🏠 High Street Clustering
Ever noticed how charity shops, phone repair stores, or estate agents often appear in groups on the same street? This isn't coincidence - it's a deliberate business strategy that can benefit everyone involved.
Decisions on Location » Factors Influencing Location - Competitors and Business Activity
What you'll learn this session
Study time: 30 minutes
- How competitors affect where businesses choose to locate
- Different types of business activity and their location needs
- Why some businesses cluster together whilst others spread out
- Real examples of how location decisions impact business success
- The advantages and disadvantages of locating near competitors
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Unlock This CourseIntroduction to Location and Competition
Imagine you're opening a new pizza shop. Would you put it right next to three other pizza places, or find somewhere with no competition? The answer isn't as obvious as you might think! Where a business locates in relation to its competitors is one of the most important decisions owners make.
Location decisions can make or break a business. Get it right and you'll have customers queuing at your door. Get it wrong and you might struggle to survive. Understanding how competitors and different types of business activity influence location choices is crucial for any entrepreneur.
Key Definitions:
- Competitors: Other businesses selling similar products or services to the same target customers.
- Business Activity: The type of work a business does - whether it's making products, selling goods, or providing services.
- Market Saturation: When there are too many similar businesses in one area competing for the same customers.
- Clustering: When similar businesses choose to locate close together in the same area.
How Competitors Influence Location Decisions
The presence of competitors affects location choices in two main ways: businesses either try to get as close as possible to their rivals, or they try to get as far away as possible. The choice depends on the type of business and what customers expect.
Reasons to Locate Near Competitors
Sometimes being close to competitors actually helps your business succeed. Here's why smart business owners sometimes choose to set up shop right next to their rivals:
🛒 Customer Convenience
Shoppers love comparing prices and products. Car dealerships often locate on the same road so customers can easily visit multiple showrooms in one trip.
🎯 Shared Footfall
When similar businesses cluster together, they create a destination that attracts more customers than any single business could alone. Think of restaurant districts in city centres.
💰 Lower Marketing Costs
When customers know where to find a particular type of business, individual companies spend less on advertising their location.
Case Study Focus: Tottenham Court Road Electronics
London's Tottenham Court Road became famous for electronics shops clustering together. Customers knew they could find any electronic item by visiting this one street. Even though individual shops competed directly, they all benefited from the area's reputation as London's electronics hub. However, online shopping has changed this dynamic and many physical stores have now closed.
Reasons to Avoid Competitors
In many situations, businesses actively avoid locating near competitors. This strategy works best when customers don't want to travel far for the product or service:
🍪 Local Convenience
Corner shops, pharmacies and takeaways often avoid direct competition because customers choose based on convenience rather than comparison shopping.
💵 Market Share Protection
Some businesses can only support one competitor in an area. Two large supermarkets in a small town might struggle, but one could thrive.
🏠 Residential Services
Businesses like hairdressers, dentists, or dry cleaners often spread out to serve different neighbourhoods rather than clustering together.
Different Types of Business Activity and Location
The type of activity a business does heavily influences where it should locate. A factory has very different location needs compared to a high-end boutique or a call centre.
Primary Sector Businesses
These businesses extract raw materials from the environment. Their location choices are often determined by where resources are found rather than by competitors:
⛏ Mining and Quarrying
Must locate where resources exist. Competition is less relevant than geology, transport links and environmental regulations.
Secondary Sector Businesses (Manufacturing)
Manufacturers often cluster together in industrial estates or specific regions. This creates several advantages:
🔧 Shared Suppliers
Component suppliers find it efficient to serve multiple manufacturers in the same area, reducing costs for everyone.
💼 Skilled Workforce
Areas develop reputations for specific industries, attracting workers with relevant skills and experience.
🚢 Transport Infrastructure
Ports, railways and motorways develop to serve industrial clusters, benefiting all businesses in the area.
Case Study Focus: The Potteries, Stoke-on-Trent
Stoke-on-Trent became the world centre for pottery production not because of one company, but because many pottery businesses clustered together. Local clay deposits attracted the first businesses, but the area's success came from shared expertise, specialist suppliers and skilled workers. Famous brands like Wedgwood, Royal Doulton and Spode all benefited from this clustering effect.
Tertiary Sector Businesses (Services)
Service businesses have the most varied location strategies because they serve such different customer needs:
🛍 Comparison Shopping
Fashion retailers, furniture stores and electronics shops often cluster together because customers want to compare before buying.
🏠 Convenience Services
Banks, post offices and cafes spread out to serve local communities rather than clustering in one location.
🎨 Specialist Services
Luxury or specialist services often avoid direct competition and may locate in unique or prestigious areas.
The Digital Age Impact
Online business has completely changed how location and competition work. Many traditional location rules no longer apply:
E-commerce Changes Everything
Online retailers can serve customers anywhere without worrying about local competitors. However, they face global competition instead of just local rivals. This has created new location considerations:
🚚 Warehouse Locations
Online retailers need large warehouses near transport hubs rather than high street shops near customers. Speed of delivery becomes more important than attractive shop fronts.
Case Study Focus: Amazon's Location Strategy
Amazon chooses warehouse locations based on population density, transport links and delivery speed rather than avoiding competitors. Their fulfillment centres locate near major motorways and airports to serve large populations quickly. This strategy prioritises logistics efficiency over traditional retail location factors.
Making Smart Location Decisions
Successful businesses carefully analyse both competitors and their own business activity type before choosing a location. The key is understanding what customers value most:
Questions Every Business Should Ask
Before making location decisions, smart business owners consider these crucial questions:
🤔 Customer Behaviour
Do customers compare prices and products, or do they choose based on convenience? This determines whether clustering helps or hurts.
📈 Market Size
Is the local market big enough to support multiple competitors, or will competition reduce everyone's profits?
🎯 Differentiation
Can the business offer something different enough to compete successfully, or is the market already saturated?
Understanding how competitors and business activity influence location decisions gives entrepreneurs a crucial advantage. Whether clustering together or spreading out, the key is matching location strategy to customer needs and business type. In today's rapidly changing business environment, flexibility and careful analysis matter more than ever.