Cluster Business Vs Monopolistic business…


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?

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14 thoughts on “Cluster Business Vs Monopolistic business…

  1. Very interesting take and yes, as a customer I would prefer a place where there is more than one shop…if not for getting what you want, atleast for the variety offered!

    • Thank you Jaish.. I reckon you might be hinting a little at shopping here 😉 .. I totally agree with the variety, there is always a better choice and with competition, they are forced to price it fair or else everyone loses out…

  2. healthy competetion is always good.. I do feel more shops together is good because if they are far away , we all want to see a choice and sometimes just because of distance we might not visit the shop again .. if you know what i mean ..

    • Yea, I completely agree.. Driving from one place to another and then searching for a parking spot, its all such a pain. Probably thats one reason why supermarkets are such a big hit.. The very certainty that we find all we need and do not want to keep on the move..

    • And everything leads to the benefits of the customer front and how to make the process more streamlined and simpler. :).. . Thanks for your view on the topic Sri Ram.. Looking forward for more interactions 🙂

  3. Well before getting into the details of the content of this blog piece, I must congratulate and appreciate you for selecting such a wonderful topic. First 2 mins (even before starting reading) I was in awe, wondering how could anyone think about a topic like this and analyse. Keep it up Vinay.

    Coming to the article itself, it is very well written.
    I want to give your article some more thought and will get back. Getting little confused by the use of the term Monopoly. Will read through several times and talk to you..

    Keep up the good work 🙂

    • Thank you Mithun.. It surely means a lot to me.. I will pass on this book to you once I complete. One of the loveliest I have come across and its a must read.. Brings out most important concepts in very simple ways..

      Sure dude, looking fwd for a discussion with you on this topic. Thanks so much for the compliments mate, feeling proud. Have always held feedback from you at a very high note and justifiedly so 🙂

  4. Hi Vinay, I think I get it. People will go in masses where the product they want can be found. For instance, when you are shopping for a car, there are usually several car lots clustered together which makes it easier for you to shop, and also easier for them to get your money.

    • Exactly Carolyn 🙂 .. This question had kept me baffled from quite a while.. Now tat I realize psychology was to the rescue, I think the love for the subject went a notch higher 🙂

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