Hello and welcome to FYI.
Fresh from a break to mark the beginning of the last quarter of 2014, here’s a post on the importance of finding the right location for your business. The idea for this came from a random conversation about the traffic situation in Gwarinpa. You see my friend couldn’t understand why most evenings, queues sprang up in the filling stations along 1st Avenue, despite the availability of fuel in other parts of the city. While trying to explain the relationship between the buying decisions of customers and the inherent human tendency to avoid deviating from an adopted routine (the “getting out of our way” syndrome), I stumbled into explaining the 5 P’s of Marketing. Don’t I mean 4? Others say 7, but that’s a conversation for another post.
For now, we’ll focus on “place”, and in the business world, it can be used to define the location for production or sale. With emphasis on sales, critical importance is placed on the location of your retail space. So if you’re in the retail business but haven’t heard the phrase “location, location, location”, it just might explain the reason you have a problem with stock.
But here’s the question, is the phrase critical to only retail businesses?
The answer is quite simple, NO! Regardless of the type of business, the ultimate aim is to control spending and maximize returns. It therefore holds that where the place of business directly affects spending or returns, the location chosen will be critical to success.
In retail, profitability largely depends on returns; the emphasis on turnover, and repeat sales. This is affected by location-based determinants such as visibility, ease of access, flow of traffic, and demographic trends. As such the decision on location usually determines success. This determines spending on expensive storefronts and streets or neighborhoods where other businesses are already enjoying similar benefits. Take the filling stations for example. While it may seem coincidental, their successes can be directly related to being located on the going-home side (flow of traffic) of the main access road (visibility and ease of access) to a huge estate, characterized by working-class residents who commute in private vehicles (demographic).
In Manufacturing, on the other hand, profitability largely depends on controlling costs. These will include costs of production, staff, advertising, promotion, and distribution. If production costs depend on the availability of raw materials or access to suppliers, staff costs on the presence of the right workforce within the vicinity, and advertising and distribution costs on accessibility and the route to market, then the location of the business will be critical to success. So although the type of location may differ, its importance must not be ignored.
In Services, profitability largely depends on demography, competition, convenience to customers and employees, and brand image. These will shape the spending costs in rent and commensurate returns through cost of services. While some services such as tailors, barbershops, and dry cleaners can save on the need for premium locations, their spaces must still consider these factors to remain relevant. For example, a barbershop seeking to capture upwardly mobile youth who live in the city will only invite failure if it rents a shop in the middle of the local market and charges N1,000.00 per cut. While it will result in low costs, returns will most likely be non-existent; which explains the relationship between low rent and high advertising costs in most businesses.
Progressive learning in the buying characteristics of customers continues to affect the location of businesses and innovations in the collaborative use of space. This has resulted in barbershops and Laundromats being parts of bars and a growing acceptance of trade shows that ensure access to a similar demographic. The trade-off between the high costs of rent and the effect of the alternative on brand image and customer acquisition is also why Shared Offices are in business. Ours allows access to one of the most prestigious business addresses in Abuja, proximity to high net-worth clients, and convenience to employees.
So now it’s your turn. How has the location of your business affected outcomes? And should a consideration for location be more emphasized?
Editor’s Note: A version of this article first appeared in The Business Hub on 23rd October 2014.