Section IV - Putting the Plan to Work: Building a ...



Section IV - Putting the Plan to Work: Building a Competitive Edge

Chapter 13

Choosing the Right Location and Layout (PPT 13.1)

Part One: Learning Objectives

1. Explain the stages in the location decision: choosing the region, the state, the city and the specific site.

2. Describe the location criteria for retail and service businesses.

3. Outline the location options for retail and service businesses: central business districts (CBDs), neighborhoods, shopping centers and malls, near competitors, outlying areas, and at home.

4. Explain the site selection process for manufacturers.

5. Describe the criteria used to analyze the layout and design considerations of a building, including the Americans with Disabilities Act.

6. Explain the principles of effective layouts for retailers, service businesses, and manufacturers.

7. Evaluate the advantages and disadvantages of building, buying, and leasing a building.

Part Two: Lesson Plan

I. Location: A Source of Competitive Advantage (PPT 13.2 thru 13.8)

The location decision is very important to entrepreneurs and is based on a series of analyses of critical factors unique to each business. Tax rates, availability of qualified workers, the quality of the infrastructure, traffic patterns and other factors vary from one site to another and can influence the growth rate and ultimate success of a business.

1. Choosing the Region

2. Choosing the State

• Proximity to Markets

• Proximity to Raw Materials

• Wage Rates

• Labor Supply

• Business Climate

• Tax Rates

• Internet Access

3. Choosing the City

• Population Trends

• Competition

• Clustering

• Compatibility with the Community

• Local Laws and Regulations

• Transportation Networks

• Police and Fire

• Utilities

• Quality of Life

4. Choosing the Site

II. Location Criteria for Retailers and Service Businesses: (PPT 13.9 thru 13.15)

• Trade Area Size

• Retail Compatibility

• Degree of Competition

• Index of Retail Saturation

• Transportation Network

• Physical, Racial or Emotional Barriers

• Political Barriers

• Customer Traffic

• Adequate Parking

• Reputation

• Room for Expansion

• Visibility

III. Location Options for Retail and Service Businesses

• Central Business District

• Neighborhood Locations

• Shopping Centers and Malls

• Near Competitors

• Outlying Areas

• Home-based Businesses

IV. The Location Decision for Manufacturers (PPT 13.16, 13.17)

Suitable manufacturing plant sites are limited by zoning regulations, utility and transportation needs, proximity to raw materials and other special requirements.

• Foreign Trade Zones

• Empowerment Zones

• Business Incubators

YOU BE THE CONSULTANT - The “Cheers” of Bel Air

Entrepreneurs David and Jane Wolff sought to save and revitalize their downtown Bel Air, Maryland main street by establishing a coffee shop that offers unique design, product and service features. The Wolff’s took advantage of a state-sponsored loan program and through their hard work have successfully created the “Cheers” of Bel Air “where everybody knows your name.”

Q1. What advantages and disadvantages does choosing a downtown location offer an entrepreneur like David Wolff?

Q2. Assume the role of consultant. Suppose that officials in a town with which you are familiar approached you about revitalizing the central business district. What advice would you offer them?

Q3. What factors should entrepreneurs evaluate when comparing a downtown location against a location in a shopping center or mall?

A1. Central Business Districts may offer a charming atmosphere and historic character. The Wolffs were able to attract customers from the entire trading area of the city and benefit from customer traffic generated by the other stores. Disadvantages may include a higher crime rate, intense competition, traffic congestion, inadequate parking and higher rental rates.

A2. Make it safe and attractive and research and offer government and state grant and loan programs and other incentives to attract and assist prospective investors.

A3. Factors to evaluate include: costs, business and industry location norms, proximity to customers and suppliers, hours of operation, and complementary and competitive businesses.

Source: Adapted from Hilary Stout, “When Building Up a Business Means Turning Around a Town,” Wall Street Journal, June 11, 2000 p. B1.

V. Layout and Design Considerations (PPT 13.18 thru 13.22)

• Adequate Size

• External Appearance

• Entrances

• Conformity with The American With Disabilities Act

• Signs

• Building Interiors

• Ergonomics

• Lights and Fixtures

YOU BE THE CONSULTANT - Not Your Typical CPA Firm

Location and layout decisions are not limited to just retailers and manufacturers and need not follow traditional methods. That statement was proven true by the Lipschulz, Levin and Gray accounting firm that literally tore down their office walls and doors, put their furniture on wheels and transformed their once dismal work environment into a productive, profitable and fun place to be.

Q1. What impact does the space in which people work have on their ability to do their jobs effectively?

Q2. Use the resources in your library and on the World Wide Web to learn more about ergonomics and layout. Then, select a workspace (perhaps on your campus or in a local business) and spend some time watching how people work in it. Finally, develop a list of recommendations for improving the design of the space to enhance workers’ ability to do their jobs.

