Business GIS for Everyone

This blog takes an informal look into the debates and methods related to business GIS and mapping

Perspectives on Identifying Sound Business Locations: Part One

Author: Dr. Murray Rice

There’s an old saying that the three rules of business success are "Location, Location, and Location." This was true 50 years ago, before the Internet and online ordering took the world by storm. Surprisingly enough, this saying remains true today, despite the influence of communications technologies and the increased influence of widespread information throughout society.

Some might say that when they shop on Amazon, location really doesn’t matter. The reasoning goes that because they didn’t go to the store to research their purchase, and they’re not visiting a store to pick it up either, location doesn’t matter like it used to. But store visits for research and pick up purposes are only part of the relevance of location for business transactions. The fact remains that goods and services are produced in a set of specific places, that consumers live in specific other places, and there is still a need to make an efficient and convenient connection between the two. Even Amazon needs to care about selecting its business locations wisely, because it needs to support a vast distribution network that very much needs to be efficient and convenient for customers to use (or they won’t use it).

This multipart post explores the various perspectives that geographers and retail planners have on identifying good locations for business activity. This, the first of three posts on the subject, introduces the role played by location in the modern era of shopping. Also, the post will introduce the most simple of methodologies that geographers have developed to assist businesses in identifying good locations.

Relevance of Location

Retail theorists have used the idea of the "consumer journey" to refer to the physical, cognitive, behavioral, social, and emotional process that consumers proceed through on the path from perceiving a need to making a purchase. Such paths to purchase have evolved much from the pre-web era to today.

A pre-e-commerce consumer journey might be well conceptualized as essentially linear in form (see Figure 1). Advertising leads to store visits which lead to a purchase decision and the transaction followed by store based pickup. The relatively simple structure of the pre-e-commerce consumer journey lent itself well to straightforward geographic analysis focused on store locations and retail market areas. Making the system more efficient largely depended on retail planners identifying the best retail real estate proximate to the markets that the business needs to access (Murray and Hernandez 2016).

Figure 1: The Pre-E-Commerce Linear Consumer Journey

Today, it goes without saying that the business landscape has changed. One key element of this change is the changing form of the consumer journey. From the linear form that characterized consumer journeys a few decades ago, the e-commerce era consumer journey has morphed into what is better recognized as a cyclical process (the "loyalty loop", see Figure 2).

Figure 2: The E-Commerce Cyclical Consumer Journey

While in the e-commerce area, consumer journeys do start and do end up at a purchase decision, the complexity of the purchase path has increased greatly (Edelman and Singer 2015). Additionally, given society’s penchant to "use, throw away, and replace", the e-commerce consumer journey typically links one purchase cycle with multiple future purchase cycles. To succeed, businesses need to recognize this changed competitive landscape and position itself strategically within the loyalty loop.

Also note that while there is nothing obvious about location that is built into the idea of the e-commerce consumer journey, recognition of location in the various components of the e-commerce consumer journey is important. From starting the journey through considering, evaluating, buying, enjoying, advocating, and bonding, geographic space is an implicit part of the loyalty loop. Each phase of this cycle takes place at particular locations, and consideration of these locations is important in putting together good business plans.

For example, the purchase of ice skates might begin with consideration of the options being worn at the local ice-skating rink. Observations are made, opinions solicited, and out of a large circle of possibilities a few leading contenders emerge. Next, the consumer might evaluate the contenders on the web, at home. Previous coupons received and ads noted from recent weeks work their way out onto the living room table. Current selling prices and sales are weighed against each other, with a favorite or two emerging out of an evening scanning the web.

When the finalists are thoroughly vetted and the purchase decision is made (finalized via an order on the website of one of the retailers consulted), the consumer goes down to the local ice rink where the newly-purchased skates are tried out and opinions come from all sides. At this point the seeds of a second loyalty loop may be planted, as the consumer gathers more feedback and begins thinking about their first upgrade beyond the initial skates they have bought in round one. Do they stay loyal to their initial brand choice, or do they try the skates made by another manufacturer?

In all this, the consumer may have never even thought about visiting a physical store. Yet, location looms large in the background behind each step. The presence of a local rink propels the decision from the start. What mix of skaters, and what range of demographic profiles are represented, is a crucial part of how the consideration stage goes. Is the consumer presented with mostly upscale options, or does the rink patronage include some value-oriented users? Where the rink is, and who the rink attracts, has an important impact on the skate types considered and evaluated from here. Businesses need to care about such things, especially related to positioning themselves for high visibility in the specific stages of the cycle that are crucial to making the sale. It goes without saying that these crucial stages can be linked to specific locations and types of locations.

Two Simple Site Selection Frameworks

Now we will introduce two of the most simple site selection frameworks that businesses have used with great success over the years. The focus here will be on the traditional business location problem, which has not gone away (despite the internet). Even though the situation has changed radically over the past few decades, the fact is that geography and location still matter. The discussion of how to best handle locational decision making still matters as well. This blog post (covering two basic site selection frameworks) and the following two blog posts (collectively covering three more) will feature the major business location selection perspectives that have proved useful in different business contexts over the years.

Where possible, as you read the following please think of more than just traditional store locations. Think about billboards. Think about locations where people might use their mobile devices. Even think about business locations that provide information and advice, but very little merchandise, to consumers (leading retailers like Nordstrom and IKEA have dipped their toes into these waters). In other words, as we examine the first couple of site selection frameworks, think creatively about how old ideas can be re-packaged into something of heightened utility.

Rules of Thumb

The first site selection framework, rules of thumb, relies on a minimum of analysis or data collection. Typically based on the experience of an owner, manager, or founder, rules of thumb are essentially conditions that the business has in one way or another connected with success. For example, in building a national chain of specialty food stores, one Canadian retailer noticed that the most successful locations in their chain were within a block of two other specific retailers. So, in opening future outlets, the retailer made every effort to locate every one of its new locations in close proximity to these other retailers.

While such a framework is simple and minimizes the need for analytical complexity, businesses can still gain benefit from using business GIS to support their locational search.

Consider the following scenario: a business has identified that its locations close to both an Exxon station and a McDonald’s location are superior sales performers. The business would like to identify further locations with this business mix for expansion.

Sample GIS response: identify locations where there is an Exxon and a McDonald’s within ½ mile of each other. Maps 1-4 lay out a logical search process, leading to identification of potential sites that follow the simple "Exxon/McDonald’s" rule of thumb.

Map 1: Exxon Station Locations

Map 2: 5-Minute Drive Times Around Exxon Stations

Map 3: Locate All McDonald’s Restaurants in the Same Region

Map 4: Identify all McDonald’s Within the 5-Minute Zone of an Exxon Station

Ranking

Ranking is a small step up from Rules of Thumb in complexity and ability to identify good business locations. Where Rules of Thumb establish rules that are either completely met or completely not met, ranking provides the ability to rate a location’s ability to provide a specific characteristic on a sliding scale.

Table 1 lists some possible rating dimensions that could apply to a bank’s search for new branch locations.

Table 1: Sample Site Selection Rating Dimensions for a Bank

Map 5 represents how ratings in this system can be assigned to all potential locations in the area. When a complete set of scores are assembled, the total score can be calculated and the best location identified.

In the next blog post, we will continue working our way through the roster of site selection alternatives by discussing the application of two more analytical perspectives.

Map 5: Sample Site Ratings