Catchment area: challenges for distributed brands

When we talk about catchment areas, you are probably wondering how this affects you. Well, it doesn't just concern retailers and retail chains, but also... your brand!

‍Let us show you how this analysis tool can also be useful to you, whether to define your distribution strategy or to improve the efficiency of your marketing and sales departments.

Understanding Catchment Areas

What is a catchment area?

The term “catchment area” refers to the geographical territory from which a point of sale attracts its customers. In other words, it is the area where potential customers of a store live, work, or travel.‍

The catchment area therefore concerns the current clientele of a point of sale or brand, but also its potential clientele. 

It is defined by the travel distances and times for customers to get there, but also by the socio-economic characteristics of the territory concerned.

It is therefore a powerful geomarketing tool that allows distributors and points of sale to identify strategic location opportunities and evaluate the penetration rate of a local market.

3 zones to represent levels of attractiveness

The catchment area is generally divided into three sectors, which allow a more detailed analysis of a point of sale's attractiveness: 

1. Primary zone: they are right next door! This is the closest zone and where most of the store's customers come from. They go there naturally, for convenience; 

2. Secondary zone: They like coming to this store, but are further away. The point of sale has a harder time attracting them, but the traffic still exists nonetheless;

3. Tertiary zone: the biggest challenge. In this case, potential customers have competing points of sale closer to them. The effort required to bring them to the point of sale is significant.

Calculating the catchment area

We are reaching the more technical, yet necessary, part. 

Points of sale that want to determine a catchment area mainly use four methods: 

1. Isochrone curve: it consists of defining a reachable geographical zone based on a travel time and a transport mode defined beforehand. Mapping this zone based on several variables will likely lead you to use dedicated algorithms; 

2. Isometric curve: also called isodistance, this technique uses distance as the main variable instead of travel time;

3. As the crow flies: here, distances are considered without incorporating concepts related to geography, time, or transport infrastructure; 

4. Administrative boundaries: municipalities or departments, for example.

The goal is to understand where potential customers are located, and how to drive them to the point of sale.

‍

Evaluating the commercial potential of a territory

Your products are great, but where are the customers who love them?

To measure the value of a sector in terms of revenue, distances and travel times are not enough! Indeed, to evaluate the commercial potential of a territory, you will need to cross geographical indicators with socio-economic data and, as we will see a bit later, consolidate everything with your distributors' consumption data.

Studying the catchment area allows you to validate your instinct with statistics. Rather than relying on assumptions, you can evaluate the commercial potential of a territory - and know its clientele precisely - based on specific evaluation criteria.

Here are some criteria that allow for a finer level of granularity in interpreting the potential of a catchment area:

• Median income; 

• Gender distribution; 

• SEC (socio-economic categories); 

• Average age of inhabitants;

• Active population rate.

To this end, a number of local statistics study tools are made available to you by INSEE.

‍By carrying out this analysis, you will be able to understand the disparities in sales potential from one territory to another. This helps you prioritize points of sale based on their supermarkets and hypermarkets (GMS) potential, but also adapt sales pressure.

‍

Importance of the catchment area for brands integrated into distribution

As a brand integrated into distribution, you can use catchment area analysis to better select the points of sale in which to distribute your products. Indeed, by identifying and analyzing catchment areas, you will know your sales territory better and therefore adapt to it more effectively. You will thus know which products to offer with which packaging, and at what prices. In other words, analyzing your catchment areas is like answering (in part) the 4Ps of your marketing mix: product, price, place (distribution), and promotion

This also helps you understand store tiers, but above all, refine them. Indeed, by crossing the catchment area with other data (type of neighborhood, foot traffic, seasonality, population density...) you will refine store tiers (for your brand) beyond the simple criterion of market share. This helps you build more localized, and therefore more effective, sales strategies.

It is on this point that the catchment area is important for you, as a brand. Two stores may have a similar sell-in or numeric distribution (DN), but a different catchment area. The latter puts these figures into perspective and helps identify key products and formats according to the territory, but also distinguish a high-performing "small store" from an under-exploited hypermarket.

Here is a non-exhaustive list of potential benefits for your brand:

• Perfecting your distribution strategy;

• Locating the most promising points of sale; 

• Optimizing your inventory management and logistics; 

• Improving customer experience; 

• Strengthening loyalty by improving the distribution of your efforts; 

• Personalizing your offers with respect to local socio-economic realities; 

• Improving your marketing campaigns with geolocated advertising, in particular;

• Optimizing your advertising spend according to the challenges per sector. 

‍

State of competition: how should brands interpret it?

The best potentials inevitably attract competition. Therefore, do not limit yourself to sectors where demographics and purchasing power indicators are high. The presence of competitors can indeed significantly impact forecast sales.

