Service Facility Location

Learning Objectives n n Discuss how different customer service criteria affect facility location. n n Locate a single facility using the cross- median approach. n n Use the Huff model to evaluate the economic feasibility of a retail service location. n n Discuss nontraditional location strategies.

Competitive Role of Service Facility Location n n Flexibility: Future economic changes and portfolio approach n n Competitive Positioning: Prime location can be barrier to entry n n Demand Management: Diverse set of market generators n n Focus: “Cookie-cutter” expansion and cannibalization

Geographic Representation Location on a Plane Y Destination j Yj Euclidean Origin i Metropolitan 0 Xi X j Yi X

Effect of Optimization Criteria 1. Maximize Utilization ( City C: elderly find distance a barrier ) 2. Minimize Distance per Capita ( City B: centrally located ) 3. Minimize Distance per Visit ( City A: frequent users and large population ) City A City B City C * * *

Estimation of Geographic Demand n n Define the Target Market (Families receiving AFDC) n n Select a Unit of Area (Census track, ZIP code) n n Estimate Geographic Demand (Regression analysis) n n Map Geographic Demand (3D visual depiction)

Site Selection Considerations 1. Access: 4. Parking: Convenient to freeway exit and Adequate off-street parking entrance ramps 5. Expansion: Served by public transportation Room for expansion 2. Visibility: 6. Environment: Set back from street Immediate surroundings should Sign placement complement the service 3. Traffic: 7. Competition: Traffic volume on street that may Location of competitors Indicate potential impulse buying 8. Government: Traffic congestion that could be a Zoning restrictions hindrance (e.g.., fire stations) Taxes

Breaking the Rules n n Competitive Clustering (Among Competitors) (e.g. Auto Dealers, Motels) n n Saturation Marketing (Same Firm) (e.g. An Bon Pain, Ice Cream Vendors) n n Marketing Intermediaries (e.g. Credit Cards, HMO) n n Substitute Electronic Media for Transportation (e.g. USAA, Internet Shopping)

Single Facility Location Using Cross Median Approach 1 (W 1 =7) 2 (W 2 =1) 3 (W 3 =3) 4 (W 4 =5) Median =16/2 =8

Huff Retail Location Model First, a gravity analogy is used to estimate attractiveness of store j for customers in area i. A ij = Attraction to store j for customers in area i S j = Size of the store (e.g. square feet) T ij = Travel time from area i to store j lambda = Parameter reflecting propensity to travel

Huff Retail Location Model Second, to account for competitors we calculate the probability that customers from area i will visit a particular store j.

Huff Retail Location Model Third, annual customer expenditures for item k at store j can now be calculated. P ij = Probability of customer from area i travelling to store j C i = Number of customers in area i (e.g. census track) B ik = Annual budget for product k for customers in area i m = Number of customer areas in the market region

Huff Retail Location Model Fourth, market share of product k purchased at store j can now be calculated.

Athol Furniture Site Alternatives Bluff lake State Park A B Z Y X Railroad Freeway Major street Park boundary River Census block group Existing retail outlets Potential sites 4

Athol Furniture Data COMPETITORS’ STORE SIZES MAXIMUM SIZE LIMIT OF SITES Store Sales area, sq ft Site Maximum sales area, sq ft A 10,000 X 15,000 B 15,000 Y 20,000 Z 10,000 MINIMUM TRAVEL TIME BETWEEN POTENTIAL AND EXISTING SITES AND BLOCK GROUPS, Min Census block group Site A B X Y Z RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES, EXPENSES, AND NET OPERATING PROFIT AS % OF SALES Sales area, Margin Net operating profit sq ft on sales Expenses before taxes 10, , ,

Athol Furniture Demographics MARKET DATA Census block Number of Average annual Average annual furniture group households income expenditures per household $12,000-$12,500 $ ,500-9, ,500-20, ,000-over ,500-5, ,000-4, ,000-4, ,000-8, ,000-6, ,500-19, ,000-15, ,000-over

Store Site Selection

Market Share Analysis