The Upside to Large Competitors 08-20

The Upside to Large Competitors

New research suggests that a smaller company can benefit by making consumers aware that it competes against bigger corporations.

Large competitors are often viewed as a major threat for startups and small companies; big companies have more financial resources and greater scale, market power and brand awareness than smaller ones. However, our research finds that a smaller brand can actually benefit if consumers can see the competitive threat it faces from a larger organization.

When Cold Stone Creamery, a U.S.-based ice cream chain with about 1,400 stores, moved within 50 steps of a J.P. Licks ice cream store in Newton, Massachusetts, some people expected that J.P. Licks, a small, locally owned company, would be beaten out of the Newton market. But consumers rallied around J.P. Licks, and Cold Stone later closed its nearby location. When the owner of the Los Angeles-based coffee store chain The Coffee Bean & Tea Leaf could not stop a Starbucks coffee shop from moving in next door, he was surprised to see his sales shoot up — so much so that he started proactively colocating new stores next to Starbucks ones.

These examples are not anomalies. In six lab and field studies, we explored the effects of having a large, dominant competitor and found that highlighting a large competitor’s size and close proximity can help smaller brands, instead of harming them. (Detailed results of our findings can be found in “Positioning Brands Against Large Competitors to Increase Sales,” forthcoming in the Journal of Marketing Research. See “Related Research.”) Compared to when they are in competition with brands that are similar to them in size or when consumers view them outside of a competitive context, small brands see consumer support go up when they are faced with a competitive threat from large brands. This support translates into higher purchase intention, more purchases and more favorable online reviews.

As part of our research, we conducted a field study at an independent bookstore in Cambridge, Massachusetts. Upon entering the bookstore, 163 prospective shoppers were exposed to one of three versions of an in-store ad, emphasizing either the store’s large competitors, small competitors or no competition. Shoppers who read the “large competitors” version were told that the store’s main competitors are large corporations that have the ability to put small businesses such as this bookstore out of business. The “small competitors” version indicated the store’s main competitors are other locally owned small bookstores in Cambridge. In the “no competition” version, participants were given no information about the competitive environment. 

Shoppers were then given a $5 coupon, coded with the in-store ad version they read. Analyzing shoppers’ sales receipts and the number of redeemed coupons, we found that shoppers were significantly more likely to make a purchase after reading the “large competitors” version of the in-store ad, compared to the “small competitors” version or the no competition version. They also purchased more items and spent more money at the store, compared to shoppers reading the “small competitors” or “no competition” versions. These results suggest that framing the competitive game and emphasizing a competitive narrative against a larger company can help a small establishment — and spur consumers to make a purchase that supports the smaller competitor.

In subsequent studies, we tested this “framing-the-game” effect in various contexts and product categories and further found that support for a large brand decreases when consumers view it as being in competition with a smaller brand. In one study, we asked participants to assess two hypothetical rival tire shops, “Tire World” and “Tire Planet,” under three conditions — small vs. large, small vs. small or large vs. large competitors. While participants indicated no preference for the small or large shop when it was competing against a competitor of similar size, the small vs. large competitive context elicited a strong preference for the small rather than large shop. Participants indicated they were significantly more favorable to the small “Tire World” shop in the small vs. large setting than in the small vs. small, and significantly more adverse to the large “Tire Planet” shop in the small vs. large setting than in the large vs. large.

We concluded that framing the game as a competition changes the way consumers view both competing brands and motivates them to express their views and to have an impact in the marketplace through their purchasing. When a brand is presented within a competitive context, consumers consider not only each brand’s attributes, but also which player they want to support and how they perceive their own purchasing actions will make a difference in the marketplace.

Related Research

N. Paharia, J. Avery and A. Keinan, “Positioning Brands Against Large Competitors to Increase Sales,” Journal of Marketing Research, in press, http://dx.doi.org/10.1509/jmr.13.0438.

