I recently wrote about my experience of discovering that there is a salon one block away from my house. I’m so used to driving everywhere that I didn’t even know it was there. So it’s great that I can walk to this business, but then of course I wonder if it’s any good. If nothing else, greater competition means that providers need to try harder, be better, to be successful. I wonder how the move to local business will impact service quality?
I grew up in Canada, and one of my fond memories is of family excursions across the border from Vancouver to Bellingham to go shopping in the United States. I remember how there was better selection, better pricing, and much friendlier service. It just seemed as if there was a lot more competition in the United States, and that the retailers tried harder. As customers we were in heaven, and it called to question why retail service back home in Vancouver was so lacking.
These questions about competition and service have been thoroughly studied. When I was at MIT studying for my MBA, I had the good fortune to take a class with Professor Duncan Simester, a very sensible professor of marketing at MIT who studies market competition. One of my takeaways from his class was the importance of location for many kinds of businesses, especially retail businesses. That given the choice between going to business A or business B, all other things being equal, you’ll go to the one that is closer to you. And along those lines, if A is closer they can probably charge a bit more, and still win your business because they are closer.
You may be thinking “I don’t mind driving 10 minutes if it’s going to save me some money.” And here’s the twist: when gas and cars are very cheap, then zipping around from here to there to save a dollar or two isn’t a big deal. But when gas gets closer to it’s fully loaded cost (which has been estimated at $12/gallon in addition to what you pay at the pump), then you’ll very likely think twice about driving to get that “deal.”
The end result will be that local businesses will regain a lot of power that’s been lost during the car age, and prices will go up. It may also mean that the large box stores lose power to small, more conveniently located, locally run businesses. I can only hope that levels of service will not suffer too greatly, and that the strategy of business success through good service will carry on. But the effective range of where we can shop is going to shrink, and this may not be a good thing for customers.