Whether you are preparing to enter new markets or evaluating the infill potential of existing markets, you need to understand the total opportunity that the market offers your unique retail or restaurant brand in order to optimize your investments.
Most business professionals are familiar with the concept of a market opportunity analysis. But what does this analysis look like in a real estate context? How can customer analytics be used to conduct the analysis? And how can you turn the insights from the analysis into an actionable real estate strategy?
We’ll explore those questions in this blog post.
Market Opportunity Analysis in Real Estate
The goal of a market opportunity analysis is to identify the potential for a brand or product in a specific market.
In a real estate context, the goal of a market opportunity analysis is to identify how many brick and mortar locations the market can realistically support. That information is used to align investment with business potential.
Market Opportunity Analysis Techniques: Using Customer Analytics
If your goal is to determine how many locations a market can support, where do you start? You could use rough calculations of market demand and competition to estimate potential, but there are less manual – and more precise – techniques that draw on customer analytics.
Here’s how it works:
- Your analytics department or consultant will define your customer profile – the types of consumers who make up your core customer base. That profile is combined with other factors that drive your unit performance, such as presence of competition, cotenants, and area draw factors, to create a site scoring model.
- Next, you decide the minimum required performance threshold for each new unit and the maximum allowed cannibalization percentage. These thresholds are entered into an algorithm that uses the site scoring model to assess every possible combination of sites in a market to determine the best combination that meets your criteria. This process is often referred to as a market potential analysis.
- The output of the market potential analysis is a count of how many trade areas the market can support and the locations of the recommended trade areas within the market. In some cases, you may decide to take the analysis a step further by narrowing down the results to specific addresses.
Applications of Market Opportunity Analysis
An analysis is only useful if it is applied. Here’s how to use the results of your market opportunity analysis to guide your real estate strategy.
Compare Markets to Determine Which One to Enter First
Compare the results of two different market analyses conducted using the same performance thresholds to identify which market presents the greatest opportunity. Use this information combined with supply chain considerations, cost of real estate, and level of brand awareness to determine which market to enter first.
Improve the Efficiency of Your Real Estate Search
Not all sites are created equal, and to maximize a market you need to space your units appropriately. Rather than wasting time evaluating the wrong sites, improve the efficiency of your real estate search by giving your site selection team the list of recommended trade areas from the market opportunity analysis.
The Bottom Line
Using customer analytics to conduct a market opportunity analysis can improve the efficiency and effectiveness of your market planning process.
Want to know more? Check out our retail solutions to learn how else your organization can use consumer intelligence to grow.