Retailers’ Fringe Customer Focus and Shareholder Value: The Role of Firm Capabilities to Build and Leverage Market-based Assets
(A2023-114123)

AUTHORS

Manjunath Padigar, University of Groningen; Kiran Pedada, University of Manitoba; Ashish Sinha, UTS Business School; Rajendra Srivastava, Indian School of Business

ABSTRACT

Popular media and academic journals are replete with commentary about how traditional retailers are increasingly becoming susceptible to disruptive innovations. Literature on disruptive innovation proposes fringe customer focus (FCF) – i.e., strategic intent of a firm to emphasize on the needs of fringe customer segments whose needs are ignored by mainstream market offerings, as a critical firm-level strategic predisposition that can mitigate the risk of disruption and create shareholder value. Drawing on the theories of disruptive innovation and market-based assets (MBAs), the authors argue that the relationship between FCF and shareholder value is contingent upon whether the retailer possesses the complementary capabilities to build and leverage MBAs. The study employs a unique panel data set (N=1,316) consisting of 137 U.S. retailers between 2004 to 2018, created using text mining techniques to measure firm FCF from annual reports, to test the hypotheses. The findings suggest that (1) FCF improves firm value without increasing firm risk; (2) FCF and MBA-building capability work as complementary resources to improve shareholder value via a risk-reducing and return-enhancing mechanism; and (3) FCF acts as a compensatory resource to mitigate the negative effect of MBA-leveraging on firm value. The authors discuss the theoretical contributions and managerial implications of the findings.