In order to find the best location for their company, entrepreneurs carry out what is known as a location analysis.
You can find out exactly what a location analysis is and how it works here.
Site Analysis – Definition
One location analysis is the calculation, research and evaluation of various location factors. It helps to choose a suitable location for a company.
The location analysis found its origin in the so-called Thünen model, which was created by Johann Heinrich von Thünen as early as 1826.
Later, Alfred Weber also dealt with the importance of locations in the economy and developed the Weber location theory, the basis for today’s location analysis.
Location – definition
In economic geography, the term denotes Location the geographic location where a company is located.
The right location has a great influence on the success of a company and is therefore carefully selected with the help of a location analysis.
Depending on the industry, company size and organizational structure, a certain location is well suited to different companies.
In economic geography, when defining the location, between the terms macro and micro location distinguished.
macro location
as macro location refers to locations in a supra-regional context.
Large areas with almost or completely the same location factors are in a supra-regional context. This can relate to the political situation, legislation on taxes and subsidies, the economic situation or labor law.
These location factors are often the same in parts of a continent, such as South-East Asia, in groups of states, in individual states or in regions within a state. These areas are therefore referred to as macro-locations.
An example of a macro location is the group of states European Union.
In the EU, there are certain requirements and laws in all member states that must be observed, such as the democratic system of government.
As a result, many location factors are the same in all EU member states. The economic situation, for example, is similar due to the common currency union and employee laws are regulated in the same way across the EU.
micro location
as micro location refers to locations in a regional context.
In the regional context, there are regions in the immediate vicinity. This can be a city, a single district or a street in the neighborhood.
Even at micro-locations, the location factors are usually completely the same. Examples of this are the property and rental prices, customer proximity, transport links or the fixed costs for electricity, water and waste disposal.
An example of a micro-site is this Altstadt-Lehel district in Munich.
The district is very centrally located in the city, but is relatively small in terms of area at around 3 km2.
The transport connection, for example, is the same throughout the district and is therefore a location factor for the entire district.
The very high rental prices and limited real estate are also the same in the old town.
Location Analysis – Factors
The factors that a location analysis considers and evaluates are so-called location factors.
location factors are characteristics of a place or a region that determine the attractiveness and quality of this place for companies.
The location for a business can be evaluated using the location factors. They are the evaluation criteria on which a location analysis is based and are therefore the essential core of the analysis.
Location factors are divided into two categories for differentiation – the hard and soft location factors.
Another subdivision is the division into quantitative and qualitative location factors. This corresponds to the division into hard and soft factors, which is why the terms hard and quantitative as well as soft and qualitative can be equated.
Hardness respectively quantitative location factors are properties of a region that can be calculated exactly.
They are particularly important for long-term corporate planning.
An example of a hard location factor is the level of rental prices for office or production buildings in a location.
soft respectively qualitative location factors are properties of a region whose value depends on a subjective assessment.
These factors are mainly relevant for a company’s competition and employee satisfaction.
An example of a soft location factor is the range of educational opportunities at a location.
You can find more details on hard and soft location factors and other examples in the additional summary on the topic.
Conduct a site analysis
A company usually carries out a location analysis in its start-up phase in order to find the best location. But a location analysis can also be of great benefit when a company is expanding or relocating.
Depending on the type and goal of the company, those responsible take a slightly different approach, because not every location is equally suitable for every company.
the most common method for such a location analysis the utility analysis. This is done through systematic weighting and scoring in the positive range individual location factors of the various possible locations determines the best location.
Also the so-called profile method is a systematic scoring system and is often used in a location analysis. Here, too, the location factors are weighted and scored. The only difference to the benefit analysis is that the profile method not only evaluates in the positive range, i.e. between 1 and 10, for example, but also in the negative range of numbers, i.e. from -5 to 5, for example.
Site analysis step by step
A company usually has one first macro site analysis through to decide on a suitable large room. After the macro-location analysis, a number of locations within this metropolitan area are then identified micro site analysis carried out. The final choice is then made from the micro-locations.
The process of the location analysis is structured in the same way in both cases and consists of five central steps:
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List of relevant location factorsIn the first step, the company lists all location factors that are relevant for the current choice of location. This differs greatly depending on the company.
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Establishing a ranking of the location factorsIn the second step, the selected location factors are ranked in order to be able to weight them later. Because not every location factor is equally important when looking for a new location.
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Selection of several possible locationsA location analysis is used to compare several locations in order to find the most suitable one. Therefore, in the third step, several options are defined, which are then analyzed in more detail.
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Analysis and evaluation of the relevant location factors at the possible locationsIn step four, the basis for comparing the different locations is created. For this purpose, all relevant location factors, which were listed at the beginning, are calculated and examined at all these locations. The individual factors are then rated with points, depending on how much they apply at a location. The higher the score, the better they are fulfilled.
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Comparing the locations by cost-benefit analysis or profile methodThe fifth step is the core of the site analysis. First, the individual location factors are weighted with points using an evaluation system. The higher the number, the more important the location factor.If you now calculate the total score for each individual location by multiplying the weight by the rating, you get a ranking of the locations according to their suitability. The location with the most points is considered the best and most suitable business location.
Location analysis – example
So that you can better imagine the implementation of a location analysis and can understand the individual steps, you will find an example of a location analysis for a small private bakery here.
The macro location analysis is not carried out in this example, since only a small town can be used as a location for the bakery. The small town is thus the macro location within which one of two possible micro locations must now be selected. So the example is a micro site analysis.
1. List of relevant location factors
For the micro-location of a small, stand-alone bakery in a small town, factors that are the same across the city, such as electricity costs, are irrelevant.
Important location factors that have to be considered here are the catchment area of potential customers, the frequency of walk-in customers, the proximity to competitors, the premises and the rental price for the shop.
2. Establishing a ranking of the location factors
The most important thing for the new bakery is the rental price. A new company usually makes little profit at first, which is why the rental costs should not be too high.
Walk-in customers are also very essential for a bakery, since spontaneous purchases account for the largest share of bakery sales. This puts it in second place in the ranking, just behind rental prices.
The premises are also very important. The size plays less of a role, but the owners of the bakery cannot afford renovation and need a ready-to-move shop.
Proximity to the competition should also be considered, but not as important as the top three places. If, for example, two bakeries are on the same street, this means a small loss of customers, but the success of the bakery is not threatened existentially.
The catchment area of potential customers comes last in this ranking. Although regular customers are important for sales, they only make up a small part of the income.
3. Selection of several possible locations
Within the small town, several locations must now be selected that are suitable as locations for a bakery.
The first option would be a cozy but somewhat refurbished store in a residential area. A particularly large number of families and senior citizens live in the neighborhood. There are no other shops.
The second option would also be a small, fully developed shop on the town square in the heart of the small town. On the town square and in the surrounding streets there are many shops and a weekly market, in addition to other restaurants, cafés and bakeries.
4. Analysis and evaluation of the relevant location factors at the possible locations
In this example, the location factors are evaluated with points from 1 to 5. The higher the number, the more the location factor is fulfilled. You can see the exact scoring in the table below.
In the residential area, the catchment area, the proximity to the competition and the rental prices are…