ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How do I Choose a Retail Location? Lesson 3: Competitive Locationing

Updated on December 14, 2013

Question

Why are so many stores of the same type clustered in the same area? How come you can sometimes drive a couple miles without seeing a single coffee shop... but then come upon one street corner where there are several coffee shops?! Why are different gas stations always right across the street from each other?

Why are auto repair shops all located in the same area of a town?! Why are all the fashion shops on the same street?

Wouldn't it make more sense to space similar shops apart from each other, so that everyone has an equal share of the customers? So that there's only one of this type of shop in the area?

Why do businesses choose to be near similar (or even exactly the same) businesses? Does it make sense?

Coffee Shop Street

A street filled purely with coffee shops is a win-win-win-win-win situation. People from all over town come here to grab a coffee and relax.
A street filled purely with coffee shops is a win-win-win-win-win situation. People from all over town come here to grab a coffee and relax.

Answer

Being close to your competition makes perfect sense! Indeed, it would seem to make more sense to space the same type of business evenly apart from each other: instead of three coffee shops on one street corner, it would seem to make more sense to space them about a mile apart, so that each coffee shop has its own territory.

It would seem to make sense to space them apart, but it's actually a less-than-ideal solution. There is actually a lot of academic "game theory" which talks about competition, socially optimal solutions, the Nash Equilibrium, etc. All this academic talk tries to figure out why businesses usually choose to be close to each other; and the conclusion they come to is that it's a situation where none of the stores can cannibalize any of the other stores' customers.

I propose, however, that it all comes down to human psychology.

People love choice. Don't you?

If you were hungry and looking for a restaurant to eat at... would you rather come upon one Chinese restaurant and have to decide to eat there or go hungry... or would you rather come upon a street corner with a Chinese restaurant, a Mexican restaurant and a Japanese restaurant? I'm pretty confident that you'd choose the situation where you had choice! You could browse the menu of each of the restaurants, check out the prices and decide which one you'd be most satisfied with.

In Asia, they've even taken this "cluster of similar businesses" to a level not seen in countries east of the Pacific. Go to Tokyo, Hong Kong or Taipei and find yourself lost in a building with several floors dedicated to consumer electronics; find yourself on streets filled with clothing shops as far as the eye can see; browse dry goods and food products for an entire day. This kind of competitive locationing seems a bit baffling to those who haven't seen it... but I guarantee you that if you lived in one of those cities and needed to buy a new cellphone, there would only be one place that you'd go to. And, you'd know that there would be more choice than you needed, once you made the trek there.

Now, back to the restaurant example. You want to locate your store close to similar types of stores, who would sell to a similar type of customer. Even if you located your store right next to exactly the same type of businesses - it's totally fine! If McDonald's, Burger King and Wendy's were all on the same street corner, you could bet that they'd all thrive. You might even find smaller, gourmet burger shops popping up in and around that street corner... and the area might eventually become known as, "Burger Alley", and everyone in town would go to Burger Alley when they were hungry. Everyone would be making money!

The bottom line is that you should definitely locate your store in an area where stores of the same type are located; and do not be afraid to locate right beside another store selling very similar products.

Akihabara Electronics Street

If you lived in Tokyo, you'd know that the only place to get your electronics would be Akihabara. People even come from around the world to get their electronics here!
If you lived in Tokyo, you'd know that the only place to get your electronics would be Akihabara. People even come from around the world to get their electronics here!

Case Study

The appeal of choice is a very strong psychological instinct in humans.

When was the last time you were driving your car or taking the bus and decided to specifically stop off for this one specific store you noticed? If you needed some baby products and happened to see one, just one baby store... you probably wouldn't make the effort just to browse that one baby products store. However, if you noticed or knew that a certain area had lots of baby products stores, you can be sure that you'd stop to look around.

Whenever my wife and I are walking down the street of an area we're not familiar with and are looking for a place to eat... we tend to shy away from restaurants that are all by their lonesome. There's not many people here! What if there's a better restaurant down the street? How come there are no other restaurants nearby? There's not much choice here...

On the other hand, if we happen upon a cluster of restaurants, you can be sure that we're going to stop and choose one of them. Sure, each of them might seem to have a lower chance of being chosen, but you can be sure that one of them will definitely be chosen. And, with hundreds of customers making the same choice to choose one of the restaurants, your restaurant will always be chosen sometimes.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)