I Heart Local Businesses, Part 3

Peregrine at Eastern Market

First, check out Part 1 for some background and Part 2 just for the entertaining reading.

For our final installment on how local businesses outcompete national chains, we’re following up the game theory discussion with something a little more fun: giving your customer more for free. Harkening back to the point about flexibility in Part 2, unless a national chain has run the numbers and confirmed an initiative will meet or exceed the ROI hurdle rate … I don’t think I even need to finish that sentence for a local business owner to see where your advantage lies. You’re you, and you don’t need a finance team to tell you what sells. You see something that makes customers happy, you do it. Especially when that something makes the customer feel like they’re getting more for their money (making your product a better value) without you making any additional investment, then everybody’s happy. Take Peregrine Espresso as a concrete example. This Eastern Market business gets my dime over the nearby chain store every time. Why? Because they take the time to draw a picture in my drink. Seriously.

I Heart Local Businesses, Part 1

Bad economic cycles can be scary times for small businesses. Consumers are spending less, which reverberates throughout the supply chain, especially one that isn’t maximized. When consumers can be persuaded to part with their money, it may only be for very steep discounts (which carries its own problems – more on that in another post) or for something they feel comfortable purchasing either because it is a safe purchase or there is an attractive consumer surplus — i.e., the price paid is less than the value the consumer has for the product. Lab Notes is undertaking a two-part look at how small, local businesses can use these factors to out compete large, national chains during difficult times.

First, the scenario. Times are tough and you’re a small business fiercely competing for a rapidly declining number of consumer dollars. What do you do? For the sake of argument, let’s dismiss discounting because we don’t believe it is appropriate or sustainable. That leaves you appealing to safety and/or consumer surplus. Let’s say a customer is interviewing contractors for a complete master bathroom renovation that will cost $50,000. One estimate is from a national chain that has been around for over 100 years and the other is from a local business that has been around since 1998.

Here are the key factors for evaluating the national chain: