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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

Here’s how to niche

Many business owners are reluctant to select a niche to focus on, fearing that it will reduce their potential client base, and result in less sales.  Last week, while on holiday, I witnessed first-hand a company using a very specific niche to their advantage, and really making it work.  So how did they do it?

We decided to take the children to Auckland for a night to use a credit that was about to expire on our travel club membership.  We were looking for a good deal for a family and the best one we could find was at Jet Park Airport Hotel in Mangere.  The main reason we chose it was that it offered free parking, which made it more cost-effective for us than some others, plus we could get a free shuttle to and from the airport – a novelty for the children.

Jet Park Hotel have chosen the domestic air traveler as their niche market.  Everything in the hotel and their packages is set up for this.  Everyone staying there is entitled to a shuttle both to and from the airport and if you stay one night or more, you can park on their property for up to 14 days!  The hotel is not situated as close to the airport as many others, but is in a mixed area of industrial and residential properties.  It is not a particularly salubrious area, but Jet Park have developed a competitive advantage that allows their strategy to work – they have used the lower cost of land at their location to allow the free parking benefit for all their customers.  The hotel is set back off the road down a long driveway, and alongside it runs empty fields they have turned into carparking.

Given the cost of parking your vehicle anywhere else close to the airport, the free parking is a massive advantage to domestic travelers with vehicles and also for those attending conferences and training in the rooms they have available for businesses.  Niching in this way allows the hotel to target everything they do.  They market directly to national air travelers.  The reception staff clarify at check-in when you need a wake-up call for your flight, and when you need to book the shuttle.  There’s some other nice touches too, like a small indoor and outdoor play area for younger children, a pool to cool off in over summer, a small library if you want to borrow a book, and complimentary fruit and mints throughout the hotel.

The interesting thing is that we chose the hotel even though we were not air travelers.  The free parking made it a good deal for us, and we used the shuttle as a bonus activity with our children.  We went to the airport viewing lounge and watched some international flights arrive and depart, and had a snack at the food halls.  I’m sure we are not the only ones outside their targeted niche that choose that hotel because the benefits are valued by others, as well as the niche.

Of course the Jet Park won’t suit everyone.  Some travelers will prefer to be on the airport campus, and others will prefer to stay in the central city or other parts of the city.  But no hotel will suit everyone.  By selecting a niche and serving that niche very well, the Jet Park Hotel has made its marketing activities easier to select and target, as well as how it trains its staff, sets up the hotel, manages add-ons etc.  While we were there the hotel appeared to be very busy, and the award-winning restaurant seemed well patronized.  The shuttle was non-stop collecting and dropping passengers to and from the airport.

So how can you apply this idea of serving a niche to your own business?  Can you break down your customers or target market and serve one or two niches really well?  Do you do that already?  Are you ‘dominating’ that niche? How does this streamline your business activities like marketing, customer service, product and service development and staff training?  How do the services and add-ons you offer for your niche benefit others and grow your business?

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