Advantages and disadvantages of locating similar retailers in close proximity

Advantages and disadvantages of locating similar retailers in close proximity

Location strategies are used to make businesses competitive by ensuring that most customers within a market are able to access a business premise with ease. Ideally, single businesses tend to have their premises at the centre of the community (Bennison and Theodoridis, 2009). On entry of additional competitors, location strategies need to be applied. Retailers can opt to locate their businesses near competitors or choose a location that is closer to un-served market segments where they’d easily attract the customers (Kameda et al, 2012).  

Businesses can either seek to opt for social optimization where members of a society are saved the trouble of traveling long distances to obtain a service (Bennison and Theodoridis, 2009). On the presumption that proximity influences demand, location strategies can be used to attract customers where they’d tend to purchase products from the closest retailer. This can be explained below: 

In the illustration above, B is able to attract more customers because it is closer to a larger market segment. For A to perform better, it would need to move closer to the centre of the community; close to A. Even though this would entail moving further away from its clients, such clients would still have to purchase from it since it will remain closest to them. At the centre of the community where both A and B are located, the two retailers would be able to attract customers on an equal basis; hence improved performance for retailer A.

The advantage of centralized location can therefore be said to be the performance optimization where the organization is able to attract more customers (Sharma, Sahurkar and Dabre, 2012). Location-based targeting can give the retailer an advantage over one section of the market while placing it at a disadvantage in attracting the rest of the sections. For instance, in the illustration above; A is very competitive in attracting the left of the market while it is at a disadvantage when it comes to attracting the right. While B is currently at an advantage, it is vulnerable to competitive maneuvering where its customers can be taken away if A or another competitor locates itself a few paces to the right. To avoid such vulnerabilities, businesses seek to achieve the Nash equilibrium where an organization cannot achieve greater competitiveness by changing its location (Kameda et al, 2012).

Clustering similar businesses enables retailers to be equally attracting based on location factors. This often entails similar retailers being located at the centre of the community where they can be accessed by all sections of the market with equal ease (Kameda et al, 2012). This provides the best solution for the businesses which are able to stabilize their performance. However, this solution tends to be disadvantageous to the societies where members located at the extreme end tend to be far from the centre (Kameda et al, 2012). For instance, in the illustration above; A was able to serve the left side of the market effectively. If he moves to the centre of the community, the customers would have to travel for a much longer distance to make their purchases. In spite of this disadvantage, clustering is good for the business organisations.

References

Bennison, D. and Theodoridis, C. (2009). Complexity theory and retail location strategy, The international review of retail, distribution and consumer research, 19(4), 389 – 403

Kameda, H. et al (2012). Nash equilibrium based fairness, Mathematical methods of operations research, 76(1), 43 – 65

Sharma, R.M., Sahurkar, V. and Dabre, M.C. (2012). A Comparative Study of Location And Advertisement Strategy Of Micro And Macro Retail Shop Of Akolaand Buldhana District, Golden Research Thoughts, 2, 1 – 4