I have often wondered how do the cluster businesses thrive. And more specifically in the cluster I have often wondered how do these businesses work when there are a host of similar shops in the neighbourhood which provide almost the same service. Of course I am referring to the businesses like a colony known for only the electronic items (SP road Blore) , or a lane full of jewellers (Ashoka Road Mysore). My idea of a business was monopoly would always great cos most since there is only one provider, success was definitely ensured. Turns out I was focussing on the biased view of a monopolistic business model!
So how do the cluster businesses work? After having thought hard and long, I had come to a thought that I would not find the answer any soon. But all thanks to the good old psyche the answer was in the simple effective idea of the customer psychology. The answer lay in Capt Gopinath’s autobiography where he refers his conversation with a local pharmacist in a cluster business. When he poses the same question, the answer he gets is quite interesting. Here is the excerpt from the book.
“ Your shop is located in a place where there are twenty other pharmacies. Doesn’t that affect your business? What I heard was an unforgettable lesson in customer psychology. He said “ Sir, an isolated Chemist’s shop in a residential area is far less frequented than twenty shops in the bazaar are”
Well the analysis is pretty simple, people prefer to go to place to buy something when they are sure to get it there. Getting into the cluster area would ensure that they find the solution or the product they are looking for and that is the certainty which drives the customer entry into it. I mean for a customer, he knows for sure that he is going to find the product here. Compare this with a single local shop and the case he does not have the device you are looking for? Would you like to drive once to the cluster or many times from shop to shop?
It is fascinating how the simple ideas have led to such solutions. Probably this doesn’t seem like such an out of the blue idea. But for a nut like me, behavioural psychology fascinates me to the core and again this read is something which has got me totally excited to get back to writing after a hiatus!
I would like to conclude the article on a note from the book.
“Competition can only kill business when the business is inefficient. Competition helps to improve the quality and brings down prices and is therefore good for the consumer. Monopoly on the other hand invariably stifles business. It is neither good for the consumer nor the business nor the industry.”
Interesting take isn’t it?