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, in the United States, illegal) 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 either partnering or 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.
Would you ever consider partnering with or locating near a competitor?
Competitors as Partners? Yes, It's Possible. But...
As a promotional products distributor, I have access to thousands of suppliers for every imaginable item. However, one category of product is still a multi-step, multi-vendor process to complete: T shirts and other promotional clothing. It requires an order from a warehouse, which goes to a contract decorator, and finally gets shipped to the customer.
Some distributors own their own printing and embroidery equipment and do the decorating in house... and have the staff to do it. But that's a huge investment. Since this is a very small portion of my business, I outsource.
Hooked up with a friendly competitor who did a lot of this type of work and did a great job. For years, they handled my orders until they relocated out of the area. When that happened, they also hooked me up with a contract decorating friend of theirs who has done some wonderful work for me.
This is a prime example of how developing friendly partnership relationships with competitors can work, offering opportunities for everyone. But there are some cautions:
- Do a Thorough Competitive Analysis. Understand what each party is bringing to the marketplace and to the table before even considering partnering.
- Only Work with Trusted Colleagues. if there is not a relationship of friendship and trust, don't partner!
- Create an Agreement. Seek legal counsel on creating competitor partnering agreements to cover items such as non-disclosure, confidentiality, rights and responsibilities.
- Limit Direct Access to Your Customers. If concerned about possible direct contact with customers, have the competitor work only with you and you be the middleman.
Disclaimer: Any examples used are for illustrative purposes only and do not suggest affiliation or endorsement. The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.
© 2013 Heidi Thorne