Write down the steps needed to determine the localization coefficient under Sargant-Florence theory location planning.
Write the procedure to calculate co-efficient of localization under Sargant Florence theory location planning?
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Write down the steps needed to determine the localization coefficient under Sargant-Florence theory location planning.
The Sargant-Florence Theory of location planning focuses on determining the optimal location for a new facility based on factors such as transportation costs, market demand, and competition. The coefficient of localization is a key metric used in this theory to assess the concentration of demand and competition in a given area. Here's the procedure to calculate the coefficient of localization:
Define the Study Area: Determine the geographical region or market area under consideration for the location planning analysis. This could be a city, region, or specific trade area depending on the scope of the study.
Identify Competitors: Identify all existing competitors or similar facilities operating within the study area. This includes businesses offering similar products or services that would compete with the proposed facility.
Collect Market Data: Gather relevant market data such as population demographics, consumer preferences, purchasing power, and market demand for the products or services offered by the facility. This data helps quantify the potential market size and demand within the study area.
Calculate Market Concentration: Calculate the market concentration ratio by dividing the total market share of all competitors by the total market demand within the study area. The market share of each competitor is typically expressed as a percentage of total market demand.
Determine Coefficient of Localization: The coefficient of localization represents the degree of market concentration or localization within the study area. It is calculated by subtracting the market concentration ratio from 1. The formula for calculating the coefficient of localization is:
Coefficient of Localization = 1 – Market Concentration Ratio
Interpretation: The coefficient of localization ranges from 0 to 1, with higher values indicating a higher degree of market concentration or localization. A coefficient of localization close to 1 suggests a highly concentrated market with strong competition, while a value closer to 0 indicates a more dispersed market with less competition.
Decision Making: Use the coefficient of localization, along with other factors such as transportation costs, market growth potential, and regulatory considerations, to make informed decisions about the optimal location for the new facility. A higher coefficient of localization may favor locations with higher market demand and concentration, while lower coefficients may indicate opportunities in less competitive markets.
By following this procedure to calculate the coefficient of localization, businesses can assess market dynamics and competition levels to make strategic decisions about facility location planning within the framework of the Sargant-Florence Theory.