Rethinking Competitive Positioning: Customer Value, Flexibility, and Generalist Advantage

Abstract

This paper contributes to prior research on firm positioning by bringing in demand-side factors. In particular, we develop a formal model to show how an important, yet often overlooked demand-side contingency –customers switching costs- can affect the competitive advantage of generalists over specialists. In this regard, we suggest that generalists have an advantage in comparison to specialists since they provide ex-ante flexibility to customers to switch between multiple firm offerings without changing service provider. Such flexibility is particularly valued in the settings where customer switching costs are high. We hypothesize that generalists lose this advantage, and grow less in comparison to specialists, once customer switching costs fall. We test our hypothesis using a sample of Latin American mobile communications carriers from 2003 to 2015. In particular, we draw on an exogenous policy change (mobile number portability) that suddenly decreases customer switching costs. Using a differences-in-differences methodology allows us to estimate the causal effects of competitive positioning on firm performance in different demand settings. Our results reveal that generalists grow less in comparison to specialists after the policy change.