Imagine investing millions of dollars to develop a site, only to learn that you overestimated the trade area’s demand. Or perhaps you overlooked the cost of store cannibalization, and an alarming percentage of your new location’s sales have simply shifted from another location? Maybe you set up shop right in the middle of a high traffic area…but on the wrong side of a freeway overpass.
Costly business mistakes like these happen all the time due to poor location analytics.
Location analytics equip businesses to make intelligent decisions about which locations to open, close, or relocate, based on each site’s performance and potential. This process usually relies on geospatial tools to overlay relevant data on a map, such as sales data, demographic information, traffic flow, nearby points of interest, and proximity to other locations or competitors. With the right tools, you can visually explore trade areas, compare potential sites, and choose the best sites for your location strategy.
While location analytics has been around for decades, businesses have often been forced to make assumptions and allow a fairly wide margin of error when forecasting a location’s performance or comparing “similar” sites. Advanced visualization software like Tango Transactions takes the guesswork out of site selection, empowering businesses to accurately analyze locations. Leveraging predictive analytics, it helps you create more comprehensive site models, considering a wider range of site selection factors and incorporating mobile data—so you know where the demand really is, and you can visualize the total impact of potential real estate decisions.
Effective location analytics requires you to thoroughly examine the features of a specific facility, the surrounding trade area, and your real estate portfolio. In this guide, we’ll walk you through the key questions that location analytics answers, so you can see how many of the world’s largest enterprises choose the right sites every time.
When analyzing locations, you should aim to classify them based on your answers to each of these questions—so your site models accurately represent your locations and their potential.
Evaluate the site’s proximity to your target demographic
You know who your best customers are. The challenge is to find them—and position your business in such a way that they’ll find you. One of the most practical components of location analytics is evaluating how close the location is to where your target demographic spends their time. This has a huge impact on whether your business can reach the people it needs to. Is the site on their way to work? Close to their neighborhood? Near popular activities?
Examining your customer loyalty data and any segmentation information you have will help you assess not just which demographics are most valuable to your business, but how valuable various segments of a local population will be. For example, single, middle-class women between the ages of 25-34 might represent the highest percentage of buyers, but older, affluent married men may spend more on average. The more you can isolate and analyze individual segments of your customer base, the more accurately you can evaluate the opportunity in the location’s trade area.
Your internal data is incredibly valuable. But it can only take you so far. You also need to model how your customer data will play out in the trade area. Thanks to the prevalence of mobile data, location analytics software like Tango can show you how various demographics are distributed throughout a region, letting you filter maps to display particular segments of your customer base.
By combining these datasets, you can improve your understanding of a location’s potential reach. But this demographic data alone isn’t enough to create an accurate model. You’ll need to examine your location from several other angles to reliably forecast its performance or identify its biggest challenges.
Identify nearby points of interest
If your location is close to the places people already spend their time and money, it’s easier to tap into local demand. Instead of trying to influence and reshape a community’s traffic flow, you want your business to fit into the natural patterns. A key part of location analysis is identifying the places that generate commerce and drive traffic near your site. See where they’re concentrated, the variety of goods and services available, and when they’re at their busiest. Get close to the action, and people will spend more time near your business.
These points of interest don’t have to be related to your business at all. It could be a theater. An airport. A sports stadium. An event center. You’re just seeing where your location is in relation to the places that already attract your customers. Get too far away from these local points of interest, and you’re competing against them for people’s attention. Location analytics software like Tango allows you to isolate and visualize nearby points of interest and their traffic flow alongside other datasets on a map.
Assess the location’s visibility
Visibility can make or break your business. Poor visibility from nearby roads and intersections seriously inhibits your ability to tap into existing traffic and demand. Even just being the end cap on the far side of a strip mall or the wrong side of a popular building can make a big difference in your location’s visibility (and by extension, its performance).
Prominent locations force people to encounter your business on a regular basis. It doesn’t matter if they’re in the right mindset to visit your location. They’re going to see you on the corner on the way to the park, class, work, or other activities. And the next time they are in the right mindset, they’ll think of you.
Someone who passes your store every day or sees your menu all the time is far more likely to visit your business. Even loyal customers may choose your competitors if those are the stores and signs they see most often. So as you analyze locations and forecast sales, be sure your models account for how visible a facility is from key areas like the parking lot, cross streets, and intersections. This is a good example of why effective location analytics requires you to layer multiple pieces of data to get the most accurate forecasts. It’s not enough to be near a point of interest if you’ll never be visible to the traffic it generates.
