Guidelines in Choosing the Perfect Business Location

Location. Location. Location. This is the often-recited mantra of salespeople who want to have the best access to their customers. Although finding a good location proves to be challenging, even more challenging is maximizing the potentials of that location.

Initial Location Screening

In finding a good location, one needs to consider the following:

  1. The number of customers residing or working in the area, and the number of customers who frequently pass through the area.
  2. The density or number of customers per unit area.
  3. The access routes to alternative locations and their traffic count in those routes.
  4. The buying habits of customers or where they buy, at what time and how frequent.
  5. Locational features such as parking spaces, foot access, creature comforts, and the like.

In a similar way, the entrepreneur must be able to determine the price that comes with the location because it will spell out the success or failure of the business. The entrepreneur has to consider the following:

  1. The cost of buying or renting, renovating, and operating the location.
  2. Customer volume, drop-in rates (what percentage of customer traffic would stop by the store) and sales conversion ratios (what percentage of drop-ins would actually purchase something from the store).
  3. Revenues based on the volume and mix of goods and services expected to be sold at certain prices.
  4. Profits.

In addition to the above factors, the final choice of location must be based on the following:

  1. Image and location conditions. This refers to the physical look of a location, sanitary conditions, crime and safety levels, etc. The reputation of a location is also important. For instance, would it be better to put up your store in an upscale shopping mall or in a low-end “tiangge” or flea market?
  2. Exact fit to target customers. Is the location traffic generally composed of your target customers?
  3. Clustering of competitor establishments. This oftentimes results in drawing a bigger market to the location.
  4. Future area development. A certain location might not have the most customers or the best economics in the short term, but it might become a central business hub within the next five years. Watch out for signs of development like a construction boom or a new shopping mall nearby.
  5. Fiscal and regulatory requirements. An entrepreneur would want to set up shop in a town or city with low tax rates, good governance, excellent infrastructures, and great public services.

Relevant Location Drivers

It would benefit the entrepreneur to do an in-depth location analysis. The entrepreneur can make use of the following relevant location drivers for location selection. These are the ‘musts’ in choosing the location for your business.

1. Physical Proximity to Target Market

For most entrepreneurs, locations are chosen based on how close it is to the target market. Ideally, the best locations should be easily accessible from home or the workplace. However, physical proximity is not always important. For instance, most parents will send their kids to the nearest elementary or high school. However, when it comes to college, most students wouldn’t mind going to a faraway university if it means getting the best education possible in the course of their choice.

2. Customer Traffic Flow

Customer traffic flow refers to the people that regularly come into contact with your business establishment. Your shop might not be near to customers’ homes or workplaces, but it might be situated somewhere along their daily routes. Higher traffic flows mean higher drop-in rates for stores along the traffic route. Important data to research include daily volume of people and/or vehicles passing through, as well as information on the “peak hours” and the “slow hours.”

3. Industry Clustering

A lot of competitors clustered in one location usually draw in a bigger market to the area. Three stores side-by-side offer more choices to customers than one stand-alone store. The downside is that clustering also results in fiercer competition. As such, some entrepreneurs prefer to establish a monopoly far away from competitors.

4. Convergence of Multiple Industries

Locations where multiple industries converge, such as central business districts, shopping malls, and public markets are able to attract more customers because of one-stop shopping convenience. But again, competition is usually strong in such areas.

5. Population Concentrations

Urbanization creates population concentrations. Where people live, goods and services follow. The greater the number of people, the greater the number of needs and wants to be satisfied. Simply put, the more populous the location is, the greater is the opportunity for business and profit.

6. Activity Hubs

Activity hubs such as large schools, high-rise buildings, public parks, transport terminals, and entertainment centers provide good location potentials for food establishments and client-specific services.

7. Growth Potential

Businesses are always looking for new areas to expand and grow. This is especially true when crowded population centers become saturated with many providers of goods and services. Hence, the new development site will be the natural greener pasture for early locators. The early locators will catch the early customers.

8. Business Climate

Enterprises prefer locations that are conducive in doing business. This includes areas with:

    • high economic growth
    • stable political situation
    • effective social services
    • good infrastructures
    • cheap utilities
    • efficient transportation and logistics
    • availability of skilled labor force
    • low crime rates
    • good fiscal incentives
    • trusted public officials

9. Cost of Doing Business and Producing Goods and Services

For industrial establishments, the more relevant criteria are those locations with lower cost of doing business and lower cost of producing goods and services. Hence, these industrial establishments would prefer locations outside the main population centers but with government-supplied amenities.

