Chapter 12 Services

1. Chapter 12Services Key Issue 2

2. Distribution of Consumer Services • Central place theory • Market-area of a service • Size of market area • Market area analysis • Profitability of a location • Optimal location within a market • Hierarchy of services and settlements • Nesting of services and settlements • Rank-size distribution of settlements

3. Central Place Theory • Central Place: a market center for the exchange of goods & services • Centrally located to maximize accessibility • Compete against each other • Creates a regular pattern of settlements

4. Central Place Theory • Central Place Theory: explains how services are distributed & why a regular pattern exists • 1930s Walter Christaller, Germany

5. Market Area of a Service • Market Area (Hinterland): area surrounding a service from which customers are attracted • Circle drawn around node of service • Territory inside is its market area

6. Market Area of a Service • People usually choose to get services from nearest location • Circles often overlap or leave gaps • Squares remove gaps, but then distance from center varies • Hexagons are best shape • Geographers use hexagons to indicate market areas

7. Market Areas as Hexagons Fig. 12-5: Hexagons are often used to delineate market areas because they are a compromise between circles, which have edges equidistant from the center but leave gaps, and squares, which don’t leave gaps but whose edges are not equidistant from the center.

8. Size of Market Area • Market areas vary: range & threshold • Range: maximum distance people are willing to travel to use a service • Travel short range for everyday services: groceries, laundromats, fastfood • Long distance range for sporting events, concerts

9. Size of Market Area: Range • How far are you willing to travel for fast-food? A nice restaurant? • Average: 3 miles, 5 miles • How far are you willing to travel for a concert? • Retailers define range as max distance (time) that 2/3 to ¾ of customers will travel

10. Size of Market Area: Threshold • Threshold: minimum number of people needed to support the service to make profit • Service provider needs to determine if enough consumers is possible • Movie theatre: • Chiropractor: • Thrift stores: • Amusement Parks: • Nightclubs: • Shopping mall:

11. Market-Area Analysis • Retailers & Service providers use research to determine to find best profitable location

12. Profitability of a Location • Range & Threshold determine most profitable location for business • Convenience Store • People are willing to travel 15 mins • Store must sell min $1000/week • Avg. Customer spends $2/week • How many customers needed? • What else needs to be considered?

13. Market Areas for Stores Fig. 12-1.1: Market areas, ranges, and thresholds for department stores in the Dayton, Ohio metropolitan area. Stores are closer together in areas with higher incomes.

14. Optimal Location Within A Market: Linear Settlement • Where should service be located within the market to maximize profit? • Ocean City, Maryland: Linear • Best location minimizes distance for delivery drivers & customers • Mathematically in middle of population

15. Optimal Location for Linear Market • Ocean City, MD • Is half way down strip best location? • Why/Why not? • Gravity Model: predicts optimal location is directly related to number of people in area & distance people must travel to access it • Greater number of people in area = more potential customers • Farther distance = less customers

16. Optimal Location (for Pizza-Delivery Service) Fig. 12-6: The optimal location for a pizza delivery shop with seven potential customers in a linear settlement (top) and with 99 families in apartment buildings (bottom).

17. Optimal Location within a Market: Non-Linear Settlement • Most settlements are more complex • Gravity Model still applies: • Identify possible site • Identify where potential users live • Measure distance to each potential user • Use data to determine optimal location

18. Hierarchy of Services & Settlements • Services in small settlements are limited because of small population • Larger settlements provide more consumer services

19. Nesting of Services and Settlements • Central Place Theory in MDCs: market areas are series of hexagons • Overlapping hexagons of various sizes • Walter Christaller, Germany • 7 sizes of settlements • Smallest: Market hamlet: pop 800, 17sq miles • Largest: Regional Capital city: larger numbers

20. Central Place Theory Fig. 12-7: Market areas are arranged into a regular pattern according to central place theory, with larger settlements fewer in number and further apart.

21. Nesting Market Area • Distances between settlements follow regular pattern • Convenience stores have smaller thresholds, ranges, and market areas than supermarkets • More numerous

22. Market Areas for Convenience Stores Fig. 12-8b: Market area, range, and threshold for UDF convenience stores in Dayton, Ohio.

23. Market Areas for Supermarkets Fig. 12-8a: Market area, range, and threshold for Kroger supermarkets in Dayton, Ohio.

24. Supermarket & Convenience Store Market Areas Fig. 12-8: Market area, range, and threshold for Kroger supermarkets (left) and UDF convenience stores in Dayton, Ohio. Supermarkets have much larger areas and ranges than convenience stores.

25. Rank-Size Distribution of Settlements • Rank Size Rule: the country’s second largest city is one-half the size of the largest • If plotting the data, it is NOT in straight line, it does not follow rank-size rule • Applies to many MDCs, not all

26. Rank-Size Distribution of Cities Fig. 12-9: Cities in the U.S. closely follow the rank-size distribution, as indicated by the almost straight line on this log scale. In Romania, there are few settlements in two size ranges.

27. Primate City Rule • The largest settlement has MORE than 2x the amount of people as second-ranking settlement • Ex: Denmark • Copenhagen: primate city-1 million • Arhus: second largest-200,000 • Ex: UK • London: 8 million • Birmingham: 2 million

28. Rank-Size Distribution • Regular hierarchy (U.S.) shows society is sufficiently wealthy to distribute goods throughout country • Some countries try to improve rank-size distribution • Limit migration to large cities • Try to populate rural areas

29. Periodic Markets • Collection of individual vendors who offer goods/services together on certain day(s) • Set up in street/public place in morning, taken down at end of day • Common in LDCs and rural areas of MDCs • full-time retailign not supported • Varies by culture • Ex: 1x in Muslim countries, no market Fridays