Where to start your retail business is an age old question that entrepreneurs struggle with. You’ve heard it before the most important thing when starting a business is location, location, location. This is a practical guide for figuring out where to start your business for free. We will go over each step in putting together an analysis of locations based on your market segments.
Psychographics vs. Demographics
Psychographics are a more sophisticated method of segmenting your target audience. Traditionally, demographics were used in order to segment customers. This meant using factors like age, gender, race and income. However, there are more to people than just their income. People have different values, beliefs and customs that affect their willingness to buy and maximum willingness to pay. Nielsen (the company that does T.V ratings) has developed 66 types of psychographic profiles that better represent the lifestyles and consumer behavior of real people.
I will introduce two methods for finding where to start your retail business. But first, i made a really great template to do all of this. I simply ask that you sign up to get email updates of only the best posts like this one.
Method 1: Nielsen Data
Nielsen provides some of their geographic segment info for free and we will use this in order to get insight into where certain segments are located. Nielsen also sells the complete tool for something like $5,000-$10,000.
Step 1: Score your Psychographic Segments
- Go to the Prism Segment Look-up
- Read each of the 67 segments and their descriptions.
- Give a score of 1-10 on the excel template (or just on a spreadsheet). This score should be based on the likelihood of this “type” of person converting (buying something, usually)
Step 2: Narrow your Geographic Focus
- Use google to find the zip codes of all of the areas that you would like to consider.
Step 3: Look Up Zip Codes
- Use the Prism Zip Code Look-up to look up the zip codes that you are considering.
- Enter the segment numbers into the template (or your own spreadsheet)
- See the results add up and find the highest scoring zip codes
Step 4: Add demographic and geographic data
- You can perform further demographic research using google, wikipedia, census data and other online sources.
- I have given 5 metrics on the template as a good starting point for further research.
- They are
- Total population
- Density/square mile
- % below the poverty line
- median household income
- median age
Step 5: Look at costs
Look for lease and rental rates in your best areas to find the location that provides the most value for how targeted your target audience is. Be sure to consider how far people generally travel to get what it is that you offer.
You should have a comprehensive analysis of the best zip codes to start your business. However, this analysis is based on the assumption that the 5 segments given to you are equal when they really are not. This is a weakness of this method but it is just about the most accurate method you can get for free.
Method 2: Relative Retail Placement
Many successful retailers use this strategy and it is a way to tap into underlying market research and take advantage of new developing communities. Starbucks obviously has some killer resources at their disposal but you don’t need to be a genius to know that a starbucks would do well near a Target store. Doing this allows you to tap into the research that another company has done. Pay particular attention to new store openings! What is the retailer that compliments your business? where are THEY located? Go there!
In looking for resources here I tried to choose the most conceptual books possible (these books will not teach you how to code).
