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Sometimes It Pays to Be the Underdog

Large chains that compete too aggressively against small businesses may suffer the wrath of consumers.

Bottom LineLarge chains that compete too aggressively against small businesses may suffer the wrath of consumers. Big brands are better off ignoring their smaller rivals than they are explicitly dominating them.

Here’s a counterintuitive finding: Heavyweights should consider pulling their punches when entering the ring with smaller rivals.

Conventional wisdom holds that nationally operated companies should play up their inherent advantages over local businesses—leveraging their brand recognition, diverse product inventory, and price-setting capabilities, for example. But a new study finds that the size advantage isn’t all it is cracked up to be. When lightweights frame competition against a larger rival as a David versus Goliath story, the advantage often goes to the lightweight.

Although it’s presumed that consumers have nearly abandoned the mom-and-pop shop for the big-box store, a few prominent anecdotes suggest otherwise. For example, J.P. Licks, an independent ice cream shop in the Boston area, relied on its close bond with consumers to outlast a Cold Stone Creamery outlet that opened (and closed) nearby. And in the early years of the upscale coffee craze, managers at the Los Angeles–based Coffee Bean & Tea Leaf realized, to their surprise, that their sales spiked after a Starbucks opened up nearby—so they deliberately expanded to locations near other Starbucks.

To be sure, data is not the plural of anecdote. But in six different types of experiments involving consumer-oriented retail establishments such as those selling books, coffee, and auto parts, the authors found that major brands lose local market support to small businesses when differences in resources, size, and corporate outlook are emphasized. Compared with scenarios in which small brands compete with one another or simply don’t acknowledge their larger rivals, those that explicitly position themselves in a struggle against a national chain see an uptick in sales, the frequency of customer purchases, and positive online reviews.

The first experiment performed for this study was set at a small local bookstore and established that independent outlets can induce consumers to make more purchases when they draw attention to large competitors. The second experiment confirmed the results using chocolate, comparing small, artisanal brands with Hershey products. Further experimentation, which extended the findings through a study of more than 10,000 reviews of local and national coffee shops on Yelp, showed that the more competitors vie directly with one another, the more strongly the effect is felt. The authors also found that for the underdogs, stressing the competitive narrative was just as effective as other strategies that small brands tend to use to differentiate themselves—such as focusing on price, quality, and safety. The more a large brand is seen as competing with a local business, the less support the large brand receives, most likely because consumers realize their shopping choices can affect the fate of the marketplace. (Most people’s general sense of fair play and innate support for the underdog may also have something to do with it.)

In fact, the authors found that when consumers independently judged small and national ice cream shops on the basis of retail offerings and product quality, they liked them equally. Only when the shops were placed in the context of rivalry did consumers evince more support for the little guy.

Historically, emerging brands have avoided comparing themselves to their larger rivals—especially at the checkout counter—because they’re wary of calling consumers’ attention to the possible presence of lower prices elsewhere. Prior studies have shown that when a Walmart moves into the neighborhood, smaller retailers tend to stick with their existing advertising and marketing plans, unwilling to admit that the marketplace has fundamentally shifted.

The David versus Goliath strategy could also help small firms fight back against “showrooming,” wherein consumers examine products in bricks-and-mortar outlets only to buy them at cheaper prices online. Small businesses have much to lose when their merchandise is handled in the store but purchased elsewhere. By contrasting their lesser status with that of online retail giants, small firms could be seizing on a little-known, and relatively cheap, ploy to appeal to consumers: Stressing the dark horse narrative is much less expensive than slashing prices, increasing inventory, introducing elaborate customer service schemes, or switching to a niche sector.

Stressing the dark horse narrative is less expensive than slashing prices or increasing inventory. 

On the flip side, the authors note, well-known brands should eschew or downplay competitive narratives and aggressive tactics when going up against local businesses. After all, the study shows that national brands don’t necessarily have to do anything wrong to elicit consumers’ sympathy for their smaller rivals. They just have to be placed in a context that causes the public to see them as a veritable behemoth. For this reason, a company like Starbucks should probably not open a new location near a small café, the authors assert, but instead choose a spot where its competitive clout doesn’t matter as much.

Hard-hitting strategies are better reserved for competitive environments that pit large firms against one another, the authors posit. They also speculate that large brands could exploit the phenomenon themselves by focusing their marketing efforts on the bigger names in their own market sphere. In other words, heavyweights should always aim to punch up—not down.

Source:Positioning Brands against Large Competitors to Increase Sales,” by Neeru Paharia (Georgetown University), Jill Avery (Harvard University), and Anat Keinan (Harvard University), Journal of Marketing Research, Dec. 2014, vol. 51, no. 6

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

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