Some businesses choose to locate close to competitors in order to benefit from the customer traffic generated by their competitors. It can also provide opportunities for collaboration, resource sharing, and benchmarking to improve their own performance.
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Some businesses choose to locate close to competitors for several strategic reasons. One of the primary motivations is to benefit from the customer traffic that their competitors generate. By positioning themselves in close proximity, businesses can capitalize on the existing footfall and potentially attract a portion of the customer base. This can be particularly advantageous for new or smaller companies that may not have established a strong brand presence yet.
Additionally, locating close to competitors can provide opportunities for collaboration, resource sharing, and benchmarking. Proximity allows businesses to develop relationships and explore potential partnerships with their competitors. This can lead to mutually beneficial collaborations, such as joint marketing efforts or shared research and development initiatives. Moreover, being in close proximity enables businesses to benchmark their own performance against their competitors, identifying areas for improvement and striving towards best practices.
Peter Ducker, a renowned management consultant and author, once remarked, “The best way to predict the future is to create it.” This quote highlights the importance of constantly analyzing and adapting to the competitive landscape. By locating close to competitors, businesses can closely observe their actions, strategies, and market trends, allowing them to proactively respond and shape their own future.
Interesting Facts:
- The concentration of similar businesses in a specific area is often referred to as a “cluster” or “business cluster”.
- Business clusters tend to emerge in industries where there are high levels of competition, technological innovation, and a need for specialized skills.
- Silicon Valley in California is a prime example of a business cluster, with numerous technology companies co-locating to leverage the benefits of proximity to industry leaders and talent.
- Research suggests that businesses within a cluster tend to experience higher levels of productivity and innovation due to the exchange of knowledge and ideas.
- Location decisions are often influenced by different factors, including access to labor, infrastructure, customer base, and supply chains.
Table: Pros and Cons of Locating Close to Competitors
| Pros | Cons |
|---|---|
| Access to customer traffic and potential increased sales | Increased competition and potential cannibalization of market |
| Opportunities for collaboration and resource sharing | Potential conflicts and disputes with competitors |
| Ability to benchmark against competitors and improve performance | Potential loss of unique market positioning |
| Enhanced visibility and brand recognition | Higher rental or real estate costs |
| Shared access to skilled labor and talent | Potential leakage of confidential information |
Overall, while locating close to competitors may present certain risks, the potential benefits of customer traffic, collaboration, benchmarking, and resource sharing make it an attractive strategic choice for many businesses. By carefully weighing the advantages and disadvantages, businesses can determine whether proximity to competitors aligns with their specific objectives and industry dynamics.
See related video
In the video “Why do competitors open their stores next to one another?”, the speaker explains the Hotelling’s Model of Spatial Competition using the scenario of two identical ice cream vendors at a beach. The optimal solution is splitting the beach in half and moving towards the center of the beach in a Nash Equilibrium. This model shows why similar businesses cluster together as being near competitors is preferred over scattering evenly throughout a community and being overshadowed by aggressive competition.
There are other opinions on the Internet
Firstly, being close to their competitors enables them to have a better idea of the strategies implemented by their rivals. This enables companies to gauge the feasibility of the strategy to identify if it can be mirrored to be used for their own, with some minor improvements.
Existing retailers are attracting customers who are looking for similar products and services. Businesses open nearby to take advantage of the existing traffic.