Because the structure of the economy is being changed from product-oriented and company-centered economy to service-oriented and customer-centered economy, and the market competition is varying with the competition of non-price factors, the importance for customer service of logistics system is being increased. Thus, the level of customer service should be represented as an element of the logistics decision and the facility location decision. The level of customer service provided by logistics system has an effect on customers` purchase decisions, hence on the market demand. That is, the market demand is elastic for customer service as it is influenced by product price. Considering the effect of customer service on demand, this study develops the market area which each facility will serve. That area is circular, and distance norm is considered Euclidean and Rectilinear (or Manhattan) distance norm. The market demand for product at a particular area is affected by the level of customer service that facility provides, and the relationship between the market demand and the level of customer service is represented with a mathematical function.