If the turn of the century brought us the rise of the big-box retailer, the twenty-teens may see the revenge of the small business. That's one of the implications of some new research by professors at Georgetown University and Harvard University.

In a series of experiments, the researchers looked at the effect that a big competitor had upon customers' willingness to patronize a smaller store. Their findings: Entrepreneurs who play their cards right may be able to use a behemoth's size against it, and to successfully position themselves as underdogs deserving of support.

I spoke with one of the researchers, Neeru Paharia, a professor at Georgetown's McDonough School of Business, about the underdog effect, and how entrepreneurs can make the most of it.

Your research shows that it may actually be good for a small business or entrepreneur to be seen as competing directly against a larger company. Can you explain?

What we found is that it's definitely good to emphasize that at least one of your competitors is more powerful than you. People want to support the underdog. When you position yourself as the underdog, it takes the customer's choice out of a purely economic framework and turns it into a political question. Who the customer wants to support, and why, gets added into their decision to buy.

When you put a Starbucks right next to an independent coffee shop, the choice of where to buy means more than "I want coffee." It's "Do I want to support small business and get back at the man?"

I think people are sensitive to bullies, and to people being bullied, and they turn that into how they feel about companies. And it's very easy for a big company to look like a bully.

How can a small business highlight its competition with a larger company, without seeming as if it's picking a fight or looking for pity?

You always have to be careful, because you don't want customers to feel like you're trying to manipulate them. That always backfires.

There are ways to do it. The bookstore that we studied went out of their way, in their own marketing, to emphasize that they had Amazon on their case. They created all these little videos. They are also trying to establish themselves as more of a cultural institution.

Does emphasizing your bigger competitor make it seem as if you're admitting you can't compete on price or selection?

I think most people already make an inference, for many types of stores, where you can buy the exact same thing online, that the smaller company is probably not going to be competitive on price.

Some of the study focuses on adjacency, and the effects of having a big competitor are greater when that competitor is really close by--maybe just across the street. What can online businesses learn from your research?

It's a little harder. But you should try to emphasize your competitive situation through a narrative.

You always want to tell a story that you're an underdog. That's the foundation of it. You're doing more with less and not giving up. The underdog narrative is so compelling to people. Think about all the reality television shows. You almost have to have some sort of underdog narrative to get on American Idol or The Voice, because people love that.

There's no arguing that you have to have a good product and the price has to be good. But playing up the fact that you're the underdog is a costless way to gain favor with consumers, so why not do it?

Published on: May 6, 2015