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I find that companies that have a location's name in their business name tend to do well in local searches.

I do not live in Timbukto, but I will use it as an example. A search for "shoe shop in timbuktu" seems to return local businesses with names like:

  • Timbukto Shoes
  • Sports Shoes Timbukto
  • Timbukto Designer Shoe Outlet

I get the impression that the shop called Bob's Shoes is less likely to appear in local searches, even though Bob's shop is in Timbukto.

My question: Should I add "Timbukto" to the business name, and change it to "Bob's Shoes Timbukto"?

I am concerned that Google might penalise the listing for changing the business name.

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Although a city name in the brand name can help, you should look past only this query. What about Bob's Shoes Hollywood (a city next to Timbuktu) and all other surrounding cities? You need to look at the broader search landscape instead of focusing on ranking for queries including "Timbuktu".

There are other factors which go into ranking locally and you should be looking into those rather than worrying about adding the city to your name. Additionally, a name change can impact any brand name relevance you do have built up for the local SERPs.

Remember, correlation does not equal causation. So although other sites might have the city in their domain name, there are other factors to consider including:

  • Optimized directory citations (Google My Business, Yelp!, etc.) in the right categories, profile fully built out.
  • NAP (name, address, phone) consistency
  • Domain authority

You should take a look at Moz' local ranking factors to see that, although inclusion of city is in a number of factors, it isn't the only thing keeping you from ranking.

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  • Perfectly said!!! I cannot up-vote this enough! People often equate what they see in the SERPs as being some kind of truth when in fact, it is likely a by product. If someone put a locale in a domain name, it is very likely that they are targeting a locale more heavily and more professionally than Bob sitting in amongst his many shoes. (I wonder if he has a red head for a wife, an idiot blonde daughter, and weenie son named bud?) I always recommend against tying a domain name into a specific niche they cannot get out of without a domain name change. Always a bad idea. – closetnoc Jun 1 '15 at 22:24
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    NAP consistency is key more than any other, reviews can also help too... Local rankings is all about proving who you are, what you do and how the public see your service. – Simon Hayter Jun 2 '15 at 7:44

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