CASE: Selecting Retail Outlets Using Huff Location Model
Consider the following retail market information.
- Competitors: Store A (size = 20K SF) and Store B (size = 30K SF)
- Potential store sites: X, Y and Z
- Maximum store size at each site: X ≤ 20K SF, Y ≤ 30K SF, Z ≤ 40K SF
- There are 10 customer areas. Number of Households (Ci) and Average Annual Budget per Household (Bi) are given below:
|
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Ci
|
672
|
1,072
|
977
|
577
|
102
|
47
|
67
|
412
|
247
|
1,697
|
|
Bi
|
$233
|
$178
|
$333
|
$403
|
$128
|
$103
|
$113
|
$168
|
$143
|
$318
|
- The minimum travel times from various sites to customer areas are given as follows:
|
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
A
|
20
|
18
|
18
|
20
|
17
|
12
|
11
|
10
|
8
|
7
|
|
B
|
16
|
14
|
14
|
16
|
13
|
9
|
8
|
7
|
6
|
7
|
|
X
|
12
|
10
|
10
|
12
|
9
|
7
|
6
|
9
|
8
|
13
|
|
Y
|
14
|
12
|
12
|
14
|
11
|
7
|
7
|
6
|
5
|
8
|
|
Z
|
11
|
9
|
9
|
13
|
5
|
7
|
8
|
9
|
11
|
14
|
- The net operating profit margins are estimated as follows based on store size:
|
SIZE
|
Margin of Total Revenue
|
|
20K SF
|
4.25%
|
|
30K SF
|
3.75%
|
|
40K SF
|
3.00%
|
Assignments:
1) Use λ=2 in the Huff location model to evaluate the following possible site/size options, one at a time, for the new retail store.
a) X,20K
b) Y,20K
c) Y,30K
d) Z,20K
e) Z,30K
f) Z,40K
Assume we can only choose from one of the site/size options from a) to f) above, which store site/size option will yield the maximum profit? Which store site/size option will yield the maximum market share?
2) Redo the evaluations in 1) above with λ=4 in the Huff location model. Again, if we can only choose from one of the site/size options from
a) to f) above, which store site/size option will yield the maximum profit? Which store site/size option will yield the maximum market share?