Co-opetition

Don’t fear competition/embrace it

When I was a developer and I learned that a competitor was going to start a project across the street, I’d jump for joy. The reason? They would likely spend money on marketing, and at least some of the potential tenants they would attract to the area would presumably cross the road and check us out and some of them would sign with us instead. Of course, the reverse could be true as well.

That’s why you see fast food joints, coffee places, home-builders, car dealers and so forth lined up cheek-to-jowl in many cities and towns. It’s a kind of synergy–some might want Tim Hortons, others McCafe, Starbucks or Second Cup. Some days they might want chicken from the Colonel, other days something from Pinty’s.

In the construction business, someone might choose a stucco house, others a brick one. Some buyers might want Tudor-style houses, other people might hate that preferring instead craftsman homes. As a result, if you had three builders sharing one project instead of each being on their own, the idea is that they would have a greater total marketing budget, combined with a higher success rate.

Here’s how it might work–

Scenario 1

3 separate projects

3 individual marketing budgets of $x each, total of $3x

Success rate of 20%

That is, if 10 people visit each sales center, then each builder nets 2 sales contracts

The corollary to that is that each builder loses 80% of the clients that visit the sales center

They go (at least in this model) to other builders elsewhere in the city

Scenario 2

But what if the 80% of clients who walk out of the sales offices of builders A and B now co-located with C, visit sales center C?

Presumably, C will capture 20% of those clients. So now we have a success rate that may look like this–

Builder A, 10 visitors, 2 signed clients

Builder B, 10 visitors, 2 signed clients

Builder C, 10 visitors, 2 signed clients + 20% of 16 visits from A and B for a total of 5.2 clients*

Total marketing budget remains at $3x

So without any additional marketing investment, Builder C could more than double volume. This explains why it’s especially important for smaller companies and entrepreneurs to draft along behind marketing forces exerted by larger enterprises.

This is not new. In 1956, Southdale Center, the first indoor mall anywhere, opened in a Minneapolis suburb. Austrian-born architect Victor Gruen theorized that if he put two giant competing department stores on either end of a barbell-shaped building, not only would they do more sales but all the smaller operators in between would benefit too.

In the realtor business, co-opetition in the form of the ML (multiple listing) service has been going on for years. By sharing information freely as well as commission income, realtors can sell more property, faster and for higher prices. This is not only better for them, it’s great for their clients too.

So there it is–don’t fear the reaper or competition. It makes both you and your bottom line stronger.

@ profbruce

@ quantum_entity

* this is a simplified model. Accurate calculation of real-world synergistic effects is a dynamic maths problem and much more complicated to analyse accurately. This is a simplified model–for demonstration purposes only.

ps here’s Blue Oyster Cult with Don’t Fear the Reaper