A1. Layout is the logical, or sometimes “fun” arrangement of the physical facilities in a business that contributes to efficient operations, increased productivity and higher sales. Planning for the most effective and efficient layout in a business can produce dramatic improvements. Ergonomics helps adapt a work environment to employee and customer physical needs, and is an integral part of a successful design.

A2. Consider allowing students to work in groups and share their Internet research findings.

Source: Adapted from Nancy K. Austin, “Tear Down the Walls,” Inc., April 1999, pp. 66-7.

VI. Layout: Maximizing Revenues, Increasing Efficiency or Reducing Cost (PPT 13.23-13.28)

Layout for Retailers

• Grid layout

• Free-form layout

• Boutique layout

Layout for Manufacturers

• Product layout

• Process layout

• Fixed position layout

• Functional layout

VII. Build, Buy, or Lease?

An entrepreneur's decision on whether to build, buy, or lease a facility is largely dependent on access to

capital and the ability to find the best site. Buying is always preferred as it can provide a good return on

investment (in real estate) and helps to avoid unwanted surprises (leasing and rental terms). The advantages

and disadvantages should be carefully considered.

Part Three: Suggested Answers to Discussion Questions

1. How do most small business owners choose a location? Is this wise?

Most entrepreneurs fail to do their homework and fail to go beyond their own city or town in determining a location for their business. When entrepreneurs stay within their "comfort zones" and don't follow a specific process, they tend to overlook superior locations that could greatly benefit their firms.

2. What factors should a manager consider when evaluating a region in which to locate a business?

Where are such data available?

Managers should follow a structured process that considers many factors including markets, labor,

taxes, laws, the business climate, population trends, competition, transportation and so on. That data is available from market research, government statistics, local boards and organizations.

3. Outline the factors important when selecting a state in which to locate a business.

The factors listed in question two are also a part of the state selection process.

4. What factors should a seafood processing plant, a beauty shop, and an exclusive jewelry store consider in choosing a location? List factors for each type of business.

Seafood processing plant: Consider access to raw materials, suppliers, labor, transportation, and customers.

Beauty Shop: Consider access to customers, but realize that lower-rent properties are a viable option.

Jewelry Store: Consider your business's access to customers.

5. What intangible factors might enter into the entrepreneur’s location decision?

Reputation of the location

The number, size, and type of other stores presently located in or planned for the area

The nature of competing business

The character of the transportation network

6. What are zoning laws? How do they affect the location decision?

Zoning laws control the use of the land, buildings, and sites. Location decisions may be restricted by zoning laws and may also affect the flow and degree of commerce in that section of the city or town.

7. What is the trade area? What determines a small retailer’s trade area?

Trading areas are regions from which a business can expect to draw customers. Variables include the scope of the trading area and the type and size of the operation.

8. Why is it important to discover more than just the number of passersby in a traffic count?

The numbers alone do not indicate the breakdown of the target market groups.

9. What types of information can the entrepreneur collect from census data?

Census data provides population and demographic information, and can be used to analyze trends.

10. Why may a “cheap location” not be the “best location”?

A “cheap location” may generate sales and profits that are well below those offered through other sites.

11. What is a foreign trade zone? An empowerment zone? A business incubator? What advantages and disadvantages does each one of those offer?

A foreign trade zone is a specifically designated area where international trade occurs with the primary purpose of limiting or removing barriers to trade. It allows resident companies to import materials and components from foreign countries, and to assemble, process, manufacture or package them and then ship the finished product while either reducing or eliminating tariffs and non-tariff barriers to free trade. A business incubator is a site that offers low-cost, flexible rental space with a multitude of support services (secretarial services, meeting rooms, fax machine, telephone systems) for its residents. The goal is to nurture young companies during the start-up period and to help them survive until they are strong enough to go out on their own.

12. Why is it costly for a small firm to choose a location that is too small?

Locations that are too small may lead to costly renovations and/or relocation.

13. What function does a small firm’s sign serve? What are the characteristics of an effective business sign?

A sign tells potential customers who you are and what you are selling. An effective sign reaches the group of customers most likely to make actual purchases. Effective signs are large enough to read, contain a short, clear message, and are legible in daytime and night.

14. Explain the Americans with Disabilities Act. What businesses does it affect? What is its purpose?

The ADA requires practically all businesses to make their facilities accessible to physically challenged customers and employees. The law requires businesses with 15 or more employees to accommodate physically challenged people. The law requires business owners to remove architectural and communication barriers when “readily achievable.” Although the law allows for a good deal of flexibility in retrofitting existing structures, buildings that are occupied after January 25, 1993, must comply with all aspects of the law.

15. What is ergonomics? Why should entrepreneurs utilize the principles of ergonomics in the design of their facilities?

Ergonomics is the science of adapting the physical plant for the comfort, safety and productivity of workers. An ergonomically designed workplace can improve workers’ productivity and reduce the number of days lost to injuries and accidents.

