Experientially diverse customers and organizational adaptation in changing demand landscapes: A study of US cannabis markets, 2014–2016

• DOI: http://doi.org/10.1002/smj.3078
• Author: Özgecan Koçak,Greta Hsu,Balázs Kovács
• Published date: 01 December 2019
• Date: 01 December 2019

RESEARCH ARTICLE

Experientially diverse customers and organizational

adaptation in changing demand landscapes: A study

of US cannabis markets, 2014–2016

Greta Hsu

1

| Balázs Kovács

2

| Özgecan Koçak

3

1

Graduate School of Management,

University of California, Davis, California

2

School of Management, Yale University,

New Haven, Connecticut

3

Goizueta Business School, Emory

University, Atlanta, Georgia

Correspondence

Greta Hsu, Graduate School of

Management, University of California,

Davis, One Shields Ave., Davis, CA 95616.

Email: grhsu@ucdavis.edu

Abstract

Research Summary:In this study, we contribute to strat-

egy and organizational theories of organizational adapta-

tion by developing theory about the kinds of customers

that facilitate an organization's ability to adapt to changing

demand-side conditions. We propose that customers who

have previously interacted with diverse types of organiza-

tions in the market convey informationally rich feedback

that better enables organizations to understand and adapt

to change—particularly in more rapidly changing con-

texts. We further expect that organizations that position

themselves congruently with market preferences will be

stronger market competitors. We test and find support for

our arguments using a unique dataset of over 8,000 canna-

bis dispensaries operating in seven states that were listed

on Weedmaps.com between July 2014 and June 2016.

Managerial Summary:Performance of organizations in

changing markets depends on their ability to adapt to

evolving customer preferences. Such adaptation requires

understanding how preferences evolve—not only among

existing customers, but also in the broader market in which

the organization competes. We propose that feedback from

customers who have previously interacted with diverse

types of organizations in the market enables organizations

to understand customer expectations and adapt to changing

demand landscapes by positioning themselves accord-

ingly. We find support for these arguments in legalized

cannabis markets within seven U.S. states. Dispensaries

Received: 10 July 2017 Revised: 31 May 2019 Accepted: 17 June 2019 Published on: 23 August 2019

DOI: 10.1002/smj.3078

2214 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2019;40:2214–2241.wileyonlinelibrary.com/journal/smj

that get more feedback from experientially diverse cus-

tomers position themselves in ways that are more congru-

ent with the preferences of customers in their market.

Furthermore, dispensaries who are more congruent with

market preferences survive longer, bring in a greater num-

ber of new consumers, and are generally more appealing

to those consumers.

KEYWORDS

obsolescence, organizational adaptation, organizational ecology,

organizational identity, sociology of markets

1|INTRODUCTION

In recent years, an increasing number of states have sanctioned the sale and consumption of cannabis,

inviting new funding, producers, and customers to enter the legal U.S. cannabis market. As is typical

in rapidly growing markets, producers are witnessing substantial change in customers' preferences.

A cultural shift is also occurring, as public opinion increasingly supports the legalization of cannabis

not only for medical but also recreational purposes (Ingraham, 2016). The result is a market land-

scape rife with changing expectations around its core offering.

We explore the adaptive responses of cannabis dispensaries to this changing landscape. Strategy

and organizational theorists have long considered how organizations adapt in response to changing

environmental conditions (Dobrev, Kim, & Carroll, 2003; Henderson & Clark, 1990; Levinthal,

1997; Meyer, Gaba, & Colwell, 2005; Tushman & Anderson, 1986), including shifts in customer

tastes (Abernathy & Clark, 1985; Siggelkow, 2001). Customer preferences evolve as audiences

encounter new products and information that shape their understandings and expectations of market

offerings (Le Mens, Hannan, & Pólos, 2014; Rosa, Judson, & Porac, 2005). External technological,

economic, and cultural forces also impact preferences, along with producer actions that shape the

demand landscape in interaction with such forces (Adner, 2002; Benner & Tripsas, 2012; Tripsas,

2008). The market can thus be seen as an interactive space where shifts in demand conditions prompt

new competitive developments and vice-versa (Adner & Levinthal, 2001; Adner & Snow, 2010;

Adner & Zemsky, 2006; Priem, 2007). Within this space, a central challenge for dispensaries is to

learn how customer preferences are changing in a timely fashion.

We propose that understanding how organizations cope with demand-side change (and why dif-

ferent organizations show differential abilities to cope) requires systematic attention to how they gain

information about such change. Scholars have shown that firms develop new product ideas and learn

how to present their offerings through engagement with customers (e.g., Koçak, Hannan, & Hsu,

2014; Salomon & Jin, 2010; Zander & Zander, 2005). Yet, considerable work within strategy high-

lights problems with relying on existing customers for learning. Focusing on preferences expressed

by existing customers can be misleading in changing environments (Christensen, 1997;

Christensen & Bower, 1996). Organizations often overweight such temporally and spatially proxi-

mate information, hindering exploration of the broader environment (Levinthal & March, 1993).

Adaptation efforts based on direct feedback from a limited subset of the market can thus lead firms

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