Understanding Central Place Theory in Service Distribution

1. Services PP #2

2. Why are consumer services distributed in a regular pattern? • Consumer services and business services do not have the same distributions • Consumer services generally follow a regular pattern based on size of settlements • Larger settlements offer more consumer services than smaller settlements

3. Central Place Theory • Selecting the right location for a new shop is probably the most important factor in the profitability of a consumer service • Central Place theory helps explain how the most profitable location can be identified • Central Place Theory • 1st proposed in 1930s by German geographer Walter Christaller • Theory applies most clearly in regions that are neither heavily industrialized nor interrupted by major physical features such as rivers or mountain ranges • Concept was further developed in the United States in 1950s • Central Place Theory • A Central place is a market center for the exchange of goods and services by people attracted from the surrounding area • Centrally located to maximize accessibility from surrounding area • Central places compete against each other to serve as markets for goods and services for the surrounding region • This competition creates a regular pattern of settlements

7. Market Area of A Service • The area surrounding a service from which customers are attracted is the market area or hinterland • Market area is like a nodal region • A region with a core where the characteristic is most intense • To establish a market area, a circle is drawn around a node of service on a map • The territory inside the circle is the market area • Customers prefer to get services from nearest location • Consumers near the center of the circle obtain services from local establishments • The closer to the periphery of the circle, the greater the % of consumers who will choose to obtain services from other nodes • The entire United States can be divided into market areas based on the hinterland surrounding the largest urban settlements • About 171 functional regions called “daily urban systems” • To represent central place theory, geographers draw hexagons around settlements • Used instead of circles b/c no gaps

8. Designated Market Areas

9. Size of Market Area • The Market area of every service varies • To determine the extent of a market area need two pieces of information about a service • Range and threshold • Range of Service • Definition: • Maximum distance people are willing to travel for use of a service • Range is the radius of the circle drawn to delineate a service’s market area • Expressed usually in travel time (minutes, hours) than in distance • People are willing to go short distances for everyday services, like groceries • Willing to drive further distances for other services, like a concert • Example: • In a large urban settlement a fast-food franchise has a range of roughly 3 miles whereas a concert arena has a range of roughly 60 miles • Threshold of Service • Definition: • Minimum number of people needed to support the service • Every business has a minimum number of customers required to generate enough sales to make a profit • Once range is determined, provider must determine where a location is suitable by counting potential customers • Census data helps with determining population • Example threshold for a supermarket is about 30,000 people • How potential customers are counted inside the range depends on the product • Example: Movie theaters attract younger people • Also wealth is taken into account

10. Market-Area Analysis • Profitability of a location • Is a good or service going to be profitable in that location? • Compute range, threshold, and draw a circle with a 15 mile radius and count people within circle • Optimal location within a market • Next question after range and threshold is where IN the market area should the service be located to maximize profitability? • Best location in linear settlement • Gravity model: • predicts that the optimal location of a service is directly related to the number of people in the area and inversely related to the distance people must travel to access it • Customer patterns: • Greater # of people living in a particular place = greater potential customers • Farther people are from particular service, less likely are to use it • Best location in non-linear settlement • Geographers still apply the gravity model to find the best location, following these steps • Identify a possible site for a new service • Within the range of the service, identify where every potential user lives • Measure the distance from the possible site of the new service to every potential user • Divide each potential user by the distance to the potential site for the service • Sum all of the results of potential users divided by distances • Select a possible location for the new service, and repeat steps 2, 3, 4, and 5 • Compare the results of step 5 for all possible sites. The site with the highest score has the highest potential number of users, therefore the optimal location for the service

12. Hierarchy of Services and Settlements • Small settlements are limited to consumer services that have small thresholds, short ranges, and small market areas, because too few people live in small settlements to support many services • A large department store or specialty store cannot survive in a small settlement because it needs a large population to support it • Larger settlements provide services having larger thresholds, ranges, and market areas • Services more diverse • We only travel further distances if the price is much lower or unavailable locally

13. Nesting of Services and Settlements • According to Central Place Theory, market areas across an MDC would be series of hexagons of various sizes, unless interrupted by physical features • MDCs have numerous small settlements with small thresholds and ranges, and far fewer large settlements with large thresholds and ranges • Nesting pattern is illustrated with overlapping hexagons of different size • Four different levels of market area • Hamlet • Very small market area, represented by the smallest contiguous hexagons • Village • Town • City • Christaller • Showed that distances between settlements in southern Germany followed a regular pattern • Indentified 7 sizes • market hamlet, township center, county seat, district city, small state capital, provincial head capital, regional capital city • In Germany, Hamlets had an average population of 800 • Principle of Nesting Market Areas • Also works at the scale of services within a city

14. Rank-Size Distribution of Settlements • Geographers observed in MDCs that ranking settlements by size (population) produces a regular pattern or hierarchy • Rank-Size Rule • Country’s nth-largest settlement is 1/n the population of the largest settlement • i.e. second largest city is ½ size of the largest • third largest city is 1/3 size of the largest and so on….. • Should graph like a straight line • If it does not graph on a straight line, then the country does not have a rank-size distribution • Important because a country that follows the Rank-size rule, like the United States, tends to be a society that is sufficiently wealthy to justify the provision of goods and services to consumers • Don’t always follow Rank-Size Rule • Primate City Rule • Largest settlement has more than twice as many people as the second-ranking settlement • Largest city is called primate city • Example: • Denmark- Copenhagen • United Kingdom- London • Romania- Bucharest • LDCs often follow primate rule • Indicates that there is not enough wealth in society to pay for a full variety of services • Have to travel much further for shops, hospitals, etc.

