Zoe Ellis-Moore explains how differentiation can lead to profit in an increasingly competitive sector.
The flexible office space market is exploding, with increased demand from customers leading to new operators entering the market and existing operators expanding. A report from the team at Instant Office, published at the close of 2019, estimated there was a 50% uptick in demand during 2019 and predicted that, by 2023, 12.5% of commercial real estate will be flexible workspace, up from current levels of around 4%.
Growth in the flexspace sector is likely to speed up thanks to the events of 2020, too, as the work from home movement grows and companies abandon traditional office leases in favour of cost flexibility in uncertain times. While market expansion is undoubtedly a good thing for flexible office operators, the increased competition that comes with that growth is a daunting prospect. How do you not only survive but thrive as an operator in an increasingly competitive sector?
As is the case in so many other industries – it’s the companies that differentiate themselves from their competition that will profit. Effective differentiation is easier said than done, though, so here’s what you need to know about standing out in a crowded flexspace market.
Why differentiation is important in the flexspace market
Differentiation is far from a new concept, and you only need to look at more established industries than flexspace to see how it’s been leveraged to success in the past. LUSH, for example, distinguished themselves in the competitive cosmetics market by targeting customers with an ethical angle. On a larger scale – Walmart built an empire on the back of the simplest differentiation strategy of all: charge less than the competition.
You can see effective differentiation in the flexspace market too. WeWork became a household-name brand, relying on broker network and hugely pervasive branding netted them to grow. IncuHive, on the other hand, undercut on price to attract customers, while Techspace target ambitious, growing technology companies.
Entering 2020, there were an estimated 6,075 dedicated flexible workspaces in the UK. That means that, almost no matter where you are, there’s a competitor just around the corner. By ignoring differentiation, you leave yourself entirely exposed to failure. If there’s no reason for a customer to choose you over an alternative, why would you expect them to?
It’s important to note, however, that standing out from the competition shouldn’t be on the merit of a gimmick. Instead, set yourself apart with a differentiation strategy that adds value for users.
How to find a differentiation strategy in the flexible office market
There are many ways to differentiate yourself from the competition, and which one you choose really depends on what demand you’re trying to meet. Below are some of the most obvious methods of setting your business apart.
Brand
Differentiating your flexible workspace business from the rest by using the power of branding is the least tangible and arguably least reliable method to stand out, but it can be a silver bullet when it does work.
Take WeWork, for instance, who managed to become more than just a coworking space and shifted into the realm of being a household name, and a genericisation of coworking spaces themselves. WeWork’s whole brand identity is built around the idea of becoming part of a ‘we’, to the point where they actually hold the trademark for the word. They make full use of that trademark and create a heavily branded experience at every one of their locations.
Effectively splitting away from the pack using brand power, like WeWork did, relies on impactful branding and heavy marketing. However, a successful brand has to be backed up by an effective product, so don’t expect to survive off good branding alone.
Niching down
Finding a niche is another way to distinguish your flexspace business, and it’s a method of differentiation that’s at play in a huge range of other industries. The benefits of niching down are rooted in the idea that, by targeting a specific subsector of a larger market, you can adapt your model to suit them more directly.
Targeting a smaller audience means that you can tailor your offering to perfectly suit their needs and outclass the broader-targeting competition. Choosing a niche does limit your potential market, but a bigger slice of a smaller pie can be a good thing, especially when you would otherwise be going up against Goliaths in the wider market.
The idea of niching down in the flexible workspace market is exemplified by operators like The Building Society in London who target built environment specialists, Third Door who combine coworking with on-site nursery facilities, and AllBright who target businesswomen exclusively.
To find a niche, you should employ all the market research resources you can. Positioning yourself to effectively target a narrow niche means more than just adapting your service – it also means considering location, pricing, amenities, aesthetics, and more.
Customer service
One of the most concrete avenues to differentiation in a crowded market, and one that is a genuine value-add to customers, is to outclass the competition on customer service. Offices are, after all, spaces built for humans, so the way that your customers feel while they are there can be the difference between loyalty and churn.
Prioritising customer service can come in many different forms, from having a business mentor or access to funding sources on-site to allowing entry for customers with dogs or offering free fruit or breakfasts. The methods you choose to adopt to improve your customer service will depend on a couple of factors, including who it is you’re serving and what your budget is.
Several flexible workspace operators clearly prioritise providing great customer service to stand out, including Huckletree who offer education programmes for customers, to Platf9rm in Brighton who consistently host workshops and other on-site events.
Almost any improvements you make to your customer service experience will come at cost, which can minimise your profit margins. The key is to ensure that the knock-on effects that your improved customer service have on word of mouth marketing eclipse the investment.
Price
Differentiating on price factors is a simple brand differentiation model, but it can be very effective. As we’ve already covered, IncuHive’s philosophy essentially revolves around cutting operational costs and, consequently, prices for their customers.
Price is an important factor in any buying decision, and that’s no less true in the flexible office space market. That means that the return on adopting a price-based differentiation model should be fairly tangible, in that you can at least loosely predict the outcomes if price differentiation is executed successfully.
However, it’s worth noting the obvious – that competing on price means that your margins will inherently be minimised. You should also be aware of potential negative effects from low pricing in the form of decreased perceived brand prestige.
Amenities
Finally, if you can figure out what customers want better than anyone else in the market can, differentiating your business by focusing on providing the amenities that target these customer needs is a viable strategy.
What do workers need from their workspace? Ask the question even 10 years ago and you’d get a very different answer to today, and ask it again in 10 years’ time and the answer will likely be further transformed. Pinning down the needs of your customers is an elusive art, but it’s founded on market research.
Use whatever analytical tools you have at your disposal to determine what value-adding amenities look like in your market. Is it an on-site gym, 24-hour access, or something else entirely? Just make sure that you are being realistic about cost and not aiming too high.
You can see examples of operators distinguishing themselves from competitors through the provision of unique amenities wherever you look. Fora in Soho, for example, offer practical amenities like recording rooms for podcasts, while Runway East in Bristol have playful amenities like swing seats and rooftop terraces.
Battling complacency
While it’s all well and good finding a differentiation strategy and making your brand stand out in a competitive marketplace, you will soon become irrelevant if you don’t continue to innovate and develop. Being good just isn’t good enough in a market as competitive as flexspace.
Especially post-COVID-19 – when operators might feel safe having managed to ride out the occupier churn – complacency is dangerous. Increasingly, there is going to be an alternative that is close by and poised to steal your customers, so thinking ahead and continually developing your product is essential.
Essentially, you need to remain the best option for your customers by pre-empting their changing needs and evolving your service. If you manage to do this, there will be no real reason for high occupier churn, and therefore you will only grow as an operator. Fail to keep up, and it’s likely that you’ll be left in the dust.
Remember – the flexibility that attracts businesses to coworking spaces is a double-edged sword, in that it also allows customers to leave your space just as easily as they entered.
About Zoe
Zoe Ellis-Moore founded Spaces to Places, a commercial property research, placemaking, and marketing consultancy, in 2019, after previously working at JLL for over eight years. Spaces to Places solutions are built from the ground up to reinvent businesses’ commercial strategy, with a mission to turn commercial spaces into more relevant places.
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