By Janet Tooke, VP Strategy Group, and Nancy Wheeler, Strategic Consultant
In Part 1 of our series on Market Ranking for Expansion, we explored the first three steps: defining objectives and constraints, selecting markets to be ranked and identifying variables. Now, let’s take a look at the final steps.
Your Market Ranking Process: Continued
4. Compile Variable Data
Depending on the variables you’ve identified to meet your defined objective, you will need to find a data source for each market selected. Kalibrate has Market Study data — including competitor brand counts, volumes and attribute information with more than 70 variables for each site. This data can be compiled at the brand level to establish the competitive landscape, or compiled for the top market share leaders to assess any barriers to market entry; this will all depend on the overall objective of the market ranking analysis.
In addition to site and brand attributes in the markets, you may need to acquire other data sources for variables, such as margin information and key demographic variables, like population growth, income, housing density, number of motor vehicles, GDP growth, etc. Demographic data can be acquired at the market or state level, and can include projections such as five-year projected expenditure data for fuel or c-store or five-year projected household growth. Further variables often include: risks, such as political instability; legislative constraints, such as lengthy local authority approvals; levels of corruption; and distance to market.
5. Determine Variable Weights
Once the variable data has been compiled for each market to be ranked, some variables identified will be more important than others when used for prioritizing markets and, therefore, should be weighted differently.
- The weight calculation process is conducted through a combination of statistical analysis techniques, including correlation and regression analysis
- This process allows elimination of variables that are found to not be statistically significant
When determining cause and effect, some variables may appear as drivers that are non-obvious, but are impacted by a combination of other more logical variables.
Once the weights have been established on the key drivers and standardized (which allows the variable to be turned into a common set of units for analysis), you can begin to move into prioritization. (Note, too, that these weights will be a combination of both positive and negative weights.)
6. Prioritize Markets
With access to a strong ranking algorithm, you can combine these standardized variables with the determined weights to produce an index and rank for each market based on their attractiveness from best to worst. Once markets are ranked, they can then be segmented into quartiles (determined by the index score each market receives in the ranking). Here is a sample ranking graph:
Reviewing the ranked markets in quartiles helps you 'visually' understand where each of the markets fall. For example, if large metro markets fall into the top quartile (perhaps due to the size of the market), you may actually find these to be more challenging markets in which to obtain brand awareness. In that case, you may instead choose to move onto the second quartile markets to review for expansion or entry opportunities.
While reviewing the ranked markets, it is also important to understand why certain markets ranked in the top quartile. Understanding the strongest positive-weighted variables vs. the strongest-negative weighted variables will help understand why markets ranked where they ranked. Once you have determined which markets will meet your overall objective, markets can then be compared — variable vs. variable — for further understanding and market selection.
The Benefits of Standardizing the Market Ranking Process
Undertaking the systematic, statistically-based ranking process described above removes guesswork and personal bias from the process. You can more readily pinpoint the best markets to focus on in order to achieve your objectives and gain support for your decisions, based on sound logic and reliable data. Prioritizing markets based on their fit with the company’s strategic objectives allows ‘best in class’ operators to focus their resources — both capital and operational — in the most effective and profitable way.
Moreover, removing unattractive markets from the investment decision-making process allows for a more concentrated, incisive and goal-orientated approach to doing business. It provides strategic clarity and drive that can be embraced by your entire company.