Tuesday, September 20, 2011

2 competitors is better than 1?

I think I'm arriving at a new theory of competition.

It's a common conception that "competition is good for you." I've never really believed this.

For instance, my sales on Magic and other card games usually drop when a new game store opens up in Bend, and usually goes back up if the game store goes out of business.

This is totally understandable and predictable. I can't expect to be the only person carrying a viable product line. When I do have an exclusive, it's usually short-lived. Either because I was the first one to carry the product, or because there are gaps in the coverage as stores come and go.

But mostly, I expect competition.

For everything except comics and graphic novels, I realize that a specialty store carrying games, or toys, or books, or whatever, is probably going to get the lion's share of the customers. It stands to reason.

(I consider comics and graphic novels my "specialty" and have vowed to fight for it by having the best selection I can.)

In other words, if I carry something as a sideline, and somebody else specializes in that product, the customers will usually gravitate to the specialty store. It's the price I pay for diversity, and I'm not sorry about it. I always think that a specialty store will do well in the short run, but a diverse store will do better in the long run.

At the same time, I've also developed a theory that most specialties need a certain amount of cross fertilization to really do well. Which one store can't really create. I see this when I read posts from shops in large cities. There is an excitement generated, and running around between stores, that I simply don't see here in Bend.

My new theory of competition is this: I don't believe two stores create positive interaction and cross fertilization. It probably require three or more stores. And for that to work, the sales have to be big enough to support that many stores.

So the best situation is to be the only one carrying a product.

The second best situation is to have a market large enough that it will support 3 or more stores, so that a fluid customer base is created and there is synergy and cross-pollination.

The worst situation is in-between. 2 stores, with a market not quite big enough to support both.
Which is the situation I usually find myself in, here in Central Oregon. We tend to be over retailed, and yet a little too small and a little too isolated to get the benefits from synergy.

When it's just two stores, the customers tend to choose sides. It's usually an "us versus them" attitude. Like I said, if the other store is focused on the specialty, and I'm only carrying it as a sideline, the other guy will get bulk of the customers. (At least at first; I find if I'm consistent in carrying the product at a decent price, I eventually regain customers.)

But when there are three or more stores, then becoming the second choice of all the customers actually seems to increase business. The two specialty stores become the "us versus them" and I become the fall back position. My sales are better with 3 stores than 2 stores, but not as good as 1 store.

Like I said, this only really works if the market is truly large enough to support 3 stores, which in Bend is almost never true. In Bend, for hobby type shops, one or two stores is usually more than enough. (Bookstores, game stores, record stores, etc. etc.)

I don't know -- maybe it's just a fluke. I haven't been in the position where I had two competitors very often -- almost never. But I think that's what is going on. A customer base is being created by 3 active stores, and I'm able to pick up a certain share of it.

A smaller share of a bigger pie, rather than a bigger share of a smaller pie.

I have to admit, I'm surprised that Magic is still selling as well as it is. A couple of years ago I was predicting a slow decline. But that hasn't happened, and it may be because I have two competitors who are actively pumping the product, holding tournaments and game nights, talking the talk.

I carry the product consistently, and at reasonable prices, and I seem to be picking up my share of the business.


Duncan McGeary said...

As a general rule of thumb, I prefer having a smaller slice of a bigger pie than the other way around. It usually means a growing market, and it gives me flexibility.

If the pie is growing, I have confidence in my ability to pick up at least my share of it, if not more.

If the pie is shrinking, I have confidence in my ability to survive and pick up the pieces.

It's the same principle as having a store in a bigger city (with competition) rather than a smaller town (without competition.) The former is much safer than the latter.

Duncan McGeary said...

With a bigger market, you are given the chance to compete for what's available.

In a smaller market, it may not matter how good a job you do, there just aren't enough customers.

I prefer the opportunity to compete.

Leitmotiv said...

and don't forget those big box stores that also carry the booster packs of Magic. While they are a far cry from the actual game stores, some people choose to buy boosters from them to save pennies on the dollar.