What’s it: A market location is where the company sells its products. Choosing the right one is important as it affects sales and profits, and the resources consumed. Also, each location has inherent advantages and risks.
Types of market location
We can divide the market into four categories based on customer reach. They are:
- Local market
- Regional market
- National market
- International market
Some household businesses often rely on selling products to consumers around where the business is located. Examples are bicycle repair shops and hairdressers.
Small businesses in the local market benefit from in-depth knowledge of their customer base. The consumption of resources is relatively low, although, at the same time, the profit potential is also low.
The regional market is broader than the local market. It may cover an area of a county, city, or province. Due to a broader reach and a more significant number of customers, businesses can generate more sales than the local market.
Success in the regional market may prompt expansion to other regions and across national markets. Good examples include restaurants, retailers, and banking. They rely on established resources to serve customers in other regions.
Competition in the national market is more intense than in the two previous markets. Competitors may come from domestic companies and foreign companies that operate in the domestic market. Also, pressure came from imported products.
Next, the international market offers the most significant sales potential. Companies can market their products to various countries, either through exports or by establishing subsidiaries abroad. Foreign markets have different market sizes and market growth prospects between countries.
Apart from that, the international market is also more complicated. Companies must adapt their marketing strategies to respond to different tastes, cultures, and laws in different countries. Also, competition does not only come from domestic competitors in the destination country, but also from companies from other countries. That, of course, consumes more resources.
Why is market location important
Two reasons market location is important.
First, it affects sales potential and business profits. The greater the number of potential customers like in the international market, the greater the company’s chance to generate high volume sales.
Second, location determines the resources consumed. The international market does have a large potential market size, but it requires more significant resources. Therefore, businesses should consider the potential profits and the resources they have in designing the right strategy.
Small businesses may use a direct export strategy rather than a direct investment to market products to foreign markets. They try to get more sales by minimizing resource consumption.
Meanwhile, multinational companies may choose a direct investment strategy. They try to exploit the advantages in the destination country, such as low wages and proximity to raw materials, to support their international strategy.
Factors to consider when choosing a market location
Factors to consider for choosing the right market location include:
- Resources owned
- Distribution network
- Potential growth in market size
- Social demographics
- Macroenvironment factors
First, resources. Businesses must make sure they choose the right market according to their resources. Consumption of resources affects the cost to market products effectively and competitively. When more expenses are consumed, revenue may only be a loss.
Second, distribution. Companies need to develop an effective distribution to bring their goods to customer locations, whether regional, national, or international. Local transportation networks, logistics costs, number of distributors or retailers are factors to consider.
Effective distribution is important because it ensures consumers can buy products easily, at the right location, and at the right time. A great product at an affordable price is useless if customers can’t buy it when they need it.
Availability affects sales. If the product is widely available, it is easy for customers to find the product when they need it. So, if the product is widely available, then it will likely sell well.
Third, competition. Consumption of resources is also related to the implementation of competitive strategies. The number of competitors is usually positively correlated with the level of market reach.
Businesses in local markets may face less competition. And the size of the competitors is also usually relatively similar. On the other hand, in international or national markets, the competition involves companies worldwide, which may be more established and have more resources.
Fourth, growth potential. This affects the profit and returns on investment. Investing resources in a mature market is futile. Market growth has slowed and is likely to go into a downward stage. Finally, the company may not be able to generate enough cash flow to cover its investment.
Fifth, social demography. Expansion overseas is more complicated because companies have to serve a variety of consumer needs. Differences in culture and lifestyle affect consumer tastes in each country. That, of course, requires a different marketing strategy.
Some companies may adopt standards to market their products to other countries. They develop a global standard and sell it to various countries. Smartphones and computers are good examples.
While others adopt a glocalization strategy. It involves modification and adaptation of products to local tastes. Fast food companies, such as McDonald’s and KFC, are examples. They adapt their menu to local tastes in each country.
Sixth, macroenvironment factors. It deals with variables such as the economy, politics, and regulation. Some countries may impose trade barriers such as tariffs, volumes, and local requirements. It increases costs when entering international markets. Furthermore, economic factors such as exchange rates also impact prices, costs, and profits in the destination market.