Comparative Location Analysis

Perhaps the most common way by which an entrepreneur ‘surveys’ a potential location is through comparing it with other locations with more or less the same features and tenant mix or clusters of competitors. These locations must have that ‘extra something’ that makes competitors fight for a store space within the same area. Keen observation is required for an entrepreneur if he or she wants to draw several insights from these favored locations.

Geography and Atmosphere Determinants

Another way of looking at a location or place to sell the product or service can be based on two major place determinants: geography and atmosphere. Within each determinant, there are extreme opposite qualities that create a dilemma for the entrepreneur. To better understand what these dilemmas are, let us take a look at each one of these determinants.

For the geography determinant, there are six decision tensions:

  1. Concentration versus Destination
  2. Access versus Abundance
  3. Clustered versus Dispersed
  4. Developed versus Underdeveloped
  5. Physical versus Virtual
  6. Upscale versus Downscale

It is natural for entrepreneurs to prefer places where there is a large concentration of target customers (e.g., commercial centers, malls). Nowadays, modern transportation means and the longing to be relieved from city living-related stress have paved the way for destination places.

Access is the ability to reach a place easily and inexpensively. Twenty-four-hour convenience stores and nearby community or strip malls may offer easy access to customers but their product and service offerings may be limited, unlike large commercial malls that offer a wider range of products and services.

Clustered competitors allow customers to choose from a great variety of product offerings. The clustering of many sellers attracts many buyers. On the other hand, dispersed competitors experience better business results in certain industries because they practically ‘own’ the market located within the area of business.

There is also some tension in choosing to locate in highly-developed areas of business versus locating in relatively underdeveloped areas. Developed areas would have ready-made markets and all the utilities and transportation systems in place but tend to be more expensive than underdeveloped areas. The latter may be cheaper to locate in, but the market would take time to grow and all the usual amenities might not yet be in place.

The Internet has enabled the proliferation of virtual market places where customers and sellers converge at the comfort of their own homes or wherever they are through computers, laptops, or mobile devices. This defies the traditional way where the customer has no choice but to go to the shop where the product or service is available no matter how long it takes them to get there. Now, everything is just a click away and it does not make any difference whether you are just buying one item or in bulk. In fact, some people find virtual shopping more convenient because it spares them the hassle of getting stuck in traffic for long hours. However, there is limited interaction between the seller and the buyer and the latter will not have the opportunity to taste, feel, or smell what he or she is buying.

Finally, there is tension between choosing upscale places versus downscale places. The more well-off customers can afford to spend more in upscale places. Downscale places have the advantage of attracting the masses who might have lower purchasing power but greater numbers.

For the atmosphere determinant, there are five decision tensions:

  1. Formal versus Informal
  2. Exclusive versus Public
  3. Conservative versus Adventurous
  4. Aesthetics versus Functionality
  5. Minimalist versus Maximalist

Atmosphere refers to the state or condition of the environment, which affects the mind and mood of customers, either in a positive or negative way. Atmosphere brings out the intangible qualities which customers are looking for (e.g., peacefulness, excitement, beauty, bliss, sorrow) through the tangible or physical manifestations of the place (e.g., light, color, texture, shape, scent, sound, temperature, taste, etc.)

A formal atmosphere projects a stylized, classy, highly-organized, and well-structured image for the place. It gives customers the feeling of elegant tradition and civilized order. On the other hand, an informal atmosphere projects a casual, easy-going, unstructured, and unpretentious image for the place.

Exclusivity is the preferred atmosphere by some customers who want privacy and elitist isolation. The opposite feeling is desired by customers who want a public atmosphere, one where people from all walks of life can congregate.

Some customers do not want to take risk and want a conservative atmosphere, one where they can feel safe and secure. These customers want to experience the familiar, the tried and tested, and the “normal.” At the other end, customers crave for adventurism. They want to try out-of-the-ordinary escapades.

There are customers who go for the aesthetics of a place while others go for the functionality of the place.

There are customers who do not want clutter in the atmosphere. They like the minimalist approach and believe in the adage that “less is more.” The opposite is true for customers who are maximalists. They like everything to be in one place altogether.

The geography and atmosphere decision tensions provide alternative choices to the marketing strategist. The final decision would depend on the positioning of the enterprise and its products in the marketplace.