Stores (3) Southcentre Mall Calgary Tower * Calgary EAs Chinook Centre * TELUS G eom a tics TELUS G eom atics 15 Web-based mapping for data reporting 16 Entire US View With Heat Score 17.