Across the studies we found that, when they are perceived as competing against a smaller brand, large brands do not have to do anything explicitly wrong to trigger consumer boycotting behavior; they are, in effect, assumed guilty until proven innocent. Furthermore, large brands should be wary of overtly intense competitive maneuvers. While these strategies may not hurt large brands when they compete against other large brands, they may inspire consumer rejection when the competition is a small brand. Rather than moving in across the street from a small local café, Starbucks Corp., for example, should consider locations where it does not appear to be competing directly against smaller players.

We also analyzed more than 10,000 reviews from Yelp.com to further test whether a perceived competitive threat from a larger company elicited support for the smaller competitor. We used star ratings from Yelp as a proxy for brand evaluation. In an initial exploration, we found that in a large U.S. city, small, local establishments in the “coffee & tea” category had better average Yelp ratings when they were in close proximity to a Starbucks coffee shop than if they were located further away. However, we wished to control for a number of alternative explanations, including multiple Starbucks locations and varying quality levels of smaller establishments.

To control for quality variance, we focused on a relatively smaller chain of coffee shops, Peet’s Coffee & Tea, based in Emeryville, California. To control for the presence of multiple Starbucks locations, we used the number of times “Starbucks” was explicitly mentioned in the text of a Peet’s Yelp review as a proxy for competitive salience. We reasoned that if there were one or many locations of Starbucks nearby, it would be more often mentioned in the reviews. We predicted that if a higher percentage of reviews for a specific Peet’s location mentioned Starbucks, ratings of that particular Peet’s location would also be higher. For each Peet’s location, we recorded the total number of Yelp reviews, the number of reviews that mentioned Starbucks, and the average star rating. Overall, across the 201 Peet’s locations listed on peets.com, 24.5% of the 10,445 reviews explicitly mentioned Starbucks.

We found a significant positive relationship between the percentage of Peet’s reviews that mention Starbucks and the average star rating for a given Peet’s location. Furthermore, the effect was robust when looking at average ratings for the reviews that mentioned, or did not mention, Starbucks. If a location had 50 reviews and 15 mentioned Starbucks, the effect held whether we looked at only those 15 reviews or at the other 35 reviews that did not mention Starbucks.

These results show a positive relationship between the perceived salience of a large competitor and customers’ ratings; in other words, customers liked Peet’s better when they perceived it in competition with Starbucks. To further rule out alternative explanations, we replicated these results in a controlled lab setting, where we described a hypothetical coffee shop and manipulated its proximity to a large competitor. Again, we found that competitors near each other elicited preference for the small rather than large competitor, while competitors located further away did not.

Our research demonstrates the importance of considering a brand’s competitive context and illuminates how small brands can benefit from the real or perceived presence of a large competitor. Many smaller brands shy away from mentioning their competition in their marketing communications, especially at the point of purchase. Research has found that when Wal-Mart Stores Inc. enters a market, the most common reaction for incumbent smaller retail chains is to do nothing, at least in terms of advertising and the marketing mix. Our research suggests that this strategy may be unwise. For the framing-the-game effects outlined here to work to the advantage of small companies, competitive narratives should highlight the battle between small and large competitors, and this narrative must be made salient to consumers at the time of purchase.

Brands don’t have to be tiny businesses to benefit from such competitive narratives. Jim Koch, the founder and chairman of the Boston Beer Company, makers of Samuel Adams beer, has over the years often compared his independent brewery to the behemoth Anheuser-Busch Companies, LLC, framing the game to Boston Beer’s advantage with claims such as “Anheuser-Busch spills more beer than we make.” A Sam Adams advertising campaign entitled “Growing Up Small” attempted to remind consumers of its diminutive competitive position. Despite the objective reality that Sam Adams is by now a well-known brand, Koch deftly reframes the competitive game to benefit the Sam Adams brand. What drives the framing-the-game effect is not absolute size but consumers’ perceptions that a brand is smaller than its larger competitor.

Reproduced from MIT SLOAN Management Review