Location, location, location

Kolt Luty, Account Manager - Retail, Real Estate and Franchise, Pitney Bowes MapInfo explores the benefits of location intelligence.

In the current information-rich business environment, few retailers are aware that among their files and systems they have a store of readily accessible data that could significantly improve their companies’ efficiency, effectiveness, and profitability. Even less have considered ways of taking advantage of this rich mine of data.

What is this undiscovered and unrealised gold mine? It’s the data relating to demographics, economics, physical geography and other characteristics that pertain to location; the spatial environment in which a given organisation operates, interacts with its customers, and transacts business. Like the proverbial tree falling in an empty forest, this data exists regardless of whether anybody takes note. It becomes valuable only when it is collected and analysed, and when the conclusions are used to inform organisational decision-making. This is “location intelligence”.

All organisations understand that absolute location data such as a city’s population provides a rough gauge of a market’s potential. Most give at least passing attention to the characteristics of location, whether in evaluating traffic patterns when choosing a franchise location or calculating market wages when deciding where to site a warehouse. There is certainly benefit in these isolated, often unstructured observations.

But few actively collect, analyse and use relative data - such as matching store locations to local demographics – to reduce costs, increase revenues or boost profits.

The value of location intelligence

Conceptually, location intelligence bears similarities to the “customer intelligence” concept that grew to prominence during the 1990s and that underlies solutions such as customer relationship management (or CRM). The core premise was that, if a company knew more about a particular customer’s demographics, preferences and buying habits it could tailor marketing offers and interactions in a way that would increase the customer’s propensity to buy and, in general, boost the customer’s overall lifetime value.

Location intelligence has also been part of business operations for decades, at least in a rudimentary form. Long before the advent of computers, couriers planned pick-ups and drop-offs to minimise travel time and fuel use. Retailers and franchise owners typically take a number of geographic factors into account before deciding where to locate their businesses.

As obvious as these examples are, they represent only a fraction of the intelligence inherent in a company’s location, and a small portion of the value that can be obtained using sophisticated location intelligence tools. Location and its business-relevant implications infuse nearly all business operations: every organisation with a physical presence exists somewhere and the same is true for its customers and suppliers.

But is location that relevant?

In retail, where a store is located tends to affect sales performance more than any other factor. Great managers, great marketing programs and even great products often have far less effect on sales than having the right location.

Retailers that have already undertaken location intelligence measures are discovering an enhanced ability to:

• Determine optimal store locations
• Simultaneously maximise market share and per-store performance
• Avoid “cannibalisation” among stores
• Generate detailed site-specific forecasts for operations and strategic planning
• Precisely match media and marketing messages to targeted households
• Determine how well a concept translates from one market to another
• Identify under-performing stores and determine which to close or which to renovate

No organisation approaches the public without trying to gain a rich understanding of its stakeholders – be they customers, shareholders, suppliers or partners. The same is true with regard to evaluations of production, distribution and other logistical matters, each of which can have significant effects on profitability and service efficiency.

Historically the analysis of location data has been isolated within administrative departments or other non-revenue sectors of a company, or it has been given only notional, “gut instinct” consideration. But this is starting to change.

A growing number of organisations are recognising that, not only does location matter, but that fully appreciating the impact and opportunities associated with location can generate significant bottom-line returns. Importantly, they are also discovering that implementation of such solutions is easier and much more affordable than initially expected.

Profiting from location intelligence

Location ties all of the other data points in an organisation’s operations together. To use a simplistic example, knowing a customer’s age, family status and buying history can help to direct a sporting retailer’s marketing activities. But knowing that the customer lives in Canberra as opposed to the Gold Coast may mean that the customer could be a good candidate for buying ski gear, even if the customer has never purchased such items from the company in the past.

Location intelligence is drawn from a combination of the organisation’s and customer’s locations. It enhances the understanding of an organisation’s operating environment and as such, can be used to increase revenues, reduce costs and improve profits. It is the same kind of value that CRM-style analytical solutions began bringing to customer-facing organisations a decade ago.

And like those CRM solutions, location intelligence is being powered not by gut instinct but by sophisticated analytical and data processing tools that can detect patterns, risks and opportunities that are otherwise impossible to identify.

Break out Box

Location Intelligence Provides Answers:

• Find the best markets for retail expansion. With so much capital investment on the line, you need to be certain you’ve selected the right trade area. Assess where you should allocate your capital expenditures by prioritising which markets you should go into first.
• Determine maximum store build out. Quantity the maximum number of locations any specific market will support.
• Rank each viable site. There may be many viable sites within your selected market, but which single site demonstrates the highest demand potential? Which site ranks second, third, fourth and so on?
• Evaluate the sales impact of new units. Assess the degree to which a new store opening will affect the sales of existing units.
• Make expansion or relocation decisions. With quick, comprehensive analyses of your sites, trade areas and demand potential, you can determine with confidence which new locations should be opened, or which existing sites should be relocated to more. Desirable locations.

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