Repositioning and Cost-Cutting: The Impact of Competition on Platform Strategies

Abstract

Organizational structures are increasingly complex. In particular, more firms today operate as multisided platforms. In this paper, we study how platform firms use repositioning and cost-cutting in response to competition, elucidate external and internal factors that constrain or enable these responses, and examine how the firms' responses affect their performance. Our empirical context is the U.S. newspaper industry, which has experienced increased competition following the entry of Craigslist, an online provider of classified ads. We find that when Craigslist enters a newspaper's market, the newspaper repositions itself away from other newspapers by changing its content. This results in greater differentiation between newspapers in a market, but occurs primarily in markets in which reader preferences are heterogeneous. When reader preferences are homogeneous, newspapers are more likely to engage in cost-cutting. Both responses are more pronounced for newspaper firms whose sister firms have already experienced Craigslist's entry. We also find that failure to design the right response harms competitive viability. These findings offer important implications for many platform firms operating in today's digital economy.

Threat of platform‐owner entry and complementor responses: Evidence from the mobile app market

“…Studies often examine firms' repositioning response in isolation. However, as suggested by the literature (e.g., Seamans & Zhu, 2017;Wang & Shaver, 2016), firms may in fact coordinate multiple responses to competition. We expect complementors not only to respond through product innovation but also to adjust their pricing strategies as a joint decision to accommodate platform-owner entry, for the following reasons.…”

“…Last, our work adds to the limited literature on competition-driven repositioning, particularly those studies that examine how the competition created by a powerful entrant affects incumbents' positioning strategies (e.g., de Figueiredo & Silverman, 2007;George & Waldfogel, 2006;Seamans & Zhu, 2017;Wang & Shaver, 2014. Unlike most of the existing studies that only examine firms' product differentiation strategies as a response to intensified competition, our study seeks to understand how firms adjust both innovation and pricing strategies, emphasizing the need to coordinate various actions to accommodate competition from a powerful entrant.…”

Reshaping demand landscapes: How firms change customer preferences to better fit their products

“…In this paper, I expand our understanding of the repertoire of strategies available to firms from the existing literature's focus on repositioning (Argyres, Mahoney, & Nickerson, 2019;Seamans & Zhu, 2017;Wang & Shaver, 2014) to include landscape reshaping. Specifically, I suggest that in addition to repositioning (moving their products on the landscape), firms can also change the distance between the customer's ideal point and their products by either (a) moving the customer's ideal point (convincing the customer that a different product attribute combination is more desirable) or (b) manipulating the customer's perception of the distance between the customer's ideal point and the firm's product.…”

“…As Figure 1a illustrates, firms pursuing a repositioning strategy increase the customer's WTP for their products by changing the product's attributes to position it closer to the customer's ideal point. Strategy and marketing scholars have described a number of examples of firms repositioning their products to contend with changes in customer tastes (Tripsas, 2008;Anderson & Shugan, 1991) and competitive environment (Seamans & Zhu, 2017;Wang & Shaver, 2016;Ellickson, Misra, & Nair, 2012). Coca Cola's launch of New Coke is perhaps the most famous attempt at repositioning.…”

Incumbent repositioning with decision biases

“…The repositioning ability of an incumbent may be low for a variety of reasons such as existing commitments. Examples here include Apple's iPhone's commitment to using its own operating system and distribution channel (Ghemawat, 1991;Hill & Rothaermel, 2003;Pacheco-De-Almeida, Henderson, & Cool, 2008), a newspaper business's inability to reposition when Craigslist enters the local market (Seamans & Zhu, 2017), and Loblaw Companies Limited, a major grocery chain in Canada, that built superstores before Walmart entered the market, and that could not efficiently switch to a small-store format (Besanko et al, 2009).…”