As the sun blazes across the afternoon sky and begins to disappear over the horizon, the distant sounds of lawnmowers, power tools, and playing children fade away, drawing an end to another peaceful and relaxing day in Langdon. While settling in for a quiet evening, you realize that you need some good or commodity vital for completing a project, a meal, or getting ready for the following day. It is at this point that one realizes the benefits and drawbacks of living in a small community.
To purchase the required good or commodity, your choices include traveling 29 km to South Trail Crossing (MacKenzie Towne – SE Calgary), 27 km to Deerfoot Meadows (Heritage Dr. – SE Calgary), 31 km to Sunridge Mall (Sunridge – NE Calgary), 27 km to Strathmore, or 20 km to Chestermere. Each of these shopping districts is no more than a 15 to 20-minute drive by car, or you could choose to save time and travel less by shopping locally. Your decision depends upon a number of things, such as the availability of the good or commodity you wish to buy, the price the local business is selling that good or commodity, and the time and travel cost you will incur to purchase that good or commodity.
Availability: Simply put, does a local business supply the particular good or commodity that you wish to purchase (or a close substitute for that good or commodity). In addition, is that local business open when you need it to be? If not, then you must incur additional costs (travel costs and travel time) to purchase your good or commodity. Even if the local business only supplies one of the required items you need, you will still be required to incur travel time and costs to buy the additional items. In this situation, it is much more efficient and convenient to travel to a business that can supply all the goods or commodities you want rather than making multiple stops.
Price: Simple economics focuses on the price of a good or commodity and states that a consumer will buy that good or commodity from the business that offers the lowest price. While this is generally true, it is important to keep in mind even if local prices are slightly higher than prices being offered by further away businesses, and the price differential may be insignificant to the consumer once travel time and costs are calculated. However, if local prices are significantly higher than prices offered from further away businesses, the consumer will choose to purchase from the business that offers the good or commodity at a lower price, regardless of their time and travel costs.
Along with the price differential, the time, and travel costs, a consumer also considers customer service, product quality, and product selection. If the consumer experiences poor customer service, poor product quality, or poor selection, regardless of the price differential and the time and travel costs, they will purchase elsewhere.
Time and Travel Costs: Generally speaking, a consumer will continue to shop where they find the most availability, lowest price, good service, good quality, and good selection. Gone are the days when time and travel costs play a significant role in consumers purchasing decisions. Point-and-click shopping, cross-border shopping, and on-demand delivery all demonstrate that consumers are more particular and are willing to invest time and travel costs if it means they get a better experience. Most consumers have changed their purchasing patterns, and traveling to other business centres or having a delivery made to their location is no longer an issue. In fact, if a consumer finds an acceptable level of availability, price, customer service, product quality, and product selection, then they will continue to purchase goods and services from the location despite closer alternatives.
When any new business opens and offers goods locally, the local population will test that new business for those qualities and will quickly rate the business based on its product availability, price, customer service, quality, and selection. The consumer will then decide whether or not to return to that business again. If the consumer has a negative experience, they will relay their experience to others, causing a loss in customers or potential customers in an already small populated market. On the other hand, if the consumer has a positive experience, this will lead to an increase in customers or potential customers.
Why are there not more businesses in Langdon? Why do some businesses in Langdon succeed and others do not? How does Langdon get more business? The standard answer is usually “Langdon needs more people or local people just need to shop local rather than elsewhere.” Unfortunately, this answer is far too rudimentary to qualify as a full and sufficient answer. Granted, an increase in population may be positively correlated to more businesses being opened, but it does not provide a good understanding as to why some will succeed and others will not. While there are numerous reasons why businesses succeed, and others do not, one of the most common reasons is the market area or location.
Most retail businesses try to locate themselves in the centre of their potential market area. Selecting a centralized market location lowers the consumer’s travel time and transportation costs. When more than one retail business sets up in the same geographical area, it must compete for the potential consumers within that geographical area. If businesses sell identical goods or commodities, then they will compete on the product’s availability, price, and customer service. However, if they sell different products that are similar in nature, it will divide up the number of potential customers within the market area by the number of different products. Either way, the end result will be smaller numbers of potential customers for each business.
Businesses that sell the same product and are located close together reduce the amount of time and travel costs for the potential customer, allowing the customer to be more particular about availability, price, selection, quality, and customer service. If similar businesses are further apart, then the potential customer must factor in the time and travel cost when selecting where to purchase the good or commodity. However, as previously mentioned, despite local availability and a lower price, if the consumer faces poor quality, poor selection, and lack of customer service, it may outweigh their time and travel cost.
Even when a local business provides availability, price, selection, quality, and customer service, the business needs to make a profit. Profit is simply total revenue minus total operating costs minus the owner’s opportunity cost. What is an owner’s opportunity cost? You will never see it on any business financial statement; however, it is an important part of the business owner’s profit equation. Opportunity cost is not easily quantifiable in dollars and cents but represents the cost to the owner of running that business. In trying to quantify their opportunity costs, a business owner may ask: How many bright sunny days must be given up to run this business, how much family time must be given up to run this business, and is it financially worth it? These questions are equally important to ensuring that the business’s total revenue exceeds total operating costs. But where does total revenue come from? Total revenues come from generated sales, and generated sales come from either the local population or a population that has traveled to the location to buy a good or product. Evidently, travel moves in both directions; that is, consumers from outside of Langdon will travel to Langdon for the same reasons that Langdonites will travel to neighbouring business centres.
Despite living and doing business in a small community with larger commercial centres that neighbour nearby, small local businesses can thrive as long as the goods and commodities that are being supplied reduce residents’ time and travel costs and offer satisfactory availability, price, selection, quality, and customer service.