If you think the new Walmart opening down the street could spell the end of your small business, you may be pleasantly surprised by what unfolds, new research suggests.
Small businesses located near larger competitors may see their sales increase as a result of their location, as some consumers gain pleasure at trying to "punish" larger, more dominant brands for having too much power by doing businesses with the smaller guy, according to a study set to be published in an upcoming issue of the American Marketing Association's Journal of Marketing Research.
The study cites the owner of Coffee Bean & Tea Leaf in Los Angeles as an example. When the owner could not stop Starbucks from moving next door, he at first admitted defeat.
"However, soon after, he was surprised to see his sales shoot up, so much so that he began to proactively locate new stores next to Starbucks," the study's authors wrote.
As part of the study, researchers examined the buying habits of people shopping for books in a small, locally owned bookstore. Some shoppers were told that the bookstore's only competitors were other small bookstores, while a separate group was told that the bookstore's primary competition was a nearby national chain that threatened to put the locally owned shop out of business. [Big Box Retailers Won't Kill Small Business Holiday Profits ]
The researchers discovered that customers who were told of the nearby national chain were more likely to make purchases at the smaller locally owned store.
In another experiment, participants were told to imagine they were in the mood for a cup of coffee. They were then told that they had the option of going to Starbucks or an independent coffee shop called Joe's Java. One group was told that Joe's Java and Starbucks were the same distance away, but in different neighborhoods, while the second group was told that Joe's Java was right next door to the Starbucks.
The researchers found that the group that believed Joe's Java was located in the shadow of Starbucks was more likely to go there.
The study's authors said the results indicate that rather than shying away from mentioning the competition, small businesses would be better served to highlight the battle between small and large competitors.
"For the framing-the-game effects outlined here to work to the advantage of small firms, 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," the study's authors wrote. "Our results serve as a reminder that less costly alternatives exist for small companies facing competition from large brands, compared with other strategies such as price discounting, increasing product variety and quality, offering high-touch customer service, and serving a more specialized niche segment."
The study was authored by Georgetown University assistant professor Neeru Paharia, Harvard University senior lecturer Jill Avery and Harvard associate professor Anat Keinan.