Again, an ANOVA was used to compare the performance of firms exhibiting the three patterns of competitive behavior. As the results indicate (see Table 6), significant differences exist only on the net income after taxes measure. Specifically, Target Marketers experienced significantly higher income than Price Matchers and Strong Merchandisers.

TABLE 6

Results of Analysis of Variance of Merchants in Benign Environments (N = 116)

  Retailing Type    
           
Performance Measure Target Marketer
(T)
Price
Matcher
(P)
Strong
Merchandiser
(S)
Univariate
F-Value
Tukey
Paired
Comparison
Net income after taxes 3.41 2.36 2.58 4.66** T > P; T >S
Three years sales growth 4.82 4.24 4.28 1.42 -----
Overall store performance 4.59 4.76 4.45 0.59 -----

* p < .05 ** p < .01 *** p < .001



DISCUSSION

The central focus of this study was to determine if small retailers exhibited different patterns of competitive behavior in hostile and benign environments. The results of the study, which generally corroborate previous research (e.g., Covin & Slevin, 1989; Covin & Covin, 1990; Morris & Paul, 1987), indicate that: (1) distinct patterns of competitive behavior can be identified; and (2) these patterns of behavior are associated with different levels of performance.

 

Generally, the most interesting findings are related to our discovery that pricing is an important element of successful competitive behavior in hostile environments. Small retailers following some form of pricing strategy outperformed firms exhibiting other competitive behavior is somewhat at odds with prevailing wisdom. Prior research has indicated that local merchants should avoid low pricing practices when competing against a large discount chain. One of the Wal-Mart’s primary competitive weapons is low price, which is difficult, if not impossible, for small merchants to replicate (see Taylor & Archer, 1994; Stone, 1995). Further, small business theory provides that small firms should focus their competitive efforts on target markets or niches that their larger competitors will likely ignore. Covin and Covin (1990), for example, suggest that small firms should compete on customer service and product specialization or customization, rather than price. Stone (1995) recommends that stores should not attempt to compete head-to-head with a discount chain but offer different or complimentary merchandise.

 

The current study’s results, however, suggest that the sampled firms were not competing exclusively on low price. Instead, it appears that they were remaining "price competitive" while featuring other competitive factors such as superior service. We believe this is a direct reflection of entrepreneurial competitive behavior and does not necessarily refute the notion that pure price competition is detrimental to small retailer performance. Further, the results support the existing literature which suggests that local merchants should compete against discount chains on factors other than price (see Mammarella, 1994). The successful stores in our sample exhibited competitive behavior in which pricing was only one component -- not necessarily the overriding characteristic.

 

The overall findings of this study support the idea that strategy is a determinant of firm profitability (Smith & Grimm, 1987). However, additional empirical evidence is needed to adequately understand which competitive strategies, among those which are apparently equally viable, are most effective when competing within a hostile environment. This is especially true within the context of a rural market area.

 

Further, the study was structured to span various industries or segments of a rural market. Our study was not concerned with specific market segments, but generally with the responses and perceptions of individual retailers within a specific market context. Mass merchandisers, such as a Wal-Mart, by their nature, also span various market segments, and the effects of the arrival of mass merchandisers on a rural market should have importance for both researchers and practitioners in a general as well as a specific market settings. As specialty retailers, such as Menards in hardware, enter rural markets, specific segment or industry responses are likely to be a fruitful area for future research.

 

In conclusion, the results of this study indicate that following the arrival of a discounter chain like Wal-Mart, local merchants adopt distinct strategies to compete in the newly created hostile environment. The strategies implemented are identifiable and there are performance differences among the varied strategic behaviors. The research supports the notion that environmental hostility moderates the relationship between competitive behavior and firm performance. We have identified specific strategies initiated by small retailers which were associated with superior performance. What seems clear is that firms must change and adapt to jolts in their environments. Future research is needed to identify and fully understand which competitive responses are most effective in competing within a hostile environment.

REFERENCES

 

Armstrong, J., & Overton, T.S. 1977. Estimating nonresponse bias in mail surveys. Journal of Marketing Research, 16: 396-402.

