Finishing Line

Strategy - Stay on Top of Changes in the Market

By Robert Roman

10/01/14

What can lead to a slow and steady, or sudden and unexpected, loss of business that is not weather-related?

Experience shows this may involve competition such as a new entrant or actions taken by going concerns; it could be economic such as a change in unemployment or consumer prices or change in the demand inherent in a stream of traffic.

Like most location problems, better decisions and profitability come first from insight and understanding the competition and customer needs and wants.

For example, early on in the planning phase of a start-up business, certain assumptions have to be made to reduce uncertainty in the venture when solving the location problem of site selection.

However, if the business fails to deliver projections or volumes decline and the business cannot be described as a statement of risk, more than assumptions are needed to attract new customers or leverage existing ones.

So, it is best to begin by examining existing customers. Here, a customer loyalty program is invaluable for this purpose as is taking customer surveys. This information can be used to create a profile of customers. To illustrate, we examine XYZ car wash.

XYZ is located in the Southeast. Following a history of success, the company’s sales revenue declined materially and the owner faced the prospect of a new entrant.

One of the objectives of solving location problems is to define the size and shape of boundaries that would contain the majority of customers for a business.

For example, the trading area for c-stores, gas stations, and support services including car washing is about a 3-mile radius from the site. Beyond this distance, consumers are less likely to come to market because of the economic distance involved.

Knowing the distance customers drive or their travel time is useful for determining the market range of the business. For example, travel time for 70 percent of XYZ’s customers is 10 minutes or less whereas the benchmark is 40 percent.

The implications of this depend on targeted market. For example, if XYZ’s paid advertising doesn’t provide coverage to the extent of the market range boundaries, it suggests unmet demand is within grasp of the business.

Knowing demographics helps identify what appeals to customers. For example, 80 percent of XYZ’s customers are between 18 and 44 years old (millennial and gen-x) and only 5 percent are 60 years old and older (boomers and seniors). However, 70 percent of both these age groups have annual incomes of between $35,000 and $75,000.

The implications of this also depend on market. For example, in XYZ’s trade area, people 65 years old and older make up 30 percent of the population. So, why aren’t these people buying — price too high, too few services, lack of brand awareness, failure to communicate?

Likewise, it helps to know the index for products and services. For example, 70 percent of XYZ’s customers wash their cars at least twice a month, less than 50 percent vacuum more than once a week and less than 30 percent wax their vehicle more than once a year.

The implication of this is that targeting different segments and offering new or improved products and services may unlock market potential from the acquisition of new customers.

Knowing the functional classification of roads help indentify who is in the traffic as compared to who is at the car wash. For instance, freeways and most major arterials are not good locations for a car wash because these roads are design for efficient and effective movement of people and goods from point A to point B.

Instead, demand for car washing is greatest along minor arterial and major collector roads. These roads are designed to carry the majority of shoppers, personal trips, fleet traffic, and local commuters who are more inclined to stop.

The implication of this is that it is possible for a new entrant, migration of businesses, or new road construction to have a significant and lasting impact on traffic patterns and demand in the stream of traffic.

Consequently, car wash owners who conduct surveys and analyze sales trends are in the best position to align the product and service mix to best fit changes in local market demand.

  

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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