Why burger stands, gas stations and politicians tend to cluster

Presh Talwalkar has an elegant explanation on why competing entities in an environment where demand is linearly distributed (like two burger stands on a beach) tend to cluster in the center of demand.

The intuitive explanation is this: Imagine two burger stands on a straight beach a mile long with the beach crowd evenly distributed along its length. Customers will gravitate towards the closest stand. If one stand was a quarter mile from the left and the other was a quarter mile from the right, they would have an equal number of customers.

But if one of the stands moved slightly towards the center, it would gain more customers and the other stand would lose those same customers (a zero sum game). So the optimal position for both stands is dead center i.e. on top of each other. That gives them both 50/50 market share and prevents the other stand from gaining more market share.

…even though it causes people on the beach to have to walk further to get a burger.

Check out Presh’s blog entry for a full explanation and accompanying graphics. He relates this to why politicians tend to position themselves in the political center and why news channels all carry the same stories.

Bringing this back to the real world, I wonder about things like goodwill, brand loyalty, pricing power, brand cachet and so on. Positioning yourself in the center of the beach, in the center of the political spectrum or, if you’re a news channel, carrying the stories everyone else carries does not engender much love in your target market.

If a competitor were to come along and position themselves off-center, they may sacrifice a portion of the market, but develop fierce loyalty among their customers for being better and being different.

This brings to mind many famous brands who started with a cult following:

 

Have me at Hello – Site Home Page Comparison

Derek Perez posted a great site comparison comparing Earth Class Mail vs Zumbox. Unfortunately ECM comes off second best. But I have to say I absolutely love Zumbox’s home page. I’m sure the video actor and production cost a fortune, but I’m guessing they’re getting some serious ROI from it. The first time I saw this integrated video pitch was on brand guru Martin Lindstrom’s website, the author of Buyology. He’s changed the site around a little but he’s still pitching you in person when you arrive. Here’s Derek’s comparison.

Brand Authority and the Milgram Experiment

I had a great chat with Tony Wright yesterday evening over a few drinks. Tony has a degree in psychology and is a fellow entrepreneur and we got chatting about the Milgram Experiment and its applicability to branding. Here’s a video summary:

The experiment found that few people have the resources needed to resist authority, even when the authority figure is telling them to do something in violent opposition to their moral judgment.

Brands carry a level of authority. Take a startup for example:

  • It’s founded by two Stanford postgrad students. +2 authority
  • It’s published on Techcrunch as the hot new thing. +1 authority.
  • It gets Angel funded by Larry Page, one of the Google founders. +7 authority
  • It gets a first round of VC funding from Sequoia. +5 authority
  • It gets published in the NY Times also as the hot new thing. +5 authority

You don’t yet know what this brand does, but you’re already dying to become a user – simply because the brand has a ton of authority and because your Milgram susceptible brain is telling you you to obey. [Or perhaps you fall within the 35% of Milgram participants who didn’t kill the learner]

This is the reason I signed up for Joost very early on – because it’s founded by Niklas Zennstrom, one of the Skype founders.

I’ve seen startups do an excellent job of creating this authority using big marketing budgets and great PR firms without any product to speak of. Users wind up (to use a British expression) gagging for it and they don’t even know what the value proposition is.

On the flip side, many great products lack the brand authority to get the user adoption they need. For companies on a tight budget run by first-time entrepreneurs, this is a challenging hurdle. I don’t think it’s insurmountable though – it simply takes more time and careful growth.

Simply realizing that your brand has authority that needs to be grown is a great start.