1. Service Facility Location

2. Learning Objectives
Discuss the competitive role of service facility location on internal and external customers.
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. Strategic Location Considerations
Front Office
Back Office
External
Customer
(consumer)
Accessibility
Barrier to entry
Process people
Co-location(?)
Communication
Visibility
Internal
(employee)
Skilled labor availability
Low labor costs
Economy of scale
Process information

4. Service Facility Location Planning
Competitive positioning: prime location can be barrier to entry.
Demand management: diverse set of market generators.
Flexibility: plan for future economic changes and portfolio effect.
Expansion strategy: contiguous, regional followed by “fill-in,” or concentrated.

5. Geographic Representation
Location on a Plane Y
Destination j
Yj Euclidean
Origin i Yi
Metropolitan X Xi Xj

6. 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: many frequent users)
City A 3 * 2 * *
City C
City B 1

7. 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)

8. Site Selection Considerations
1. Access: Parking:
Convenient to freeway exit and Adequate off-street parking
entrance ramps Expansion:
Served by public transportation Room for expansion
2. Visibility: Environment:
Set back from street Immediate surroundings should
Sign placement complement the service
3. Traffic: Competition:
Traffic volume on street that may Location of competitors
Indicate potential impulse buying Government:
Traffic congestion that could be a Zoning restrictions
hindrance (e.g.., fire stations) Taxes

9. 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. telecommuting, e-Commerce)

10. Single Facility Location Using Cross Median Approach
3 (W3=3)
Median =16/2 =8
2 (W2=1)
1 (W1=7)
4 (W4=5)

11. 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

12. Huff Retail Location Model
Second, to account for competitors we calculate the probability that customers from area i will visit a particular store j.

13. Huff Retail Location Model
Third, annual customer expenditures for item k at store j can now be calculated.
Pij = Probability customers from area i travel 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

14. Huff Retail Location Model
Fourth, market share of product k purchased at store j can now be calculated.

15. Athol Furniture Site Alternatives4 1
State Park 2 3 A 5
Bluff lake Z 7 6 9
Railroad
Freeway
Major street
Park boundary
River
Census block group
Existing retail outlets
Potential sites 8 B Y 11 4 10 12 X

16. Athol Furniture Data
COMPETITORS’ STORE SIZES MAXIMUM SIZE LIMIT OF SITES
Store Sales area, sq ft Site Maximum sales area, sq ft
A , X ,000
B , Y ,000
Z ,000
MINIMUM TRAVEL TIME BETWEEN POTENTIAL AND EXISTING SITES
AND BLOCK GROUPS, Min
Census block group
Site A B X Y Z
RELATIONSHIP OF STORE SIZE TO MARGIN ON SALES, EXPENSES,
AND NET OPERATING PROFIT AS % OF SALES
Sales area, Margin Net operating profit
sq ft on sales Expenses before taxes
10,
15,
20,

17. Athol Furniture Demographics
MARKET DATA
Census block Number of Average annual Average annual furniture
group households income expenditures per household
$12,000-$12, $180
,500-9,
,500-20,
,000-over
,500-5,
,000-4,
,000-4,
,000-8,
,000-6,
,500-19,
,000-15,
,000-over
7640

18. Store Site Selection

19. Market Share Analysis