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Specialized Offerings Yield Better Sales
Succeeding in any market requires being noticed by relevant customer audiences and showing them that what you're putting out there has appeal. But appeal is a tricky thing. As social scientists have discovered, it's an intangible based not only on the intrinsic value of your goods or services, but also on the degree to which those goods fit neatly into predictable categories that the audience can understand.
A recent study by Business School faculty shows that producers whose offerings or expertise are more clearly associated with one or two product categories have better sales than those whose goods or professional identity span multiple categories. More focused producers throw off subtle hints that they know their stuff, which is not lost on customers. In short, says organizational behavior professor Michael Hannan (at left), the old adage that "the jack of all trades is the master of none" governs consumer choices about whose goodies to buy.
The investigators used as test cases consumer responses in two arenas: Hollywood films and eBay auctions. Looking at how critics and consumers rated films over a three-year period, Hannan and co-researchers Greta Hsu, PhD '03, and now a faculty member at the University of California-Davis; and Özgecan Koçak, PhD '03, on the faculty of Turkey's Sabanci University, found that films identified by audiences as belonging to one or two genres-such as Western, comedy, or science fiction-ere rated more favorably than those they slotted into more than two genres. In other words, a comic sci-fi story set in the Wild West would have proven just too much for most people's taste.
Moreover, the more genre-restricted films were more successful at the box office. For instance, films classified in only one genre grossed roughly 40 percent more at the box office than did films with what the researchers identified as an average level of genre crossing. This held true even when other factors were taken into account, such as star power, budget, and the number of theaters showing the films.
A second part of the research-looking at eBay auctions-suggests that sellers do better when they stick to the category or categories they know best. The researchers examined nearly 1,500 online titles that sellers posted to identify their auction items in a host of categories such as dolls, Elvis memorabilia, and toy trains. They found that certain sellers used sophisticated lingo in their titles that would be known to experts in a particular category, and that this resulted in more successful auctions.
"Acronyms like CPK for Cabbage-Patch-Kids dolls, and quality markers like 'Certified MS63,' for example, were important signals to bidders that the seller was knowledgeable about the doll or coin categories," explains Hannan, the StrataCom Professor of Management. Importantly, the investigators found that sellers who used the more expert titles tended to auction other items in only a few categories, while those who used generic titles frequently posted other items in a host of other unrelated categories. "That means the sellers were using better titles precisely because they were specialists in only a few areas, and weren't just being promiscuous, if you will," Hannan says. And that translated into money: The odds of completing a sale for sellers who listed items in more than one category were only a third as high as for sellers who focused on a single category.
The study, "A Formal Theory of Multiple Category Memberships and Two Empirical Tests," suggests that focus pays off, which may make diversifiers and hybridizers think twice. "A lot of businesses these days are looking for synergies, but this study underscores the fact that there's a real trade-off when you try to be or mix too many things." Those who have the most success at boundary busting and diversifying, he says, are likely to remain those large organizations with the proper resources to solve problems by making sure they hire an adequate number of specialists in each area.
“A Formal Theory of Multiple Category Memberships and Two Empirical Tests,” Greta Hsu, Michael T. Hannan, and Özgecan Koçak, Stanford Research Paper No. 1968 (R), Ju;ly 2007