A market area is the geographic region where a specific good or service is offered for sale. The market area, or trade zone, differs from business to business based on demand, sales goals, and marketing techniques. By clearly defining the trade zone for its product or service, a company is better able to market and promote its product to customers, and also to identify new potential customers.
To understand how market area works, it's helpful to look at examples for several different types of businesses. A small-town butcher may define his market as people who live or work within the confines of the town or surrounding suburbs. A large retailer, on the other hand, may define his market as wherever products are sold. This may include just the local area, or may encompass countries across the globe. In this type of situation, the company often divides market area into many regions or zones to make it easier to coordinate marketing and sales efforts.
The market for a product or service is a function of many factors and criteria. It's largely determined by local demand for that particular good, but may also be influenced by how far people are willing and able to travel to obtain that product or service. In the modern global economy, the trade zone may be quite large because of the availability of online retailers.
Market area is also influenced by the availability of substitute products or competitors. The more butcher shops there are in a small town, the smaller the market is for each one, because meat products are largely interchangeable. If one of these shops can distinguish itself based on price or quality, it may be able to widen its trade zone and capture more customers.
One of the major advantages gained by clearly defining the market area for a product or service is that this information can be used to market more effectively. This helps the company set prices, introduce new products, or modify existing products based on demand from consumers within the defined area. Understanding the size and demographics of a particular trade zone also helps companies plan expansions, maximize size, and minimize waste.
Modern companies often rely on geographic information systems (GIS) to help them better understand the market for a product. GIS technology is a means of gathering and analyzing data, including information about the population, average income, and buying habits of people within a given area. This helps companies find the right market for a product or service, and also helps to identify regions that may be underserved by existing companies or suppliers.