Mega corporations have the manpower and the financial resources to select the right locations when they enter a new city or expand inside their current marketplace. They can afford to buy the highly analytical, precision-driven computer modeling tools that provide the sophisticated and complex assessment required for accurate new-store site selection.
They understand that such decisions should not be left to guesswork. Decisions about bricks and mortar and long-term leases can turn into expensive mistakes if the homework isn't done and the decision risk minimized.
But here's the good news. What was formerly the sole province of national chains with their hordes of real estate specialists and banks of humming mainframes is now available to the small business.
Yes, the large corporation will always have access to more expensive, "perfect" information. But the same protocol that drives that high-end process is now available to the expanding small business, albeit in a simpler form.
There are any number of caveats before we power up the computer, but two stand out above the rest. First, understand that the site-selection process is highly dependent upon the type of business that you operate.
For example, if you're a growing retailer, is your product convenience-driven (video rental, dry cleaning, fast food) or a destination transaction (buying a waterbed, shopping for men's and women's apparel)?
Second, you must have intimate knowledge of your targeted customers, their demographics, lifestyle attributes, propensity to purchase, etc. I never fail to be amazed by the number of marketers, particularly retailers, who confuse speculation and conjecture for hard information when it comes to understanding and defining their customer base.
First collect the data. If you have an existing outlet/location and you're about to open another, collect data on your current customer base. You can track the data the old-fashioned way, on hand-written cards, or simply load it into an inexpensive, off-the-rack database software program like ACT.
The data that you should be collecting on every customer include details such as name, address and phone number, frequency of purchase, details of purchase, dollar value of purchase and running dollar total over an extended period (one to three years).
Now do some segmentation. It sounds more complex than it really is, but it involves categorizing and classifying your customer base into clusters or segments in order to identify those groupings with the highest revenue/profit value and/or potential.
Put another way, it's the old rule of identifying the 20 percent of your customer base that delivers the 80 percent of your revenue/profit. If your customer base is too large to accomplish this task manually, you can send the data out and have somebody else do the segmentation analysis for you.
Greg Lyles, founder and CEO of Geometrix Corp., an Atlanta-based company specializing in location research and site selection, quite often enhances and profiles customer data for smaller firms with an affordable tab in the $1,000 to $2,000 range.
The profiling data that you've developed on your existing location can provide a clearer footprint for the customers you want to target and attract as you build new locations.
The name of the game, of course, is to find locations that will give you the greatest concentration of your ideal customer type. And, if you're opening your first site with no existing customer base to fall back on, you'll have to "construct" the ideal customer profile based on available research, sound reasoning and prior experience appropriated from competitors.
Next, locate the patronage patterns. The technoids call it "geocoding." It's the process of converting a customer address to a latitude and longitude point on a street map (the computer does it). There are service bureaus that specialize in this procedure.
Geocoding is great for identifying your current patronage patterns, but Geometrix takes it one step further. Give them a location and a customer profile and they'll provide you with a street map (to the block group level) based on distance and/or drive time from home to store location.
The software program (which takes into account traffic patterns and road layout) allows you to play with the variables of time and distance (great, incidentally, for home delivery services). In essence, the process provides us with a prospect count around each proposed location, i.e., there are 25,000 ideal profiled households within a five-mile radius of a particular site.
Incidentally, the process can be further refined to profile prospect count by particular category potential, e.g., drugstore spending, tire buying, etc. What's it cost? Geometrix will geocode an average small business database of approximately 2,000 customers for under $500, including a summary report and map.
An additional, yet affordable process called "store network modeling" will also provide more refined information for an area surrounding a proposed location.
The modeling program delves into issues of distribution of demand, propensity of customers to travel to the location, ratings of competitor locations and an optimization schedule, including the optimal number of stores and locations of each, optimal square footage of each store, as well as optimal sales of each.
The final icing on the cake is that once we've sited our store in an ideal location, most reputable information systems firms, like Geometrix, will provide household lists (name and address) within any prescribed trading area surrounding the store, e.g., within a 10-minute drive, within a five-mile radius. Such lists obviously are highly useful for announcing the arrival of the new business through direct mail or telemarketing.
A lot of small-business site selection is based on real estate salesmanship and visceral judgment. What's more, companies don't have a clear understanding of their customer/prospect demographics, nor do they understand how distance and travel time impact patronage. And, of course, there's never enough time to review all the given site alternatives.
The new breed of information systems providers can now help you develop an accurate customer profile, put a radius around all potential locations (based on ideal time and distance), then rank each site by potential, and map them as well. And the best news is, it's affordable up to $2,500 a market. A puny price to pay for more perfect information.
Alf Nucifora is an Atlanta-based marketing consultant. He can be contacted via e-mail at email@example.com or by fax at (770)952-7834.
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