POTENTIAL NEW SITE EVALUATIONS
Selecting a business location without first examining the trade area is like driving a car with one’s neck in a brace that prevents the turning of the head. The reason is that it forces a person to become dedicated to actions that may not be best! Explained differently, site selection studies help business leaders to examine local market factors, such as what potential competitors are doing right and wrong, and to determine profit potentials.
More specifically, by using Geographic Information one can remove the “neck brace” and better see what is happening. In short, by examining trade areas one can (1) learn the factors that “drive store patronage,” as well as examine the marketing, merchandising and penetration levels of potential competitors. Additionally, the information, generated from Geographic Information Systems, displays the critical factors regarding sites within a geographic arena.
For situations where a retailer has historical, customer-level data, that information can be put to use. Yet, regardless of whether customer-level data is available, or collected, there are many approaches to choosing a proper location. This said the approaches that the teams at Premier Business Experts typically use to pick the best sites include (1) Radial (or Ring) Studies, (2) Gravity (or Spatial Interaction) Models, (3) Drive-time Evaluations and/or (4) Multiple-Regression Analyses.
With Radial/Ring Studies, those at Premier Business Solutions form circles around the potential sites and examine the characteristics of the populations within the circles, with the size of the circles depending on the type of business. As for Gravity/Spatial-interaction Models, those at Premier Business Experts put the distribution of existing business locations, as well as its competitors, into a geographical context and evaluate each location’s relative attractiveness, using decay curves to model the spatial interaction of individual locations. As for the attractiveness of a location, the professionals at Premier Business Experts often input store sizes and/or sales since those variables have an impact upon “attractiveness.” Moreover, the topnotch employees at Premier Business Experts use Drive-time Evaluations, especially for “convenience store” and “fast-food” types of businesses. With this latter technique, actual customer data (if available or if collected) from current locations can be input into the models. Lastly, those at Premier Business Experts often use Multiple-Regression Analyses, especially when a company has large amounts of data.
In past situations, the professionals at Premier Business Experts have with great success used predominantly Radial/Ring Approaches for highly-specialized professional service firms, predominantly Gravity/Spatial-Interaction Approaches for relatively-competitive service firms and predominantly Drive-time Approaches for independent convenience store operations. Similarly, they have used Multiple-Regression Approaches for companies with significant levels of data, such as an insurance company wanting to evaluate potential new sites for its offices. Below is an example of how the teams at Premier Business Experts combined different approaches to obtain very beneficial results on behalf of a client.
[dropshadowbox align=”none” effect=”lifted-both” width=”100%px” height=”” background_color=”#789351″ border_width=”1″ border_color=”#dddddd” ]How Premier Business Experts Helped a National Restaurant Chain Determine Where to Build New Restaurants in Houston, Texas
Problem: A national restaurant chain wanted to open new eateries in Houston, Texas, with the new restaurants having a “minimal-sales-cannibalization-impact” upon its existing locations, but a “significant impact in terms of attracting its competitors’ customers.”
Solution: Since many of the restaurant chain’s customers paid in cash and since many of its customers ate at its locations on their “home-to-work” and/or their “work-to-home” drives, actual customers at its Houston, Texas locations were surveyed to find out where they lived and worked. With the assumption that the Drive-time to the closer of the work or home locations had the greater impact, potential areas were chosen for the new restaurants in such a manner as to minimize the impact upon the client’s existing restaurants and a significant impact upon its competitors’ locations. Once the areas were selected, applicable, real-estate options were evaluated and selected based upon their likely profits, with these anticipated profits for the proposed locations predicted using a multiple regression equation having inputs from various sources. Hence, Premier Business Experts, in essence, used a combination of all-four-basic-approaches to the site-selection problem! As for the result of these efforts, this national restaurant chain’s newly-constructed, highly-profitable stores took significant-levels of business from its major competitors, with very-little, sales-cannibalization of its stores that were previously opened![/dropshadowbox]
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