When a company is looking for new customers, its executives have two basic choices: Find new prospects within the existing footprint or forge a path into new markets. The latter is often more daunting, since deciding which markets to enter is fraught with risk. Executives of an earlier generation used to make these decisions with a greater margin for error. But profits are thinner now, and the competition both bolder and faster. As a result, market intelligence must be ever more precise.
Companies are now using new forms of data and analysis—and, in some cases, artificial intelligence (AI)—to bolster confidence as they enter new markets. Retailers, banks, restaurants, and consumer packaged goods companies are analyzing location-specific data to get a detailed read on each new market. These businesses are gauging how a market’s demographics, psychographics, and economic trends complement their mission.
Selecting a new market based on location intelligence is a form of data-driven decision-making. Gartner research vice president Mike Rollings recently wrote about the need for data and analytics to take center stage in the digital age, as opposed to playing a supporting role. Forrester weighed in as well, saying companies that leverage data-driven decisions to uncover competitive advantage grow an average of more than 30 percent annually.
Leading companies that face the all-important question of where to go next are using location intelligence to vet potential markets. The primary engine of that intelligence is a planning tool called a geographic information system (GIS), which maps the location of—and relationships between—consumer trends, spending patterns, and other data in potential markets. The upshot: these global executives are basing decisions on insights-driven data rather than supposition.
Improving the Odds of Market Success
Traditionally, a retailer might plan to move into three new markets knowing that one might thrive, the second might perform adequately, and the third could fail. Today, every business that wants to grow needs to be much more precise. Making the wrong choice carries a double penalty—the investment lost due to entering the wrong market and the opportunity cost of not choosing the right market.
Savvy executives are using data analytics to remove guesswork, with tools such as GIS that steer them to markets most likely to favor success. According to the Harvard Business Review, GIS-powered mapping allows analysis of information from a wide variety of public and private sources—including demographic data and physical markers such as post offices, banks, schools, and hospitals—layered with data on values, attitudes, and behavior of different groups. Taken together, this granular information forms a reliable vision of opportunity, giving executives confidence to execute growth plans.
OXXO’s Formula for Expansion Success
Mexican convenience store chain OXXO is using GIS technology to propel its remarkable growth plans. The chain now has 18,000 stores and opens 1,300 to 1,400 new ones on its home turf every year. OXXO plans to nearly double its store count in the years ahead, according to Enrique Espinosa, an expansion manager at the company. To reach that growth target, OXXO is setting its sights on untapped South American markets in Peru, Chile, and Colombia.
The company’s challenge is to understand local needs and business conditions in these three countries where it has never done business. Though there are many similarities between Mexico and the new markets, there are also major differences.
“People are people here in Mexico or in Chile, so we both eat at certain times and leave work at about the same times,” Espinosa says. When someone is on his way back home, for example, OXXO has the opportunity to provide whatever he needs at the moment, whether that be a quick snack on the way to an evening activity or final items on the list for tonight’s dinner. OXXO stores come in three varieties—small convenience stores for on-the-go purchases, larger outlets akin to grocery stores, and locations that combine both formats. All stores handle financial transactions such as bill payments, money transfers, and replenishment of calling cards.
When expanding to its South American target countries, OXXO will have to adjust its approach. For instance, the company will not be able to use “mirror” stores, a common technique for plotting new locations in Mexico. With the mirror technique, OXXO identifies traits associated with successful stores—including demographics of local people and traffic flows. GIS then reveals locations that mirror those characteristics in other geographies. In new target markets, however, there are no existing stores to mirror.
That means the team needs other forms of location intelligence to build its confidence. GIS acts as the engine of that insight, empowering the team to map population densities, traffic patterns, the rate of local car ownership, and shifts in demographics in the new markets. GIS will also help them identify what Espinosa calls “generators of activity” such as banks, schools, and malls.
With that location intelligence, OXXO executives will find the confidence they need to make significant investments in growth.
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Spotting Potential and Driving Success
Some companies are going beyond assessing existing conditions in markets they plan to enter. They are predicting how those conditions will change and how the company can harness—even drive—those changes in certain locations. Case in point: A major global brewing company is expanding from distributing its product to retailers and restaurants to operating its own brew pubs in several major cities in multiple countries. It needs local insight to gain confidence that it has the right strategy for each local market it will enter.
The brewing company is betting its brand is strong enough to go into a community that’s not necessarily a hot spot and actually make it trendy in a few years. That’s not bluster; it’s confidence derived from location intelligence. Using GIS, the company can see the popularity of craft beers within specific neighborhoods. Its planners can examine nighttime human movement patterns, along with demographics and data from other area eateries. They can also create projections for candidate locations that reveal how the local population is expected to grow, how income and demographics will shift, and what to expect in terms of food and beverage spending.
With that data, they can sketch out the neighborhood’s earning potential near term and beyond. Based on what the GIS maps tell them, company executives are realizing where they should put new stakes in the ground.
Before investing in a new market, companies must understand potential customers and whether emerging demographic trends will sustain the business long term.
Gaining the Competitive Edge: How It Could Work
Beyond retail and restaurants, leaders in many other industries can boost confidence in growth plans with better location intelligence. Consider the hypothetical example of a solar panel distributor. After being fed satellite images of a prospective market, an AI-powered system could use image extraction and detection to classify how many rooftops it sees, how many of those face south, and whether each rooftop works well for solar panels. GIS can plot that analysis on a map, revealing areas of low, medium and high market potential. The system could then cross-reference those findings with an analysis of demographics in that market—including household income and spending habits.
That data alone would provide a helpful starting point for the solar company, but it would not have to stop there. When deciding which markets to invest in, executives could take into account other factors revealed by GIS, including, for example, the presence of young residents who tend to buy “green” products, pegging them as more environmentally minded than the general public. Another important variable: Areas where there’s a high cost of energy. Mapping these different considerations might reveal a shortlist of potential sites, including those with a smaller population but higher overall potential.
The solar panel company could also compare its cost of service in different locations. This would include predicting what services, resources, and relationships with energy companies it would need to fulfill its obligation to customers. The promise is the ability to take all these variables and turn them into location intelligence. This knowledge could prove a powerful differentiator, giving the company a more reliable investment outlook as well as agility in a fast-paced environment.
As the Harvard Business Review underscores, the era of cost-cutting has given way to recognition that growing a business is the only way to truly thrive. At the same time, companies can no longer afford to experiment with expansion plans. The days of selecting a new market based on assumptions and gut feeling are over. Advanced organizations are using GIS-powered location intelligence and AI to strengthen confidence in growth plans, analyzing a wide array of data sources to pinpoint locations that embody that elusive formula for success.