It is a tough marketplace for small businesses today, as they compete against superstores like Walmart and online retail giants like Amazon, which recently reported its best-ever holiday shopping season. Unfortunately, smaller companies often are seen by consumers as less competent, making it more likely that they will lose out to larger, more established competitors. So, how do small businesses compete against these goliaths? New research published this month in the Journal of Marketing shows that if service providers emphasize both their morality and their underdog status, consumers will be more forgiving about what they lack in competence and choose them more often.

The research paper, “Doing Well vs. Doing Good: The Differential Effect of Underdog Positioning on Moral and Competent Service Providers,” is co-authored by Rebecca W. Hamilton, Michael G. and Robin Psaros Chair of Business Administration at Georgetown University’s McDonough School of Business; Debora V. Thompson, Beyer Family Associate Professor of Marketing at Georgetown McDonough; Amna Kirmani, professor of marketing at the University of Maryland’s Robert H. Smith School of Business; and Shannon Lantzy, a Ph.D. graduate of the Smith School. Using a variety of research methods, such as analyzing Yelp.com reviews of five different types of service providers, their study shows that empathy for a highly moral but seemingly less competent underdog can override the self-interest that usually drives consumers to choose a competent but less moral service provider.

Consumers are willing to choose service providers they may not like if these service providers help them achieve their goals. Although morality trumps competence when choosing friends, competence overrides morality when it comes to hiring a service provider. One way that small companies and non-profits can compete more effectively, according to the research, is by positioning themselves as underdogs, who, despite limited resources, are passionate and determined. For instance, Honest Tea initially built its brand to compete against behemoths like PepsiCo and Coca-Cola Company by emphasizing its underdog roots and sustainability message. 

“Our research provides guidance for service providers and brands who are trying to decide how to position themselves in the marketplace,” Hamilton said. “In particular, small businesses and non-profits looking for tactics to compete against larger, more established organizations can highlight their underdog status to increase market share.”

However, underdog positioning is more effective for some service providers than others. Specifically, although adopting underdog positioning can provide an effective buffer against competence shortcomings, it does not effectively guard against morality lapses, such as Volkswagen’s “Dieselgate” emissions scandal . Competent service providers with moral lapses do not elicit as much empathy as moral but less competent providers.

“For small companies, startups, and non-profits to position themselves effectively in the competitive marketplace, emphasizing their underdog status will work particularly well for their brand if they also highlight morality-related characteristics, such as integrity, social consciousness, ethical behavior, or environmental consciousness,” Thompson said. “There is something about being positively moral that seems to make underdog positioning work particularly well.”

This is a successful positioning strategy for new businesses and non-profits to consider for standing out from their larger competition.