Little Fish in a Big Pond: Legitimacy Transfer, Authenticity, and Factors of Peripheral Firm Entry and Growth in the Market Center

• Published in: Strategic management journal 2017-12, Vol.38 (12), p.2532-2552
• Main Authors: Verhaal, J. Cameron, Hoskins, Jake D., Lundmark, Leif W.
• Format: Article
• Language: English
• Subjects: Authenticity; Beer; Breweries; Business growth; Companies; Competition; Competitors; firm growth; Fish; Identity; Imitation; Legitimacy; Market entry; market segment dynamics; Market segments; Markets; Organization theory; resource partitioning
• ISSN: 0143-2095; 1097-0266
• DOI: 10.1002/smj.2681

Research summary: How do peripheral firms compete and secure future growth? Building on literature in strategy and organizational theory, we test a model of peripheral entry and growth in the mainstream market segment. Using data from 289 craft breweries over 11 years, we find evidence that niche producers are increasingly entering the mainstream market and competing with market-center firms. We identify two mechanisms contributing to these actions: legitimacy transfer and cognitive claims of authenticity. As hypothesized, imitation of niche products by macro breweries facilitates craft beer entry into mainstream markets. Moreover, two authenticity-based identity codes are found to reliably influence craft brewery growth: a local identity (i.e., operating in one's local market) and a product proliferator identity (i.e., offering a more diverse set of products). Managerial summary: How can small niche firms compete with larger, more established organizations? By examining the rapidly expanding craft beer industry, this study explores how craft breweries are able to both enter the market space of these larger competitors and secure sustained patterns of growth. Specifically, we highlight two factors influencing the success of craft breweries. First, as major beer producers mimic niche products (i.e., faux craft beer), smaller niche firms are allowed to enter the market by exposing the typical consumer to the tastes of craft beer. Second, craft breweries enjoy increased success if they (a) emphasize the local elements of their company, and/or (b) offer a larger number of products.