Market Threshold and Range

Market Threshold and Range

The above figure considers a fairly uniform distribution of customers on an isotropic plain and a single market where goods and services may be purchased. If each customer is willing to purchase one unit per day and that the market needs to sell 11 units per day to cover its costs (production or acquisition), then the market threshold would be the yellow circle of distance D(T) from the market. However, 29 customers per day, including customers 1 and 2, patronize the market, of which an extra 18 are beyond the threshold distance D(T). They contribute directly to the profitability of the market. The market range of all these customers is below distance D(R). Beyond this range, customers are unwilling to go to this market, such as customer 3.

There are different thresholds according to the variety of products or services that can be offered on the market. A threshold may be as low as 250 people for a convenience store or as high as 150,000 people for a theater. If the demand falls below the threshold level, the activity will run at a loss and eventually fail. If the demand increases above the minimum, the activity will increase its profits, which may also lead to the entry of competitors. The frequency of use of goods or services is important in assessing the extent of the market threshold, which is often linked to income level. A movie theater needing 500 visitors per night will require a threshold population of around 150,000 if the average number of visits is one per year. But, if the average number of visits is three per year, the population threshold drops to 50,000. The same population can support three movie theaters instead of one.