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About Mean Store Center
When considering sites for a new store, potential customers are your first concern—their location and their demographics. The mean store center analysis creates a centroid in the mean geographic center of your customer points. Additionally, you can use clustering if more than one mean location is desired.
This centroid can be calculated by
- Number of customers (taking geographic location only into consideration)
- Weighted value (such as sales or visits)
Clustering using the K-means algorithm
Creating multiple Mean Store Center locations uses a clustering algorithm called K-means. The K-means approach finds geographic concentrations in a point database and determines their centerpoints. After identifying a cluster partition, the process continues iteratively until all points are associated with the closest mean center.
Example of a single Mean Store Center using locations
This example shows a single Mean Store Center. The location is based on the geographic locations of the surrounding customer points.
More about calculating the centroid by number of customers
When the centroid is calculated by the number of customers, each customer point has an equal value. Since the centroid represents a balance point between all customers, it will be located roughly in the center of the customers. If customers are more densely populated on one side, the centroid will be pulled in that direction.
Real-world example: Locating a new store using existing customer residences
Suppose you want to expand your chain of sporting equipment stores into a new market area. Your existing customer profile shows that you sell to a limited demographic segment—high-income, well-educated people who play golf.
To begin, you might purchase a mailing list of households with similar demographics in the expansion market, geocode them using the Customer Setup Wizard, then calculate the centroid by the number of prospects. The resulting centroid would be a good place to start looking for a new location.
Example of a clustered Mean Store Center using locations
This example shows Mean Store Centers clustered into four different points. The Thiessen polygons in the second picture below give a visual representation of equally distributed areas from each clustered point.
Example of a clustered Mean Store Center by weighted values
This example shows the difference between Mean Store Centers using simple clustered geographic locations and using the locations with a weighted factor. In this instance, the weighted factor is a dollar amount identified with each customer point. The black arrows demonstrate how the weighted factors move the clustered mean centers of the customer points by "pulling" them toward the larger features. The larger features (green circles) are simply a graphic representation of their respective volumetric attribute (sales volume). The larger the sales figure, the larger the circle. This is not part of the Mean Store Center tool but is a function within the ArcGIS layer symbology used to better demonstrate the scenario.
More about calculating the centroid by weighted value
A centroid calculated by a weighted value considers each customer to have an individual value. The centroid is not created in the center of all customers but in the center of the customers who most satisfy the value you have weighted.
Suppose you want to calculate the centroid by customer sales. The location of a customer who has spent $100 at your store will be counted 100 times more than a customer spending only one dollar. When the centroid is calculated, this weighting pulls the centroid toward the more important points.
Notice the location of the centroid in the following graphic when calculated by a weighted value, in this case, sales. No longer is the centroid in the center of the customer points, but it has shifted toward the customers who spend more money.
Real-world example: Locating a new store by weighted value
Suppose the building leases for two of your bank branches expire at the end of the year. You want to know if the leases are worth renewing. Using each branch’s customer set, you calculate a centroid weighted by the number of visits or total deposits. You can then compare the resulting centroids with where the actual branches are. If a branch is fairly far from a centroid, you might consider looking at other properties instead of renewing the leases.
Some other examples of how businesses use centroids include
How to use Mean Store Center
- A high-end men's clothing store loses its lease at a longtime location. It uses its customer database weighted by total sales per year as the base in its search for a new location.
- A rapid auto oil change franchise uses the business addresses of existing customers to find an optimum location for a new operation to serve customers near their workplace.
- A bank derives a weighted centroid for each product type (home equity loans, auto loans, CDs, investments, and so on) and assigns the branch closest to each centroid to specialize in that product.
- Click the Business Analyst drop-down menu and click Analysis.
- The Analysis Wizard opens. Click Create New Analysis, then click Next.
- Click Mean Store Center as the type of analysis you want to perform, then click Next.
- From the drop-down menu, click the layer that contains your customers. To use a selected set of points, check on Analyze selected customers only.
- Define how many mean centers will be created:
- To create one location choose: Define one mean store center.
- To create more than one location choose: Define multiple mean centers. Choose how you want to calculate the mean store center.
- Using customer locations will consider the geographic locations of your customer file only.
- Using a customer weight will be influenced by a volumetric variable that is associated with each customer point.
Type the name of the report and click Finish.