Service Facility Location

1
Service Facility Location
2
Learning Objectives

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

3
Competitive Role of Service Facility Location

• Flexibility Future economic changes and
  portfolio approach
• Competitive Positioning Prime location can be
  barrier to entry
• Demand Management Diverse set of market
  generators
• Focus Cookie-cutter expansion and
  cannibalization

4
Geographic Representation

• Location on a Plane
• Y
• 
  
• 
  Destination j
• Yj
  Euclidean
• Origin i

Yi
Metropolitan
0
X
Xi
Xj
5
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
3

2
-10 -5 5 10 15

-15 -10 -5 5
10 15 20 25

City C
City B
1
6
Estimation of Geographic Demand

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

7
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

8
Breaking the Rules

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

9
Single Facility Location Using Cross Median
Approach

3 (W33)
Median 16/2 8
2 (W21)
1 (W17)
4 (W45)
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Huff Retail Location Model

• First, a gravity analogy is used to estimate
  attractiveness of store j for customers in area
  i.
• Aij Attraction to store j for customers in
  area i
• Sj Size of the store (e.g. square feet)
• Tij Travel time from area i to store j
• lambda Parameter reflecting propensity to
  travel

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Huff Retail Location Model

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

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Huff Retail Location Model

• Third, annual customer expenditures for item k
  at store j can now be calculated.
• Pij Probability of customer from area i
  travelling to store j
• Ci Number of customers in area i (e.g. census
  track)
• Bik Annual budget for product k for customers
  in area i
• m Number of customer areas in the market region

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Huff Retail Location Model

• Fourth, market share of product k purchased at
  store j can now be calculated.

14
Athol Furniture Site Alternatives

4
1
State Park
2
3
A
5
Bluff lake
7
Z
6
9
Railroad Freeway Major street Park
boundary River Census block group Existing retail
outlets Potential sites
B
8
Y
11
10
4
12
X
15
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 1 2 3
  4 5 6 7
  8 9 10
  11 12
• A 7 5 5
  9 1 3 4
  5 7 10
  14 17
• B 10 8 8
  10 7 3 3
  2 1 2
  2 5
• X 16 14 14
  16 13 8 7
  6 4 4
  2 2
• Y 12 10 10
  12 9 5 4
  3 2 4
  2 5
• Z 7 5 5
  7 4 2 1
  4 3 10
  10 13
• RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES,
  EXPENSES,
• AND NET OPERATING PROFIT AS OF SALES

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Athol Furniture Demographics

• 
  MARKET DATA
• Census block Number of
  Average annual Average annual
  furniture
• group households
  income
  expenditures per household
• 1 730
  12,000-12,500
  180
• 2 1130
  8,500-9,000
  125
• 3 1035
  19,500-20,000
  280
• 4 635
  25,000-over
  350
• 5 160
  4,500-5,000
  75
• 6 105
  4,000-4,500
  50
• 7 125
  4,000-4,500
  60
• 8 470
  8,000-8,500
  115
• 9 305
  6,000-6,500
  90
• 10 1755
  18,500-19,000
  265
• 11 900
  15,000-15,500
  215
• 12 290
  25,000-over
  370
• 7640

17
Store Site Selection
18
Market Share Analysis