Site selection: what is an analogue model?
What tools can be used to assess the performance of a network? Here we look at the analogue model.
The analogue model is a site selection and network assessment tool which works by comparing each site in the network to all the other sites based on certain drivers of sales. This model is based on the assertion that analogous sites (analogous in terms of the selected drivers of sales) should be performing at similar levels.
Depending on the size of your network and your knowledge of the drivers of your business, you will be asked to quantify some of these drivers for every site in your network. It's also possible for the assessor to nominate some drivers of your sales based on its prior experience and by use of appropriate statistical techniques.
At Spectrum, once this is done, specially designed computer programs are able to match every site in your network to every other site and cluster similar sites together. Instead of clustering similar sites together, it is also possible to calculate a ‘similarity index’. The clusters or indices can then be used to compare the actual performance of each of the sites to that of the cluster on an average. This approach is also useful for predicting the performance of future sites.
HOW CAN THIS BE APPLIED?
There five ways to use this:
- Estimate the performance of proposed outlets at any location
- Perform scenario planning
- Alleviate “gut feel” from decision making
- Compare actual vs. potential performance of existing outlet
- Prioritise new build areas
Let's say you have a network of 10 sites. You nominate five drivers of sales all ranked on a scale of one to 10. The drivers could be the traffic levels passing by each store, levels of favourable demographics around your sites or anything else you think is relevant. For illustration, lets say your site A is ranked ‘1’ on all the five drivers and is doing $1000 worth of sales every week, your site B is ranked ‘2’ on all the five drivers and is doing $2000 worth of sales and so on.
Once an analogue model has been developed for you, it is possible to calculate a similarity index. This index can be used to compare an existing site to its analogues in the existing network and also predict the sales for this site.
Anubhav Tewari , Spectrum Analysis, has a Masters in Statistics and Operations Research from RMIT University