Marketing

Basic Assumptions of Reilly’s Law of Retail Gravitation

William J. Reilly’s law of Retail Gravitation is widely used in the determination of potential retail trade area. Below is the critical review of the law.

The Law of Retail Gravitation: Retailing is selling consumer goods in small quantities to the final consumers. These final consumers are attracted by a shopping center or town by the assortment of goods offered for sale and by the reputation of the center for quality and prices of products. The consumers are deterred from visiting a shopping center by the time and expense of reaching it.

The trade area may be thought of either:

(i) as the total area from which a town secures any considerable portion or the trade, or

(ii) as the area from which a town secures more than one half of the trade.

In the first sense trade areas overlap while in the second, they are mutually exclusive, The attraction of a center may be measured by the population of the town, the volume of sales or the square-footage on fashion goods stores. The time-and-expense factor may be represented by distance or time.

One study in the U.S.A. found that retailers secured relatively little trade from places more than five miles outside the town’s trade area. In 1929, W.J. Reilly formulated the Law of Retail Gravitation, in an attempt to determine the potential retail trade area.

The Law reads as follows :

Two cities attract retail trade from an intermediate city or town in the vicinity of the breaking-point (the 50% point) approximately in direct proportion to the populations of the two cities and in inverse proportion to the square of the distances from the two cities to the intermediate town.

Formula of the Law of Retail Gravitation

It is also known as “Reilly’s formula”. It is represented by the following formula :

Ba/Bb=(Pa /Pb)x(Db/Da)²

where—

Ba=Proportion of the trade from the intermediate city A

Bb = Proportion of trade attracted by city B

Pa = Population of city A

Pb = Population of city B

Da = Distance from intermediate town to A

Db = Distance from intermediate town to B

To illustrate, city X is 25 miles from Y (with 1973 population of 40,000) and 27 miles from Z ( with population of 45000).

So, Ba /Bb=(45000/40000)x(25/27)=0.007

City Z attracts 0.007 times as much trade as Y.

The following formula, however, derived from the Reilly’s formula has proven to be of more practical use than the original.

Breaking point Between A&B, miles from B=Distance between A & B/1+(√population of A /population of B)If a town A, for example, has a population of 120,000 and town B 30,000 and the distance between them is 60 miles, the breaking point or boundary of B’s trade area is 20 miles from B. The larger population of A means that its stores carry large assortment of shopping goods.

Hence, A is more attractive shopping center and has a trading area extending two-thirds of the distance to town B.

After considerable experimentation on the relative drawing power of rural retail trading areas in Texas and Illinois of U.S.A. this formula was developed to show the trade between two trading areas. The formula simply says that the people will normally be attracted to the nearest and largest shopping facility. These two factors may not always be compatible, since the nearest shopping area may not be the largest in the local area.The formula tries to adjust for this.

Reilly’s Law can be used to establish the breaking-point for shopping goods between two competitive towns. These breaking points show which direction the majority of consumers would take on shopping trips. When the various breaking points between all competitive cities in an area are plotted and the breaking points for a particular city are connected, a trading area begins to emerge.

By using the formula for all the highways leading from a trading or shopping-center town, we can definitely determine its trade area. The boundary of its area is the 50% line. People living on this line divide their trade equally between the two competing trading centers. People inside the area trade more in the trading center than they do in competing trading centers.

Basic Assumptions of the Law of Retail Gravitation

(1) Areas can be determined by this law with little or no field work.

(2) Distances are measured by the improved automobile highways.

(3) The Law refers to shopping goods.

(4) In bounding trade area of a town, the population is considered in relation to the population of competing towns and the distances separating them.

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