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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

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


Describe the location criteria for retail and service businesses.


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.


Explain the site selection process for manufacturers.


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


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


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

Part Two: Lesson Plan


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
Compatibility with the Community
Local Laws and Regulations

Transportation Networks
Police and Fire
Quality of Life
4. Choosing the Site

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


Location Options for Retail and Service Businesses


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
Room for Expansion

Central Business District

Neighborhood Locations
Shopping Centers and Malls
Near Competitors
Outlying Areas
Home-based Businesses

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 Wolffs 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.

Layout and Design Considerations (PPT 13.18 thru 13.22)

Adequate Size
External Appearance
Conformity with The American With Disabilities Act
Building Interiors
Lights and Fixtures


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.

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


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


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


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.


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.

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:
Beauty Shop:
Jewelry Store:


Consider access to raw materials, suppliers, labor, transportation,

and customers.
Consider access to customers, but realize that
lower-rent properties are a viable option.
Consider your business's access to customers.

What intangible factors might enter into the entrepreneurs 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


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.


What is the trade area? What determines a small retailers 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.


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.


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.


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


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.

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.


What function does a small firms sign serve? What are the characteristics of an effective business
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.


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.


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.


Explain the statement: Not every portion of a small stores 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.


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.


Summarize the advantages and disadvantages of building, buying and leasing a building.
Decision to Build
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
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
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
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
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.

How can retailers use scents to make their stores more appealing to customers?
How can offices and manufacturing operations use scents to enhance their employees' work
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.
"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.