Little Fish in a Big Pond: Legitimacy Transfer, Authenticity, and Factors of Peripheral Firm Entry and Growth in the Market Center
| Author | Jake D. Hoskins,J. Cameron Verhaal,Leif W. Lundmark |
| Published date | 01 December 2017 |
| Date | 01 December 2017 |
| DOI | http://doi.org/10.1002/smj.2681 |
Strategic Management Journal
Strat. Mgmt. J.,38: 2532–2552 (2017)
Published online EarlyView 4 August 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2681
Received 18 August 2016;Final revision received24 May 2017
Little Fish in a Big Pond: Legitimacy Transfer,
Authenticity, and Factors of Peripheral Firm Entry and
Growth in the Market Center
J. Cameron Verhaal,1*Jake D. Hoskins,2and Leif W. Lundmark3
1Department of Managerial Sciences, Robinson College of Business, Georgia State
University, Atlanta, Georgia
2Department of Marketing, Bill and Vieve Gore School of Business, Westminster
College, Salt Lake City, Utah
3Department of Management, College of Business Administration, University of
Nebraska Omaha, Omaha, Nebraska
Research summary: How do peripheral rms 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 11years, we nd
evidence that niche producers are increasingly entering the mainstream market and competing
with market-center rms. 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 inuence craftbrewery 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 rms 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. Specically,we highlight two factors inuencing the success of craft
breweries. First, as major beer producers mimic niche products (i.e., faux craft beer), smaller
niche rms 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. Copyright © 2017 John Wiley &
Sons, Ltd.
Management scholars have become increasingly
interested in how individual industries are organized
into market segments (also referred to as niches
or submarkets), and the implications for rms as
these segments evolve and change. Indeed, recent
Keywords: market segment dynamics; legitimacy;
resource partitioning; authenticity; rm growth
*Correspondence to: J. Cameron Verhaal, Department of Man-
agerial Sciences, Robinson College of Business, Georgia State
University,Atlanta, GA. E-mail: jverhaal@gsu.edu
Copyright © 2017 John Wiley & Sons, Ltd.
research in strategic management has sought to
demonstrate how intra-industry market dynamics
impact rm performance, for example: how crowd-
ing and competition inuence rm repositioning
within, or abandonment of, market segments (Bar-
roso et al., 2016; Dobrev, 2007; Wang & Shaver,
2014); the role of cognitive processes (such as
changing consumer preferences or the emergence of
new market schemas) in shaping market segments
over time (Barroso et al., 2016; Bingham & Kahl,
2013; Le Mens, Hannan, & Pólos, 2015); and the
Little Fish in a Big Pond: Legitimacy Transfer and Authenticity 2533
inherent challenges certain rms face in diversify-
ing across multiple market segments (Fosfuri, Gia-
rratana, & Roca, 2016). One theoretical perspec-
tive that broadly seeks to explain market segment
dynamics is resource partitioning (Carroll, 1985),
which occurs when competition and concentration
at the center of a market reveal niche opportuni-
ties on the periphery for rms ill-equipped to com-
pete in mainstream market segments, where scale
economies often drive competitive advantage. The
majority of this research has sought to uncover the
critical rst steps that shape why and how mar-
ket segments partition in the rst place (Carroll,
1985), the competitive dynamics and evolution of
market-center rms (Boone, Van Witteloostuijn, &
Carroll, 2002; Cattani et al., 2008; Dobrev, Kim,
& Carroll, 2002), and how peripheral rms fare
within their own markets as a result of competition
among other market segments (McKendrick & Han-
nan, 2014; Negro, Visentin, & Swaminathan, 2014;
Reis et al., 2013).
Classic treatment of the theory suggests that
peripheral (or niche) rms have little recourse if
larger players in the market center choose to com-
pete with them (Swaminathan, 2001) and that small
peripheral rms would likely falter if they attempted
to enter the market center (Carroll & Swaminathan,
2000). We suggest that this axiom may be evolv-
ing, yet we know very little about the performance
and growth of peripheral rms (exception: Liu &
Wezel, 2015) and the conditions under which they
might enter, compete, and even thrive in the main-
stream market after partitioning has occurred. This
gap is particularly important because many periph-
eral markets that leverage distinct or sharp social
identities as a source of legitimacy and competi-
tive advantage (e.g., craft beer,scotch whisky, green
energy, grass-fed meat) (McKendrick & Hannan,
2014; Sine & Lee, 2009; Verhaal, Khessina, &
Dobrev, 2015; Weber, Heinze, & DeSoucey, 2008)
are predicated on cognitive claims of authenticity
related to organizational size and small-scale pro-
duction processes (Carroll & Swaminathan, 2000;
Carroll & Wheaton, 2009). The result is an interest-
ing paradox in which the successful growth of these
organizations can actually undermine the credibil-
ity of their authenticity claims. This paradox high-
lights the internal tension which some rms face
that have economic motivations to grow yet lever-
age identity-based appeal, which may lead some
consumers to sanction rm growth (Fosfuri etal.,
2016).
This article seeks to address two key questions:
(a) Can certain niche rms enter and compete in the
mainstream market, and under what conditions can
they do so? To address this question, we develop
theoretical arguments related to legitimacy transfer,
whereby rms in the market center that are attempt-
ing to exploit growing niche markets by offering
related products and services (Negro et al., 2014)
inadvertently create legitimacy for peripheral rms
within the market center, potentially aiding these
rms in entering the mainstream market. A sec-
ond relevant question is: (b) What drives growth
and competitive advantage for these rms once they
have entered? As peripheral rms enter the market
center, they encounter consumers with prototypical
tastes and preferences that differ from those of the
periphery. These tastes are important because they
serve to delineate and shape the boundaries of dif-
ferent market categories (Barroso et al., 2016; Han-
nan, Pólos, & Carroll, 2007; Le Mens et al., 2015).
Leveraging theoretical arguments of engagement
(Hannan et al., 2007), we hypothesize that organi-
zations that can credibly engage market-center con-
sumers with claims of authenticity will experience
higher growth rates than peripheral rms that can-
not do so. Ultimately, engagement activities pro-
vide credible signals of authenticity and facilitate
the growth of peripheral rms in the market center.
Our study combines perspectives in strategic
management and organization theory, and attempts
to advance these literatures in a number of impor-
tant ways. First, we contribute to research exploring
the evolution of market segments and strategic
groups by investigating a component of market evo-
lution that has received little attention, specically
how small peripheral rms that leverage distinct
collective identities transition into the market
center where scale advantages play a central role.
As such, our study complements previous research
exploring how rm movement re-shapes resource
and identity spaces (Carroll & Swaminathan, 2000;
Dobrev, 2007; Rao, Monin, & Durand, 2003), and
how organizational identities may constrain and
guide growth and diversication strategies (Fosfuri
et al., 2016). Second, we advance the notion of
endogenous demand, whereby “rms themselves
inuence consumer interest in niches through the
products that they offer” (Barroso etal., 2016).
In doing so, we develop theoretical predictions
related to the perceptual factors that drive con-
sumer demand, and ultimately, rm performance.
Previous work has highlighted the notion that
Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2532–2552 (2017)
DOI: 10.1002/smj
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