University
of
Washington
Location as a
component of strategy
STRATEGIC
“FIT”
All
the levels of strategy must be
complementary:
corporate strategy: what lines of business, based on the
suitability of fixed assets to
different environments
business or competitive strategy: what
placement within each of those lines of business, based on the suitability of fixed assets to different
placements
functional
strategies (marketing
strategy, production strategy): what
decisions regarding product, pricing,
placement, promotion, and location make sense in pursuit
of the chosen competitive strategy?
All the elements
of a “business plan” (whether for a for-profit or
not-for-profit
organization) need to work
together.
<·
E.g.,
the elements of a marketing plan –
pricing & product spec’s
& level of service & placement & place
·
For
bricks-and-mortar retailers, the
selection of a market area and the precise siting
within it, must
support all those elements of a marketing plan.
DIFFERENTIATION,
SEGMENTATION, LOCALIZATION
Product differentiation may be defined as the creation of buyers’
preference
for one product over another for which it could be substituted.
A
producer or vendor can
focus on differentiating its product or service from those of
competitors,
and/or on differentiating products or services that it offers to
targeted
markets.
Market segmentation may be defined as the attempt to maximize
attractiveness to and revenues from different groups (segments) by
offering
each group a different product-price mix, and minimizing the likelihood
that
one group will desire a less-profitable product-price mix.
Even
among mass or discount retailers, some store differentiation may be
possible: what Rigby
& Vishwanath 2006 call “LOCALIZATION.”
They don’t formally define localization,
so let me try: tailoring a chain’s
individual stores to
characteristics of the market areas served by each store.
>·
Tailoring
what about the stores?
>·
What
characteristics of the market areas?
>·
Why is
this important now?
·
<What
are the benefits of localization?
>·
>What
are the costs of localization?
PATTERNS OF
GEOGRAPHIC GROWTH
Nordstrom,
Costco, Red Robin: national retailers
founded in Seattle. As they expanded,
did they open additional stores in metro Seattle, then the rest of WA,
then OR
– or did they expand from Seattle to Portland and SF?
diffusion: the spread of
material, information, or a
practice, or a population across space, over time.
(Material
diffusion: a drop of dye in water; Information
diffusion:
gossip passed by word of mouth; Cultural-practice
diffusion: wearing pants below the buttocks)
What influences the
direction and speed of
diffusion?
Hierarchical
v. contagious diffusion (see Graff 1998)
Contagious
diffusion:
spreading smoothly over distance as a function of time [diseases --
draw]
Hierarchical
diffusion:
spreading from one population center (e.g.,
large city) to another and another, and then eventually to smaller
centers, and
then eventually to even smaller centers. [popular
dances or styles, at least before the
internet -- draw]
Should
a retailer with national aspirations expand its network by locating in
major
metro areas (hierarchical), or by expanding throughout one region at a
time
(diffusion)? The answer depends on what circumstances?
Is
it possible for a retailer to expand too fast?
CANNIBALIZATION: adding retail
outlets or products
sufficiently “close” to other outlets or products owned by the same
company
that sales of pre-existing outlets or products decline.
Motivations
include
>·
>increasing
the total volume of company sales,
>·
increasing
the company’s market share,
>·
<>attempting
to reduce competitors’ sales below
their minimum economic
scale, or
>·
increasing
product segmentation to increase
the producer’s surplus.
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