Integration of Analytic Hierarchy Process with Regression Analysis to Identify Attractive Locations for Market Expansion

Abstract

ABSTRACTSelection of new geographies in which to expand is a key decision for businesses aspiring to go beyond the opportunities in the existing markets. The conventional approaches of market selection can only provide a set of systematic steps for problem solving without considering the relationships between the decision factors. Decision models based on statistical techniques are able to examine the relationship between decision factors but are unable to effectively assist decision makers in identifying the most promising market, particularly in terms of prioritizing across decision factors. Analytic Hierarchy Process (AHP) is a commonly used approach for choosing alternatives by prioritizing across multiple decision factors. The typical AHP modelling requires knowledge of criteria and/or alternatives along with their relative weights, generally elicited from field experts. Quite often, firms encounter situations where decision makers are aware of only the overall objective and a set of earmarked geographies for setting up market locations while being relatively unaware of decision criteria and relative weights. This precludes using AHP to identify promising market locations. This paper conceptualizes a market selection decision model that integrates AHP with statistical modelling techniques to identify the attractive market locations for the purpose of expansion. The model first uses principal component analysis and multiple regression to determine significant decision criteria and their weights. Thereafter, it applies AHP to prioritize the market locations across the decision criteria. This integrative approach is illustrated for identifying the attractive locations in rural markets for a steel firm in India. The major advantage of this approach is that unlike the existing models, it works in situations when firms have not enough knowledge about factors for evaluating alternative market locations. Another key advantage of the proposed model is that of economizing resources for data collection on variables representing decision factors. Copyright © 2012 John Wiley & Sons, Ltd.