Competitive Advantage: Why It's Good to Be Near Competitors
Why do some businesses choose to locate close to 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.
Competitive Positioning
So how can a business, particularly a small business, position itself 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
I 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 constantly be 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 not to 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 choices, and you are in the pool of possibilities. That’s both an advantage and a 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.
Side-by-Side Comparison
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.
© 2013 Heidi Thorne
Comments
Heidi Thorne (author) from Chicago Area on February 24, 2017:
Thanks, John, for adding that to the conversation!
John on February 22, 2017:
Technically, monopolies are not illegal in the US -- only violations of the antitrust laws to gain or maintain monopolies.
I think this is the set of laws that Apple and Google and most of the rest of the tech giants were sued for a few years ago -- for artificially depressing worker wages through a 'no-poaching' and other policies.
Heidi Thorne (author) from Chicago Area on August 17, 2013:
Hi Nell Rose! If only we all were loaded, we'd be rocking our industries. :) Maybe one day it will work out for you. Sounds like an interesting business idea. Thanks for stopping by & sharing. Happy Weekend!
Nell Rose from Buckinghamshire UK on August 17, 2013:
Great hub heidi, years ago I was going to open a small shop, mainly crystals etc, and I even was on the point of paying the first deposit, then another shop opened over the road, same as my idea, I am afraid I bottled it! lol! It wasn't because I was scared of the competition, it was purely the financial side, believe me If I had been loaded I would have gone in, all guns blazing! lol! voted up and shared!
Heidi Thorne (author) from Chicago Area on August 15, 2013:
Mahalo, Joe! Aw, such nice words made my day. I guess I have a "keep your friends close, but keep your competitors closer" policy. Hope it's a lovely day where you are (nice here in Chi-town)!
Heidi Thorne (author) from Chicago Area on August 15, 2013:
Thanks, purl3agony! I'm sure you'd find a unique niche for whatever business you decide upon. Your uniqueness will bring you competitive advantage. Keep us posted if you do make the leap!
Heidi Thorne (author) from Chicago Area on August 15, 2013:
Howdy, billybuc! A biz consultant friend of mine was astonished at my low level of concern about competitors. Yes, they're a factor. But I just consider them part of the environment that I need to work in... or work harder in. Have a lovely day!
Hawaiian Odysseus from Southeast Washington state on August 15, 2013:
Heidi, a good morning to you from the Pacific Northwest!
Your business savvy certainly shines through in this excellent address of competitive advantage--specifically, how proximity to one's competitor(s) factors into the equation.
I have great respect for empowered women, and you, my dear friend, certainly are the poster child for that amazing group.
Aloha, and have a terrific and productive day!
~Joe
Donna Herron from USA on August 15, 2013:
Great hub! I've often toyed with the idea of opening my own business. This hub gives me some great food for thought. Voted up and pinned. Thanks for sharing :)
Bill Holland from Olympia, WA on August 14, 2013:
Excellent points made, Heidi. When I owned businesses I didn't care how close the competition got; it just made me work harder and be more competitive.
Hope you are having a great week.
bill
