Competitive Advantage: Why It's Good to Be Near Competitors
Tale of Two Retailers
Was Target crazy? Walmart had already established a store in town. But then Target builds a location across the street from Walmart, literally just hundreds of feet away. Why would they do that? Wouldn't the close proximity ignite a head-to-head battle for competitive advantage? Possibly. However, it's more likely that Target understands that being near competitors can bring its own advantages to a business.
How is that possible?
The Monopoly Myth
Logically, being the sole monopoly supplier for a product or service seems like the ultimate competitive advantage. If customers want what the supplier sells, they have no choice but to buy, right? Wrong!
While true pure monopolies in today's complex world are rare and usually regulated in some way, holding a monopolistic market position does not guarantee sales because of:
- Unlimited Alternatives. Customers are ingenious creatures. Can't get what they need or want due to limited supply or high expense? They choose something else... or even nothing else. Example: If cars were to magically disappear, people would turn to bicycles, trains or even walking.
- Desire for Choice. Even if a business is masterful at getting customers to buy, customers (and people in general) like to feel like they have a choice, no matter how limited or illusory that choice is.
- The Mall. The popularity of shopping malls has waxed and waned over the past decades. But the concept is still alive and well. As just discussed, customers want options. If they don't like an option from one competitor, they'll move to the next. And the closer those next competitors are, the more likely that a purchase will be made from one of them. That's why Target had no problem plopping themselves next to giant Walmart. They were creating a mall! And today we have the ultimate mall: The Internet.
So how can a business, particularly a small business, position themselves near competitors, while still maintaining some distance?
- Advertising. Advertising near competitors in print, broadcast and on the Internet, positions a business as an option for customers to consider. (Notice how many different auto manufacturers advertise during one hour of television!) As well, advertising can make even small businesses seem larger than they are and as a viable choice. Nowhere is this more relevant than with Internet advertising.
- Networking. Having representation at relevant networking events positions a company as a potential vendor for customers. It also affords an opportunity to make friendly relationships with competitors for referrals should the need arise.
- Strategic Locations. Most franchises will not locate another franchisee within very close proximity of another for good reason... they're too identical. However, most businesses that are not from the same company do have differentiating aspects that could make closer locations a reasonable choice. However, this should be done strategically and carefully. Hiring a marketing research consultant or business strategy adviser is highly recommended to assist in the process. Example: Auto dealers of differing manufacturers often locate near each other—again creating a mall of sorts for cars—since they know that customers shop around when choosing a vehicle.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Questions & Answers
Describe why some business may choose to locate close to their competitors whereas others may choose to locate away from the competitors?
It depends on the business' philosophy on competition and the product or service being sold.
As discussed in the article, some may wish to be nearer to competitors because customers often want to assess all their options before purchasing. An example would be car dealers. You will often find many competing dealers next door to one another or within even a few blocks. The purchase is a large one, and customers usually want to check out many options before committing to that financial outlay.
But this can work for even low dollar volume purchases. An example of this would be food courts in malls, or downtown areas where restaurants are often close together. They know that people may want cuisine options. As well, in downtown areas where workers dine for lunch, they often don't want the same thing every day. Restaurant owners know that and can benefit from the customers' need for variety.
There are fewer examples of businesses who would want to be far away from competitors. The determining factor would be how unique the product or service is, and whether it's worth the extra travel or hassle for the customer. Some examples would be travel destinations that provide a unique experience.
Those are customer and offer issues. But some businesses do not take these market factors into account and will locate as far away from any competitor as possible due to fear or the desire to stand out in some way. However, that level of control is often not possible since competitors can locate near them. These folks would have to have complete control of the market to prevent any competitors from locating near them physically or virtually online.Helpful 3
The most efficient way of locating nearby competitors on the internet is by searching for what?
It depends on what you mean by "nearby." In your local neighborhood? Or just close to the same products and services you have, regardless of location?
If looking for competitors near your physical location, search for the product or service you offer, along with the city or area. That can be a very enlightening exercise to see who ranks with Google in your town.
If it's just by industry, product or service, type that industry, product, or service in the search and see what comes up. That, too, can be interesting to see who ranks in Google's eyes. Try several related terms. Look for businesses that are very similar to yours in terms of size and scope.
Also, if you are selling a product or service, doing searches on sites such as Amazon, Fiverr, etc. can also be a way to find out what and who is available in the market.
Searching on the Internet is truly the most efficient way to see what you're up against in the marketplace. Good luck with your business!
© 2013 Heidi Thorne