Thus, keep in mind that if many retail chains distribute the product line you are in, their reflex in an ultra-competitive context will often be to lower their final retail price or play on margin rates. In this case, your distributors could pass this pressure back to you by asking you to absorb the price drop.

But paradoxically, increased competition will also tend to increase the overall traffic of a catchment area, and therefore the sales opportunities for your products.

The objective is therefore to balance potential and competition to find the sweet spot!

These concrete examples illustrate the link between the coverage of the offer in a territory and the commercial opportunities on the manufacturing side. Indeed, the catchment area covered by each of your distributors should be studied in relation to both commercial potential and competitive density. A vast topic!

‍

Catchment area and distribution strategy

With the catchment area, targeting consumers most likely to buy your products takes on its full dimension. 

Indeed, while fast-moving consumer goods manufacturers tend to want to sell everywhere to maximize distribution intensity, innovative brands or those addressing specific targets may need to study much more selective strategies.

A few examples to illustrate this idea:

• Your product is mainstream and can be sold under identical conditions everywhere in France. National distributors will cover the entire country, and the concept of catchment areas will only serve to intensify your marketing and sales efforts in high-potential regions; 

• Your product targets an affluent and particularly educated category of the population: you can then use a selective strategy that focuses on points of sale in highly populated urban areas; 

• Your product is aimed at highly geolocated categories of the population, for example, based on faith-related criteria. This time, you target specific neighborhoods, prioritizing convenience stores.

Data sharing and analysis: consolidating your vision

We have explored external data sources above. Let us now look at the analysis of your data, and - trade marketing oblige - the data that your distributors share with you.‍

Transaction data analysis

Studying your data sharing can teach you a lot about who buys your products. You must therefore negotiate your cash register sell-out data cleverly with retail chains and stores. 

Otherwise, if you also sell through your own channels, for example on your online store, you can try to make analogies between e-commerce and physical points of sale. But beware of false reasoning...

Finally, it is important for you to master the average basket in the points of sale where your products are sold. You should also monitor consumption indices to compare them with your own observations in the field.

Competitive analysis

The presence and performance of your competitors in a given region are essential to adjust your strategy accordingly. However, data will be complicated to obtain. Here again, data sharing is an important lever to pull: are your distributors willing to share competitor sales data with you? 

In any case, the minimum for a brand integrated into distribution is to use a retail execution CRM.

Predictive modeling

Finally, you can use predictive models based on variables such as previous buying behavior, demographic trends, and economic factors to anticipate the expansion or reduction of a catchment area. Help from an external company or an expert may then be required.

‍

Adapt your marketing strategy to local realities

You have collected and analyzed this field data. You can then use these analyses to redirect the different aspects of your business strategy, and be able to transform them into profits. This is where you can optimize the "Promotion" P of your marketing mix.

‍

One of the solutions: adapt your strategy according to local specificities. Every region is a new opportunity!

‍

The first winner of this approach is, of course, your marketing department. A brand that masters its catchment area can indeed adapt its methods to the specific needs of the different areas it targets.

‍

These marketing efforts can thus focus on personalizing offers with local products, promotions, merchandising actions, or other displays to support your products in more competitive areas or where your brand is less popular.

A properly conducted catchment area study allows you to understand the marketing and promotional message to which each customer or customer group will be most sensitive. It also allows you to understand the format, and therefore, adapt your advertising investments accordingly. For example, according to Je bosse en grande distribution, mailbox flyers can represent the preferred channel in certain metropolitan areas (with more than 45% attention), whereas in-store promotions or social networks dominate in others.

Your advertising campaigns can also be optimized since you now know which territories present the highest potentials, or which are the most hard-fought, either by your manufacturing competitors or by your distributors' competitor retailers!

‍

‍

Limits and challenges of the catchment area for a brand

To conclude, let's take a look at the various limits or precautions to take regarding the determination of catchment areas: 

‍

• Changes in behavior or habits: many technological, economic, or even climatic or epidemiological factors are likely to impact your end customers; 

• Evolution of the competition: you are not the only ones evolving your strategies, and you must stay alert to what your competitors are doing; 

• GDPR: data handling must be carried out in compliance with French and European privacy protection laws; 

• Brand image: too much adaptation of your strategy based on regional disparities can harm your brand image by reducing its consistency;

• Advertising expenses: personalizing marketing and sales campaigns can also weigh heavily on the overall budget; 

• Cost of analysis: if you want to obtain highly advanced analyses, you will probably need to go through external service providers, and the cost of these studies can also impact your expenses.

‍

The catchment area is therefore not reserved for large department stores. It is also crucial for brands that sell through a distribution network.

Having the ability to know and understand a territory and its population allows your brand to optimize the location of the best points of sale, personalize its offers, and improve its marketing initiatives.

‍

If you manage to overcome the challenges that the catchment area implies, this weapon can become a true asset in the development of your distribution strategy. 

Ready?