16. Explain the statement: “Not every portion of a small store’s interior space is of equal value in generating sales revenue.” What areas are most valuable?

Some businesses calculate revenues per square foot of space. Some space will not generate

revenues (such as traffic, break and display areas), but are equally valuable to the overall profit

maximizing plan.

17. What are some of the key features that determine a good manufacturing layout?

Creating and maintaining an efficient workflow are of utmost concern to manufacturing firms.

Raw material yield, production and safety are also key features.

18. Summarize the advantages and disadvantages of building, buying and leasing a building.

Decision to Build

Advantages: Constructing a new building allows the entrepreneur to design and build a facility that matches perfectly with his/her needs. New buildings create an image of a modern, efficient, and top quality business. New buildings can be constructed with the most modern features, in effect reducing total costs over time.

Disadvantages: The major disadvantage is the high initial outlay of capital, that must be weighed against the ability to generate additional sales revenue and reduce costs.

Decision to Buy

Advantages: Buying an existing building may cost less than constructing a new building. It may also be easier to estimate revenues and costs.

Disadvantages: The initial cost to purchase the existing building may deplete available finances.

Decision to Lease

Advantages: The major advantage of leasing is that it requires little or no initial investment. Firms short on cash may find leasing to be their best option.

Disadvantages: One major disadvantage is that the property owner may choose not to renew the lease. If the business is successful, relocating may be costly and may decrease the customer base. Another disadvantage is limited options on remodeling and that any modifications of the structure may become the property of the owner.

Part Four: Lecture or Critical Thinking Case Studies-Not Found In Student Text

SCINTILLATING SCENTS

SCINTILLATING SCENTS

Retailers are always looking for ways to boost sales of their products and services-- better window displays, flashier advertisements, more appealing layouts and color schemes and other tactics. The latest addition to their arsenal of tools is odor engineering- Alan Hirsch, director of the Smell and Taste Treatment and Research Foundation, Ltd., recently studied the effects of odors on customer behavior. His conclusion: Odors bring back strong memories and evokes certain feelings among many consumers, thereby giving aromas the potential to be powerful sales tools. Retailers can use odors in their stores to encourage customers to buy more and to buy certain products.

Hirsch found that women respond more favorably to scents than do men, and that smokers disliked most odors. The study also showed that women prefer floral scents, whereas men respond more positively to spicy scents. The one scent that customers tend to hate universally is fish. Knowing who their target customers are, retailers could then select the appropriate scent to appeal to them. "Lighting and sound have an impact on people's decision to buy," notes Hirsch, "but I think odors can have a much greater impact.”

In Hirsch's study, thirty-five subjects examined a Nike gym shoe in two rooms identical in appearance but filled with different fragrances. One room was scented with a mixed floral scent; the other had no odor. A much higher percentage of customers-- 84 percent-- preferred the shoe when they viewed it in the florally scented room. Of that 84 percent, 10 percent said they would pay an average of $10.33 more than the subjects in the odor-free room said they would. Even those who disliked the floral odor said they would pay more.

Retailers aren't the only ones who can benefit from odor engineering. Researchers are discovering new relationships between scents in the workplace and employees' productivity and performance. Consequently, some companies are pumping various aromas into work areas to relax employees and boost their performances. One Japanese company claims to have cut computer entry errors by 21 percent when the office air was scented with lavender. When the air was scented with jasmine, errors dropped by 33 percent, and when it had a lemon fragrance, errors fell by 54 percent. The researchers' conclusions: Lavender scents reduce stress; jasmine relaxes; and lemon stimulates. Research on scents and their impact on customers and employees continue, but one day, scents may replace music in offices nationwide.

1. How can retailers use scents to make their stores more appealing to customers?

2. How can offices and manufacturing operations use scents to enhance their employees' work environment?

3. What are the benefits of odor engineering? What are the ethical issues in odor engineering?

Adapted from Stephanie Barrow, "The Nose Knows," Reprinted with permission from Entrepreneur magazine, April 1991, p.38; "Get a Whiff of These Findings," Communication Briefings, February 1990, p.6.

Part Five: Supplemental Readings

"Place Matters," John Case, Inc., May 15, 1996, Vol. 18, No. 7, pp. 94-96.

"A Growing Outlet for Small Firms," Roberta Maynard, Nation's Business, Aug. 1996, Vol. 84, No. 8, pp. 45-48.

"Retailers Bring Store from Malls to Shoppers' Neighborhoods," Alina Matas, Knight-Ridder/Tribune Business News, March 10, 1997.

"Airport Retailing Takes Off," Shelly M. Reese, Stores, Sept. 1996, Vol. 78, No. 9, pp. 74-76.

"Prime Retail Location: the World Wide Web," Michael Moeller, Norvin Leach, Jim Kerstetter, PC Week, May 13, 1996, Vol. 13, No. 19, pp. 1-2.

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