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Cluster with competitors or be somewhere different?

There’s a new Wendy’s opened not too far from where I live.  I suppose eventually we’ll check it out.  What made me think of it was that last night we drove past and there weren’t that many people in there.  Hardly surprising, given the huge number of fast food outlets in the area.  Which brings me to my point in writing this – is it such a good strategy, all the fast food outlets congregating in the same area of a city?

There’s an obvious benefit to doing so.  Customers get to know where to head to find food.  Once there, they pick from the selection.  If the other outlets are in one area, and your outlet is not there, you won’t be selected.  A bit like Lotto – you can’t win if you don’t have a ticket, but it’s a game of chance.  Maybe the customer will pick you today, and maybe they won’t.

On the other hand, if your fast food outlet is in a different area, and the only one there, the majority of customers in that vicinity are probably going to pick you, rather than travel further.  As long as they know you are there.  And if they are anything like my family, everyone wants something different, so going to a ‘cluster’ works well for take out, even if we have to travel a bit further.

Using a unique location seems to work well for ‘destination’ businesses, where customers seek out the unique products or services – examples include children’s specialty stores,  wedding outlets, ‘hobby’ related stores eg art supplies, dance/music stores,specific sports specialty stores and so on.  If your customers or clients are specifically seeking you out, then you might be based anywhere reasonably accessible, and in some cases, issues like free parking can be more important than location.

Locating close to competitors seems to work well where customers are likely to see you as similar to others, and choose the specifics once they get to the location, or are likely to choose while at a location eg shopping malls.  This is likely to apply to food outlets including fast food, cafes etc, general clothing stores, stationery store, and so on.

Professional services firms tend to ‘cluster’ around a CBD area in cities and towns.  This gives them a physical presence with signage in the area where many other businesses are located.  There is also an aura of prestige and success associated with inhabiting expensive inner city real estate!  Would you be any worse off locating your professional services in the suburbs?  That might depend on the segment of the market you are targeting, where they are located, and how far some would have to travel.  Some boutique firms do locate in the suburbs and they can provide at-the-door free parking for clients and staff, and reduce overheads through cheaper rents.

So what about your on-line presence?  In essence, the same principle is likely to apply.  If your customers are likely to choose between you and your competitors by comparing benefits, you probably need to be where they are.  Take hotels for instance, that list on sites like Hotel Club, Trip Advisor, Expedia and so on.  Professional services firms often list under their categories on Green Frog, Yellow Pages and other on-line directories.  It’s again like Lotto, you can’t get picked if you are not there.  However, some boutique hotels do very well without listing on such sites. Some professional services firms rely on promotion that is targeted to their client base rather than general directories.  These firms aim to be known within their market segment, and promote in other places that their more specific customer base are likely to see.  So where you serve a niche market or specific market segment, it might be more effective to target that segment differently to most of your competitors.

Jenni specialises in strategy selection and implementation in the professional services sector.  She encourages you to connect at LinkedIn, Twitter or via her Facebook page to find out more.

Categories: Business and Strategy
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