Why Location Is (Still) Everything

BY ILAN MOCHARI  @ILANMOCHARI

In his forthcoming book, Wharton professor David Bell reveals how location still matters in surprising ways, even in the supposedly "flat" world of e-commerce.

 

Lululemon's reusable shopping bags.

What's your favorite brand of instant coffee? Do you prefer Folgers or Maxwell House? Believe it or not, that answer has little to do with your taste, and everything to do with where you're from.

That's one of many interesting takeaways from Location Is (Still) Everything, the forthcoming book (due out July 15) by Wharton professor David Bell. "We don't have to throw away demographics, just because the Internet has come along," he says, summarizing the big-picture finding of his work. "E-commerce doesn't undo everything we already know."

More Than First-Mover Advantage

As it relates to Folgers or Maxwell House, here's what Bell writes: 

Folgers's market share is much higher in San Francisco because this is where the brand was introduced way back in 1872. Similarly, Maxwell House does much better in the Northeast (the brand was launched in Nashville in 1892), where the Folgers market share is the smallest.

Furthermore, this finding is incredibly robust. Leading brands in numerous product categories have the largest market share in markets where they were first introduced--even though in many cases these brands were introduced over 100 years ago. So sometimes just being first in a particular market allows you to dominate that market for decades and decades, even as new entrants come along. 

At this point, you might be thinking: So what? Who hasn't heard of first-mover advantage?

But wait, there's more. These findings are substantiated by countless blind taste tests. In beer, for example: You might think you prefer Budweiser to Coors, or vice versa, every time. But according to the blind tests, you can't tell the difference between the beers. But you'll pick Budweiser if you're from St. Louis. And you'll pick Coors if you're from Colorado. 

Even more profound: The studies show that if you move to a new American city, you will gradually adapt the brand preference of that city. That is, if you move from a Maxwell-dominant market like Boston to a Folgers-dominant market like San Francisco, your preferences will gradually morph to Folgers.

Location Informs Brand Preferences

The takeaway, then, is that location informs brand preference, even in categories like beverages, where you might be inclined to think your personal taste buds transcend the powers of branding and marketing.  

For entrepreneurs, what's the lesson? According to Bell, there are two actions almost any entrepreneur can take, based on these findings, to leverage the way that location informs brand preferences: 

1. Make your packaging stand out, visually. You might be tempted, for cost-savings, to opt for packaging that is as cheap and nondescript as possible. Why add more costs to shipping, which is already pricey? But Bell believes you can gain a big branding advantage with standout packaging.

As basic as it sounds, one reason geography still plays such a role in brand preferences is through simple word of mouth. While gossip and friendly chatter will always be a key word-of-mouth driver, another factor is the packaging you see in your everyday wonderings. Think about it: You see an attractive reusable bag from Lululemon Athletica at your yoga studio, and the next thing you know, you're familiar with a brand that's targeting you.

One example Bell likes to point to is Soap.com, whose boxes "came in vibrant mixed colors like teal, orange, chocolate, and magenta, with Soap.com written on them in white letters," he writes.  

2. Ship to destinations with maximum visibility. If you ship to a home, then perhaps only the resident sees your packaging and takes notice. If you ship to a workplace, you get a multiplier effect. That effect is further magnified if the recipient shares a photo of the gorgeous packaging on social media. "The principle is just do your best to make the product socially visible," explains Bell.

He points to Warby Parker and Birchbox as companies who are smart about shipping to offices rather than homes, if possible. Perhaps not surprisingly, those two brands both believe in physical locations that support and complement their robust e-commerce channels.

Bell knows the Warby Parker founders from their Wharton days. In the book, he frequently praises their ability to leverage real-world locations. Here's the main insight he draws from their wisdom: If you're an e-commerce business considering a retail location or two, you want to put them in places where potential customers are not only going to be receptive to your brand, but also likely to spread word-of-mouth testimonials--and social media photos--in praise of your products.