15. Periodic Markets • Services at the lower end of the central place hierarchy may be provided at a periodic market • Definition: • collection of individual vendors who come together to offer goods and services in a location on specified days • Typically set up in a street or other public space • Provides goods to mainly residents of LDCs or rural areas of MDCs • Vendors often mobile, part-time, provide small quantities • Frequency varies by culture • Muslim countries • Rural China • Korea • Africa

16. Why do Business Services Locate in Large Settlements?? • Every urban settlement provides consumer services to people in a surrounding area • But not every settlement of a given size has the same number and types of business services

17. Hierarchy of Business Services • Services in World Cities • World cities are most closely integrated into the global economic system because they are at the center of flow of information and capital • Business services concentrate in disproportionately large numbers in world cities • New forms of transportation and communication services were expected to reduce the need for clustering of services in large cities • Example: the Railroad in the 19th century or motor vehicle in the 20th century • In some cases opposite

18. Hierarchy of Business Services • Business services in world cities • Clustering of business services in the modern world city is a product of the Industrial Revolution • World cities attract the headquarters of banks, insurance companies, and specialized financial institutions • Shares of major corporations are bought and sold on the stock exchanges, which are located in world cities • Lawyers, accountants, and other professionals cluster in world cities to provide advice to major corporations • Advertising agencies, marketing firms, and other services concerned with fashion and style also locate in world cities • Consumer services in world cities • Because of large size, world cities have retail services with extensive market areas • But they may have even more retailers than large size alone would predict • A disproportionately large number of wealthy people live in world cities • Leisure services of national significance cluster in world cities • Example: concerts, plays, professional sporting events • Contain largest libraries and museums

19. Hierarchy of Business Services • Public services in world cities • World cities are centers of national or international political power • Most are national capitals, often contain: • Palaces, mansions for heads of state • Imposing structures for national legislature • Courts • Offices for government agencies • Also clustered in world cities are offices for groups having business with the government • Foreign embassies, labor unions, etc. • Exception!!! • New York City is unlike other world cities, it is not the nation’s capital • Home to the world’s major international organizations, the United Nations, it attracts thousands of diplomats and bureaucrats

20. Hierarchy of Business Services • Four Levels of Business services • World Cities • Dominant • London, NYC, Tokyo • Each is largest city in one of three main regions in developed world • Major • Chicago, L.A., D.C., Brussels, Frankfurt, Paris, Zurich, Sao Paulo, Singapore • Secondary • Houston, Miami, San Fran, Toronto • Bangkok, Bombay, Hong Kong, Manila, Osaka, Seoul, Taipei • Berlin, Madrid, Milan, Rotterdam, Vienna • Buenos Aires, Caracas, Mexico City, Rio de Janerio • Johannesburg, Sydney • Command and Control centers • Contain headquarters of large corps, well developed banking facilities, etc. • Two divisions: regional, subregional • Specialized Producer-service centers • Offer more narrow and highly specialized variety of services • One group specializes in management and R&D activities related to specific industries • Example: motor vehicles- Detroit, Steel- Pittsburgh, semi-conductors- San Jose, CA • Second group specializes as centers of government and education • Notably state capitals that also have a major university • Example: Albany, NY; Raleigh-Durham, NC; Columbia, SC • Dependent centers • These provide relatively unskilled jobs and depend for their economic health on decisions made in world cities, regional command and control centers, and specialized producer-service centers • Four sub-types in United States • Resort, Retirement, and Residential Centers • Manufacturing centers, Military centers • Mining centers

21. Business Services in LDCs • In the global economy, LDCs specialize in two distinctive types of business services: • Offshore financial services • Provide two important functions • Taxes • Taxes on income, profits, and capital gains are typically low or non-existent • Corporations have incorporated in an off-shore center also have tax-free exemption regardless of nationality of owners • U.S. loses an estimated $70 billion in tax revenue each year • Privacy • Secrecy laws can help evade disclosure in home countries • Can protect assets from malpractice suits or divorce • Can hide illegal activities • Example: Cayman Islands • Back-office functions • Known as business-processing outsourcing (BPO) • Include processing insurance claims, payroll management, transcription work, etc. • Also includes centers for responding to billing or technical inquires • LDCs attract BPO because: • Low wages • Ability to speak English

22. Economic Base of Settlements • A settlement’s distinctive economic structure derives from its basic industries • Basic Industry • export outside of settlement • Can be identified by computing the % of community’s workers employed in different types of businesses • The % of workers employed in a particular industry in a community is then compared to the % of all workers in the country in that industry • If % is much higher in the local community, then that type of business is a basic economic activity • Non-basic Industry • customers live in same community • Economic base • unique collection of basic industries defines its base • Important because exporting by the basic industries brings money into the local economy • Stimulates the provision for more non-basic consumer services for the settlement • That attracts new workers, who bring more families • That brings more consumer services to meet new needs

23. Economic Base of Settlements • Specialization of Cities in Different Services • Settlements in the U.S. can be classified by their type of basic activity • Each type of basic activity has a different spatial distribution • Concept of basic industries used to be referred to as manufacturing • In post-industrial America, increasingly the basic economic activities are in business, consumer, or public services • Examples: • Business Services • General business : large metro areas such as L.A., NYC, and Chicago • Computing and data processing: Boston and San Jose • High-tech: Austin, Orlando, Raleigh- Durham • Management-consulting: D.C. • Consumer Services • Entertainment and Recreation: Atlantic City, Las Vegas, Reno • Medical Services: Rochester, Minnesota • Public Services • State capitals • Large Universities • Military bases

24. Economic Base of Settlements • Distribution of Talent • Individuals possessing special talents are not distributed uniformly among cities • Some cities have a higher % of talented individuals than others • Correlation found between the distribution of talent and the distribution of diversity in the largest U.S. cities