Proximity to the market, labour, materials and competitors

Proximity to the market

The term market refers to a business’ customers and consumers. For businesses such as takeaways, corner shops, clothes shops, pop-up food businesses and hairdressers, being close to their market is extremely important. If these businesses were not close to their market, they would miss out on sales as they would not be easily accessible to their target market.

For other businesses, such as online design businesses, clothing manufacturers and car manufacturers, being close to their market isn’t an important factor. This is because online companies and car manufacturers are able to sell their products anywhere and they can usually deliver to the customer’s house or a local car dealership.

Proximity to labour

The term labour refers to people whom a business employs or would potentially want to employ. For most companies, it is important to be close to high-quality labour or to be located in an area to which employees are willing to travel.

Businesses need to make sure they are located in an area that has people with skills relevant to the job role. In general, for roles with a low requirement for skills, a business would just need to be located near any populated area to ensure it can hire employees. For roles that require a high level of skill, such as a design engineer, computer scientist or solicitor, businesses may need to be located close to big cities, university towns or other areas that attract more highly-skilled people.

Proximity to materials

For some products, being close to the raw materials is extremely important for saving money. For other products, it often makes more sense to be located close to the market and transport the raw materials further.

For bulk-gaining products, where the product is larger than the raw materials used to produce it (eg a bike), it makes sense for a business to be located near its market so that it doesn’t have to transport the finished product very far. In this situation, the raw materials are cheaper to transport than the final finished item.

For bulk-reducing products, where the product is smaller than the raw materials used to produce it (eg bottles of smoothie), it makes sense for a business to be located close to the raw materials. In this situation, transporting bottles of smoothie is more convenient than transporting all of the individual raw materials. Therefore, being located close to its raw materials allows a business using bulk-reducing products to save on transportation costs.

Proximity to competitors

Many businesses like to be located far away from their competitors so that they have access to more customers without having to fight off competition. For businesses such as petrol stations, corner shops and barber shops, this works extremely well. These types of business like to be far away from competitors because customers are only likely to visit one of that type of business, often the one closest to their home or in the most convenient location.

For other businesses, being close to their competitors can be important to help them succeed. Examples are car dealerships and clothing shops, which are often found in close proximity to one another. These types of business are happy to be located close to their competition because customers are likely to shop around when purchasing a car or item of clothing. Being close to competition means these businesses are more likely to be considered by people making a purchase. Being far away from each other could limit sales for such businesses.