“A Mixture or a Compound? Community-Level Antecedents of Firms’ Category-Spanning Strategies” by Ms. Heewon CHAE
Ms. Heewon CHAE
PhD Candidate in Strategy
Stephen M. Ross School of Business
University of Michigan
This paper examines community-level antecedents of firms’ market diversification and product differentiation strategies using the concept of category spanning. Exploiting novel and extensive data on the restaurant industry in a large metropolitan statistical area, I find a contrasting effect of economic and social status of consumer communities on firms’ market diversification. Results show a negative effect of residents’ income levels and a positive effect of their education levels on the business scope of the restaurants in a focal town, both effects notable by statistical significance and size. Also, results from a computational text analysis of every word used in the menus of the sample restaurants suggest that it is educated social elites, culturally omnivorous and seeking novelty, who encourage firms to engage in product hybridization. Examining the full spectrum of the demand side with a novel theory and operationalization of spanning, this study complements the traditional focus in strategy research on the internal determinants of boundary spanning and contributes to understanding sociological and contextual factors influencing the development of firms’ sustainable competitive advantages. The study also has important theoretical and practical implications for questions ranging from the nuanced effects of the demand side characteristics of local communities on firm strategy to the enduring existence of different types of boundary spanners under the dominance of the “categorical imperative” logic.