If you've led a successful startup, then you know the feeling: There's that moment when you go from competing with no one--or just competing with other startups--to competing with large companies. Usually, it's frightening. How can you possibly outlast a mature company that has an established brand, seemingly limitless resources, and locations throughout the globe?

As it turns out, there's no need to fear a competitor who is the proverbial 800-pound gorilla. In fact, a small company can achieve significant marketing gains if consumers are aware of the competitive threat it faces from a larger organization, according to new research in the MIT Sloan Management Review by Neeru Paharia (assistant professor, the McDonough School of Business at Georgetown University), Anat Keinan (associate professor, Harvard Business School) and Jill Avery (senior lecturer, Harvard Business School). 

Here are two examples from their story: 

  • When Cold Stone Creamery, an ice cream chain with roughly 1,400 stores, moved within 50 steps of a J.P. Licks ice cream store in Newton, Mass., consumers actually rallied around J.P. Licks, which is a small local chain--and Cold Stone later closed its nearby location.
  • When a Starbucks moved next door to one location of the The Coffee Bean & Tea Leaf, a smaller chain based in Los Angeles, the sales at that particular Coffee Bean & Tea Leaf store actually shot up--so much that the owner began colocating new stores next to other Starbucks.

"These examples are not anomalies," write Paharia, Keinan and Avery. They go on to describe the key step a small business needs to take, in terms of marketing, if a large company moves into the neighborhood: create a competitive narrative in which you are up against a larger company. Following an experiment at an independent bookstore in Cambridge, Mass., the authors found that sharing such a narrative can "spur consumers to make a purchase that supports the smaller competitor."

Here's how the experiment worked: Upon entering the bookstore, 163 prospective shoppers saw one of three versions of an in-store ad. One version of the ad stressed the potency of the store's large competitors (specifically, that they "have the ability to put small businesses such as this bookstore out of business"); another version stressed its small competitors, claiming that they were other locally owned stores. A third mentioned no competition whatsoever.

Patrons then received a $5 coupon, coded by the in-store ad version they saw. Here's what happened: 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," the MIT SMR reports. Not only were customers more likely to make a purchase, but they also purchased more items and spent more money at the store.

You might think this is just a bookstore thing. But the authors tested this effect--which they call "framing the game"--in other settings and product categories. They call it "framing the game," since you're framing your smaller business in the context of its larger, more powerful competition. And as it turned out, "framing the game" proved to be an effective marketing strategy in other settings too. 

For example, in one of the other studies they conducted, the authors asked participants to assess two hypothetical rival tire shops under three conditions: a small shop vs. a large one, a small one vs. another small one, or a large one vs. other large competitors. The result? "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," they write.

The message is clear: When it comes to marketing, emphasize your underdog status. Customers love supporting an underdog. What's especially inspiring is that "underdog" is not necessarily synonymous with small. For example, Jim Koch, the founder and chairman of the Boston Beer Company, makers of Samuel Adams beer, has "framed the game" with claims that "Anheuser-Busch spills more beer than we make," note the authors.

The authors conclude: "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."

Published on: Aug 22, 2014