Tango Transactions lets you add criteria assessing a location’s visibility, then incorporates that criteria into your site models, enabling you to analyze each location more accurately.
Analyze the facility’s accessibility
Visibility and accessibility don’t always go hand-in-hand. Suppose people can see your building and signage from the busiest street in your trade area. They pass you every day on their commute to work. But in order to visit your business, they have to cut across several lanes of traffic. If your location is difficult to access, that creates friction every time someone considers visiting your business. It adds stress and time to each trip, and that means even people who want to shop at your store or eat your food will do so less often.
Parking and public transportation play a key role in accessibility as well. Perhaps your location forces people to find street parking in a part of town with very limited capacity. Or you share a lot with another busy store, so during peak hours, getting in and out of your parking lot becomes a nightmare—and finding a spot is even worse. Ideally, your location should have enough parking spaces to accommodate your max capacity of customers in store, whether that’s fewer than 10 people or several hundred.
The entrance of your facility is important, too. What if you’re in a shopping mall, and people have to pass by other stores to get to yours? That’s going to inhibit visibility and accessibility.
Consumers crave convenience. And if your location is difficult to access, you’re going to get a smaller percentage of the potential business in the trade area. Your location analysis will be more reliable if it includes criteria for accessibility.
Locate your competitors
Obviously, your proximity to competitors will significantly affect your site’s performance. The more crowded your industry, the more you have to share the potential business in the trade area.
It’s not a complete disadvantage to be near competitors. They represent established demand for your industry, and their presence has trained local consumers to expect businesses like yours to be there. In some cases, choosing a new location near competitors could actually help you get a footing in the trade area faster, especially if people are dissatisfied with the options they have available now.
The best locations are nestled between non-competing points of interest where the local population doesn’t have access to similar products or services. When you’re the only burger joint or apparel store in town, people don’t have a choice when they want burgers or clothes.
With Tango Transactions, it’s easy to identify competitors on the map, so you can analyze locations based on where your competitors are concentrated.
Estimate the risk of cannibalization
Sales cannibalization happens when one of your locations takes sales that would’ve otherwise gone to another location or sister store. It’s inefficient, and leaves you essentially competing with yourself—or another store owned by your parent company. If you have another location in the same trade area, some of your new location’s success will come at that location’s expense. Some of their customers will decide your new store is more convenient for them, or they favor the experience it provides. They might even shop at both, where before they would’ve only chosen the other location.
Location analytics that doesn’t account for cannibalization is deceptive. It doesn’t consider a location’s total impact on your business (or your parent company’s). The new location may appear profitable, but between the two locations, what was your net new profit? Cannibalize a sister store, and your parent company will likely perform the same calculations (or at least they should).
Tango Predictive Analytics lets you add criteria for evaluating the potential cannibalization, so you get a fuller picture of your new location’s likely impact.
How is the trade area expected to change?
Population sizes and demographics are always changing. So is demand for your industry. Your target city might be in the midst of a mass exodus of people or particular types of business. Points of interest could be closing. Maybe housing costs are exploding and neighborhoods are gentrifying. Perhaps a new school is opening, or a professional sports team is moving in.
Real estate is a long-term investment. If you’re terminating, starting, or renewing a lease, you want to be sure your decision won’t feel like a huge mistake in a couple of years. Imagine consolidating locations into a declining trade area, when one of the trade areas you closed a location in was experiencing a huge growth spurt.
Projected growth or decline of demand in the trade area itself needs to be part of your site analysis, or else you’ll miss out on some of your biggest opportunities.
Location analytics you can trust
If your site models don’t have enough inputs, you’re a lot less likely to get reliable outputs. There are numerous factors that can impact your projections, and many location analytics solutions only account for some of them. When you’re making multi-million dollar investments based on models, you want to be as confident as possible that your models are accurate.
Tango gives you tools to analyze locations from a wide variety of lenses, giving you a more comprehensive view of each site and allowing you to close deals faster and beat your competition to the best locations.
Want to see Tango’s location analytics capabilities for yourself?
Schedule a demo of Tango Transactions today.