Eric D. DeRosia, (2013) “Competition Neglect and Individualism: When Managers Can’t Think of Anyone But Themselves,” American Marketing Association Summer Educator’s Conference. Boston, Massachusetts.
EXTENDED ABSTRACT:
It is well known that when managers consider taking an action (e.g., launching a new product), managers should identify current and potential competitors and anticipate how they might to respond to the action (e.g., launching rival products). However, managers have a strong tendency toward “competition neglect,” in which they fail to anticipate the responses of competitors (Simonsohn 2010). As a result, managers sometimes take unwise actions only to be “blind-sided” by the responses of competitors. Rather than a purposeful inattention to competitors as a way of prioritizing other considerations (e.g., customers), competition neglect is a cognitive bias in which managers are prone to being unimaginative and ineffective in anticipating the potential abilities and actions of rivals (Lovallo and Kahneman 2003).
We argue that some managers are more vulnerable to competition neglect than others, and we argue this vulnerability is not randomly distributed among managers. We examine the role of the manager’s individualism: the extent to which the manager is self-oriented and chronically independent of others rather than group-oriented and chronically interdependent with others. Although the study of individualism and collectivism is more commonly performed at the aggregate level of culture, we follow the well-established approach of studying it at the individual level (Oyserman, Coon, and Kemmelmeier 2002).
Theoretical Framework
We draw from the literature on social interactions. At a theoretical level, the judgments of individualists are generally oriented toward self rather than other people in the social context. As compared to collectivists, individualists attend less to the situation-specific needs of other people. Empirical studies show individualists are less empathetic in their understanding of the contextual needs of others, less sensitive to situational factors when attributing causes to the behaviors of others, and less cooperative with others (see Oyserman et al. 2002 for a review).
We propose that just as individualists are less likely to adopt the perspective of other people in a social context, individualists are less likely to adopt the perspective of competing firms in a marketplace context. Because individualists are less practiced at considering the contextualized perspective of others in social contexts, they will be less effective when they attempt to do so in any context. We presume that considering the contextualized perspectives of rival firms (including a consideration of each rival’s objectives, constraints, and strategies) is an aid when attempting to anticipate how each rival might respond to the manager’s action. This logic suggests that when managers attempt to identify likely competitive responses, managers who are higher in individualism will be less successful at doing so.
Hypothesis: When managers who are high in individualism attempt to anticipate competitive responses, they are less effective at the task (vs. managers who are low in individualism).
This hypothesis gets at an important issue because it suggests managers who are high in individualism are more likely to experience competition neglect even when they attempt to avoid it. As noted by Larrick (2004), it is frequently assumed in management curricula that students will avoid cognitive biases if students are taught about the biases and warned to avoid them. However, as reviewed by Larrick, many cognitive biases are surprisingly stubborn—even when decision-makers are taught about the bias and warned to resist it. Because H1 suggests that managers with high individualism are less able to perform the task, the hypothesis implies the “teach and warn” debiasing method is inevitably less effective among managers with higher individualism.
Study 1
Participants and Procedure. We tested H1 with an empirical study among managers of small businesses (n = 134, average age = 35.9 years, average managerial experience = 4.2 years). We gave participants a written case scenario that asked for a recommendation on whether the small business should launch a new product.
The case describes a small business that has developed a radically new product (a super-cooled beverage) and agreed to exclusive distribution through a large retailer (Kroger). The case presents product testing research that indicates consumer acceptance it is likely, along with financial information that suggests the new product will be a success only if the firm gains strong consumer acceptance. In the setting described in the case, there are no technological or other barriers to prevent competitors from entering the market. There are two types of competitors in the marketplace with the resources and the incentive to launch a competing product: beverage companies (e.g., Coca-cola and Pepsi) and other large retailers (e.g., Walmart and Safeway). A pretest of the case with business school professors who were blind to the study’s purpose verified that if the product is launched and if it begins to gain consumer acceptance, ruinous entry by beverage companies and/or other retailers is likely, so the NPD idea in the case should receive an unfavorable evaluation.
After reading the case, participants completed two open-ended measures. First, they were given an open-ended thought-listing task. Second, they were asked to anticipate competitive responses: “In addition to [the small business], there are a variety of other companies mentioned in this scenario. What actions, if any, might these other companies take if the product is launched? How might those responses impact [the small business]?”
Next, overall evaluation of the NPD idea was measured with a four-item scale (e.g., This business idea is very strong, 1= Strongly Disagree, 7 = Strongly Agree). After a filler task, individualism was measured with a 12-item scale (Singelis 1994).
Results and Discussion. Pretesting identified 27 potential competitive responses (including the two most important competitive responses: beverage companies launching a similar product and retailers launching a similar product). Each of these competitive responses were mention-coded by two judges (97.7% agreement), with disagreements resolved by an appeal to a third judge.
In response to the thought-listing task, very few participants (11.9%) mentioned any form of potential competitive response. Only 2.2% of participants mentioned the potential response of the beverage companies, and none of the participants mentioned the potential response of retailers. This failure to consider competitive responses when considering the launch of a new product is consistent with the well-known bias of competition neglect.
Our test of H1 rests on how well participants identified the responses of competitors when we prompted them to make the attempt (i.e., in the second open-ended question). We first tested the number of different competitive responses mentioned by participants using a negative binomial regression (because the dependent variable represents a count). The estimated coefficient for individualism was negative (b = -0.222, SE = 0.109, p < .05). This finding that managers with higher levels of individualism identified fewer competitive responses is consistent with H1.
Next, we tested whether participants mentioned the most problematic competitive responses using logistic regression (because the dependent variable represents a dummy-coded indicator of whether the participant identified the competitive response). For mentions of the beverage companies launching a similar product, the estimated coefficient for individualism was negative (b = -0.665, SE = 0.331, p < .05). Similarly, for mentions of large retailers launching a similar product, the estimated coefficient was negative (b = -0.599, SE = 0.281, p < .05). This finding that managers with higher levels of individualism were less likely to identify the most problematic competitive responses is consistent with H1.
We also tested the participant’s overall evaluation of the NPD idea using linear regression. The estimated coefficient for individualism was positive (b = 0.587, SE = 0.189, p < .01). This is consistent with the findings reported above, suggesting that managers who are highly individualistic failed to identify the most problematic flaws in the NPD idea and were then more favorable in their evaluations of the idea.
Overall, our observation that managers who are highly individualistic are less able to identify competitive responses—even when they were specifically prompted to do so—implies the traditional “teach and warn” debiasing method is less effective for managers who are highly individualistic.
References
Singelis, Theodore M. (1994), “The Measurement of Independent and Interdependent Self-Construals,” Personality and Social Psychology Bulletin, 20 (5), 580-91.
Simonsohn, Uri (2010), “eBay’s Crowded Evening: Competition Neglect in Market Entry Decisions,” Management Science, 56 (7) ,1060-73.
Lovallo, Dan, and Daniel Kahneman (2003), “Delusions of Success: How Optimism Undermines Executives’ Decisions,” Harvard Business Review, 81 (7), 56-63.
Oyserman, Daphna, Heather M. Coon, and Markus Kemmelmeier (2002), “Rethinking Individualism and Collectivism: Evaluation of Theoretical Assumptions and Meta-Analyses,” Psychological Bulletin, 128 (1), 3-72.
Larrick, Richard P. (2004), “Debiasing,” in Handbook of Judgment and Decision Making, Koehler, Derek J., and Nigel Harvey (eds), Oxford, UK: Blackwell, 316-38.
– Eric DeRosia