Conant, J.S., Smart, D.T., & Solano-Mendez, R. 1993. Generic retailing types, distinctive marketing competencies, and competitive advantage. Journal of Retailing, 69(3): 254-279.

Covin, J.G. & Covin, T.J. 1990. Competitive aggressiveness, environmental context, and small firm performance. Entrepreneurship Theory and Practice, 15(2): 35-50.

_____, & Slevin, D.P. 1989. Strategic management of small firms in hostile and benign environments. Strategic Management Journal, 10: 75-87.

Davis, D., Morris M., & Allen, J. 1991. Perceived environmental turbulence and its effect on selected entrepreneurship, marketing and organizational characteristics in industrial firms. Journal of the Academy of Marketing Science, 19(1):43-51.

Dess, G.G., & Robinson, R.B., Jr. 1984. Measuring organizational performance in the absence of objective measures: The case of the privately-held firms and conglomerate business unit. Strategic Management Journal, 5: 265-273.

Ettlie, J.E. 1983. Organizational policy and innovation among suppliers to the food processing sector. Academy of Management Journal, 26: 27-44.

Hair, J.F., Jr., Anderson, R.E., & Tatham, R.L. 1987. Multivariate Data Analysis with readings. New York: Macmillan Publishing Company.

Khandwalla, P. 1977. The Design of organizations. New York: Harcourt, Brace, Javanovich.

Lumpkin, G.T. & Dess, G.G. 1996. Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21(1): 135-172.

Mammarella, J. 1994. Tarnishing an image: Wal-Mart gets hit by media, consumers, and competitors. Discount Store News, 33(23): 109-111.

McGinnis, M.A., & Kohn, J.W. 1993. Logistics strategy, organizational environment, and time competitiveness. Journal of Business Logistics, 14(2): 1-23.

Meyer, A.D., Brooks, G.R., & Goes, J.B. 1990. Environmental jolts and industry revolutions: Organizational responses to discontinuous change. Strategic Management Journal, 11:93.

Miles, M.P., & Arnold, D.R. 1991. The relationship between marketing orientation and entrepreneurial orientation. Entrepreneurship Theory and Practice, 15(4): 49-65.

_____, & Thompson, D.L. 1993. The interrelationship between environmental hostility and entrepreneurial orientation. Journal of Applied Business Research, 9(4): 12-23.

_____. 1983. Strategy-making and environment: The third link. Strategic Management Journal, 4: 221-235.

Morris, M.H., & Paul, G.W. 1987. The relationship between entrepreneurship and marketing in established firms. Journal of Business Venturing, 2: 247-259.

Ozment, J., & Martin, G. 1990. Changes in the competitive environment of rural retail trade areas. Journal of Business Research, 21: 277-287.

Robinson, R.B., Jr., & Pearce, J.A., II. 1988. Planned patterns of strategic behavior and their relationship to business-unit performance. Strategic Management Journal, 9: 43-60.

Shama, A. 1993. Marketing strategies during recession: A comparison of small and large firms. Journal of Small Business Management, 31(3): 62-72.

Smith, K.G., & Grimm, C.M. 1987. Environmental variation, strategic change and firm performance: A study of railroad deregulation. Strategic Management Journal, 8: 363- 376.

Stone, K.E. 1995. Competing with the retail giants: How to survive in the new retail landscape. New York: John Wiley & Sons,, Inc.

Taylor, D., & Archer, J.S. 1994. Up against the Wal-Marts: How your business can prosper in the shadow of the retail giants. New York: Amacom.

Venkatraman, N., & Ramanujam, V. 1986. Measurement of business performance in strategy research: A comparison of approaches. Academy of Management Review, 11: 801-814.

Welles, E.O. 1993. When Wal-Mart comes to town. Inc.. July: 76-88.

Zahra, S. A. 1993. Environment, corporate entrepreneurship, and financial performance: A taxonomic approach. Journal of Business Venturing, 8: 319-340.

Top of Page
Previous Page | Main Page
Return to 1996 Topical Index


1997 Babson College All Rights Reserved
Last Updated 4/9/97 by Cheryl Ann Lopez

To sign-up for the Center for Entrepreneurial Studies' publication lists,
please register with the
Entrepreneurship WebTeam.