The Tradeoff of High Competition and High Convenience - Making Data-Informed Location Decisions
The perfect location for many businesses has low levels of competition and high levels of customer convenience. Finding this sweet spot is sometimes possible, but more often location requires tradeoffs.
Competitors may have already moved into the good areas, and a business doesn’t always want to locate in the place that’s free of competition.
We don’t think of this problem as an all-or-nothing proposition. Instead, we consider competition and convenience as components of the broader question - Where is the right place for a business to locate, acquire, and/or expand?
We look at three primary factors when supporting market intelligence decisions:
Area Demographics
Level of Competition
Area Characteristics
We consider each of these individually, then collectively, to assess the validity of a market or area for a business. A holistic approach to understanding an area’s potential for a business means looking at everything that can contribute to - or inhibit - a business’ success and not just one isolated factor.
Area Demographics
The demographic profile of an area may include factors like the:
Residential market size
Population growth
Household income
Age of the population
For businesses with a specific target market, we want to ensure that the people they’re trying to reach actually exist in an area.
For example, a business like Target will want to be in a middle to upper-middle income, well populated areas, while someone like Walmart may prefer areas with lower levels of income and lower levels of population.
Ultimately, the area demographics should coincide with the target market of the business.
Level of Competition
We look to establish a baseline level of competition, then benchmark to that when looking at an area or location. This will oftentimes include some type of population to competition ratio (i.e. people per active dentist) or daytime-adjusted population ratios (population and workers).
It’s important to consider all the ways that someone will reach a destination and factor that into the level of competition.
Areas with high urban density may show less favorable competition characteristics, but the daytime population swells in urban centers as workers concentrate in downtown offices. As such, businesses that benefit from both residential and worker populations may be better suited looking at “higher competition” areas.
Consider the image below - it’s easy to say that areas with dark blue density are “high competition” areas and should be avoided, but it’s equally true that the areas of high density are some of the most heavily trafficked roads in the area, meaning high visibility and customer convenience.
The presence of competition isn’t the only consideration that should be made. It’s the presence of competition given the residents, workers, traffic flow, and/or other people that are near or pass through the area.
Area Characteristics
This is simply a catch-all term to bundle in anything else that a business needs in place to be successful, like surrounding complementary points of interest, the number of jobs / workers in the area, location of high-traffic roads, and more.
We seek to pull out the indicators that a company will be successful. This might mean being in an area with surrounding shops, a Target nearby, near a referrer like a hospital, or convenient to downtown workers.
We paint a picture of an area with data to ensure that the foundations are in place for the business to be successful in an area.
Collectively, researching and answering these questions for a businesses ensures that (1) the right population and market size exists in an area; (2) the level of competition will not hold back success and (3) the area has the right fundamentals in place to succeed.
This is why we don’t consider competition or convenience to be an all-or-nothing. Each plays into the broader discussion about an area.
Ideally we want everything to be perfect in a new market or location decision, but realistically, we want to know all relevant information beforehand to have an informed discussion and reach a decision knowing the tradeoffs that exist for each option.