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.
Disadvantages of Being Near Competitors
Received a reader question asking what are the disadvantages of being near competitors.
Spying and Over-Sharing
Business owners can be concerned about physically locating near competitors because they feel that their competitors will be constantly spying on them. True, being in close proximity affords competitors (including you!) the opportunity to watch neighboring businesses. It’s a valid concern.
But these days, it’s almost impossible to prevent competitors from watching you. As I noted earlier, being near competitors isn’t just physical. It’s virtual on the Internet and you cannot escape it if you have a website. Anyone can view your site.
When you’re in business, in real life or virtually, you’re in a fishbowl. That can be an unnerving disadvantage. But also realize that this also affords you the opportunity to watch your competitors, too.
Where it gets dicey is when competitors are in close physical proximity, as at networking events. Here’s where businesses need to be super careful to not share confidential or protected information and trade secrets, as well as not engage in anti-competitive practices (e.g., price fixing).
Too Much Choice for Customers
Being near competitors offers customers more choice, and you are in the pool of possibilities. That’s both an advantage and disadvantage for them and you. If customers have too much choice, they sometimes can be overwhelmed and choose not to choose. When that happens, sales don’t happen.
Your challenge is to become the go-to choice for your customers. That takes a significant investment in building your brand and delivering on your brand promise.
When customers consider competing choices, they will always do some side-by-side comparisons. Sites like Amazon make that easy for customers by offering these comparisons right on many product pages. That could be an advantage or disadvantage.
Side-by-side comparisons such as those on Amazon will show common features to all choices in a grid. They’ve picked out the features that they believe will be key to a customer purchase. That’s an advantage if your offering stacks up favorably with your direct or near competitors. But what it doesn’t do is showcase features that might be deal makers for your product or brand.
Depending on the site, you may not have any control over whether your product or service is thrown into a side-by-side comparison. If you’re not included, you’re out of the running. If you are included, your competitors have been chosen for you. You may feel that the competitors featured in any comparison grid are not even in your league. They could be beneath you and now you’re lumped in with lower quality brands, even if your offering is superior. Or they could be way above you and you’re a less desirable offering. All this is in addition to having your price posted against those of your competitors; for price-driven shoppers, it could be the only feature that’s compared. As Internet shopping continues to grow, these comparison situations will be inevitable and unavoidable.
Your counter-punch to this trend is to build your brand to the point where you become the go-to choice.
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 4
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!Helpful 2
What are the disadvantages of locating near business competitors?
While locating near competitors puts you in the pool of potential vendors for buyers, it also means that you need to be a similar competitor to even be considered. For example, if you have an expensive steak house, you need to be near similar price and product competitors, not a fast food chain. That's one thing.
Actually, you may have inspired a completely new blog post about this topic since there are many other issues, too. Stay tuned!
© 2013 Heidi Thorne