Why parking next to your competition will get you more customers.
They say “keep your enemies close.” Location matters when it comes to your competition.
Have you ever noticed two gas stations…right across the street from one another?
Or, like in the photo above, fast food chains right next to each other?
This phenomenon happens all the time. Did you ever wonder why?
Yes, it’s counterintuitive, but locating your business close to your competition is actually a smart business strategy. It’s called Hotelling’s Law.
And yes, you can make it work for you even if your business is virtual…or constantly on the move, like the ever-popular food trucks of Stockholm.
Ice Cream on the Beach – Hotelling’s Law
Small businesses form in geographic clusters for any number of reasons, but Hotelling’s Law is probably the simplest theory to explain.
Imagine two ice cream carts on the beach. The assumption is that customers will simply go to the ice cream cart nearest to them. I’ve made a diagram to illustrate.
Jenn notices this and decides to move her cart closer to the middle in order to draw customers from a larger area. This cannibalizes Ville’s customer reach.
Ville catches on and moves his cart closer to the middle too. Finally they’re both in the middle of the beach with the same customer reach. They’ve leveled the playing field so that they only compete for customers based on quality and price of their product.
How does this translate to online business or marketing?
Competing businesses tend to cluster in virtual spaces too – we just don’t talk about it that way. Just look at a site like stockholmfoodtrucks.nu. It’s a really convenient site because it makes it easy to check which food trucks are nearby at the moment. And business has never been better for the food trucks of Stockholm.
Or read Sebastian’s piece about Librize [link], an online, social media based library service that turned “a bohemian area of small cafés, independent theatres and boutiques into an interactive library and community run entirely online through social networks.”
Amazon.com, ebay.com, or etsy.com [links] are great examples of virtual clustering. Thinking of online marketing from old school theories and methods for geographic business placement might be a fresh take on online marketing.
Cozy up to the competition – for free
Amazon.com and the like may not be a good fit for you strategically or financially. But you can create your own business cluster via a simple hashtag.
Take advantage of the great hashtag systems on Twitter, Facebook, and Instagram.
Build an audience of potential customers by starting a new hashtag. If you’re a hairdresser in Chennai India you could start #hairdressingchennai for example. Of course, you should see if such a cluster has already formed.
Once you’ve created a space for your business you’ll want to fill it with your customer base. Do what the food trucks of Stockholm do: invite your competition to grow an audience in a shared space.