Application of the L-index to the delineation of market areas of retail businesses

Abstract

As delineating market areas of retail businesses has become an interesting topic in marketing field, Lee and Lee recently suggested a noteworthy method, which applied the hydrological analysis of geographical information system (GIS), based on Christaller's central place theory. They used a digital elevation model (DEM) which inverted the kernel density of retail businesses, which was measured by using bandwidths of pre-determined 500, 1000 and 5000 m, respectively. In fact, their method is not a fully data-based approach in that they used pre-determined kernel bandwidths, however, this paper has been planned to improve Lee and Lee's method by using a kind of data-based approach of the L-index that describes clustering level of point feature distribution. The case study is implemented to automobile-related retail businesses in Seoul, Korea with selected Kernel bandwidths, 1211.5, 2120.2 and 7067.2 m from L-index analysis. Subsequently, the kernel density is measured, the density DEM is created by inverting it, and boundaries of market areas are extracted. Following the study, analysis results are summarized as follows. Firstly, the L-index can be a useful tool to complement the Lee and Lee's market area analysis method. At next, the kernel bandwidths, pre-determined by Lee and Lee, cannot be uniformly applied to all kinds of retail businesses. Lastly, the L-index method can be useful for analyzing the space structure of market areas of retail businesses, based on Christaller's central place theory.