David vs. Goliath: Why Small Firms Win in Low-Tech and Giants Rule in High-Tech

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Big or small, the size of a firm can be an important determinant in making consumers believe in the quality of what a firm is selling. For example, Tom Bihn, a specialized bag manufacturer with a modest workforce of 55 employees, leverages its smaller size to cultivate a familial environment. Despite its size, Tom Bihn is renowned among consumers for delivering high-quality bags. In contrast, Tesla, an electric car manufacturer with a workforce of over 100,000, emphasizes its large employee size that allows the firm to tackle complex engineering, manufacturing, and operational challenges. Consumers widely recognize Tesla as a producer of top-notch electric vehicles. These examples of both small and large firms being perceived as producing high-quality products leads us to the question: How does a company’s size—as indicated by its number of employees and revenue—influence consumer perceptions of product quality?

In a recent Journal of Marketing Research article, Kaitlin Woolley, Daniella Kupor, and Peggy J. Liu explore this very question. The authors identify that product type (low- vs. high-tech) plays a significant role in how firm size affects perceived product quality. Consumers tend to believe that employees of smaller firms, compared to those of the larger competitors, are more intrinsically motivated—meaning that they are more passionate and devoted when creating and manufacturing their products. Importantly, consumers place greater weight on employee intrinsic motivation when evaluating low-tech products. Thus, consumers perceive low-tech products of smaller companies to be of better quality than those of larger companies. Consequently, consumers are less likely to choose similar low-tech products from larger competitors. At the same time, they also assume that larger firms have more financial resources necessary for cutting-edge research and development, and they place greater weight on financial resources for funding research and development when it comes to high-tech products. This leads to consumers perceiving high-tech products from larger firms as being of higher quality, and consumers are more likely to choose products from these larger entities than from smaller competitors.

Consumers tend to believe that employees of smaller firms are more intrinsically motivated—meaning that they are more passionate and devoted when creating and manufacturing their products. Importantly, consumers place greater weight on employee intrinsic motivation when evaluating low-tech products. Thus, consumers perceive low-tech products of smaller companies to be of better quality than those of larger companies.

Takeaways for Marketers

While companies and brands should be mindful of the important connection between company size and perceived product quality, how can they take advantage of this information and effectively boost consumers’ quality perceptions? According to the findings of this research, the strategies vary depending on the company size as well as the type of products offered. For large-sized companies, marketing strategies for low-tech product offerings should focus on emphasizing intrinsically motivated employees, whereas marketing strategies for high-tech product offerings should involve making the large company size more salient to consumers. For small-sized companies, those who offer low-tech products should direct consumers’ attention toward the company size (relative to larger-sized competitors), while those in the high-tech sectors can gain an advantage by making comparisons that indicate they spend a significant amount on research and development (R&D). In this way, by directing consumers’ attention toward or away from company size depending on the product type the company offers, marketers can strategically shape how consumers perceive the products in terms of their quality and, as a result, increase product sales.

We contacted the authors to get a better understanding of this research. In doing so, we collected additional insights into the research inspiration, managerial implications, and potential future research directions:

Q: This research demonstrates how company size can influence consumers’ perceived product quality of low- vs. high-tech products. What inspired you to focus on the level of technology as the moderating factor?

A: The decision to focus on the level of technology as a moderating factor was inspired by our review of the literature on how company size affects quality evaluations. These previous investigations found that at times, company size had a positive relationship with quality judgments, but other times there was a negative relationship. In thinking through this past work, we found that previous investigations that found a positive relationship between company size and quality were conducted in relatively high-tech domains (e.g., hospitals, cars, medical devices, airlines; Boscarino 1988; Chaudhuri et al. 2018; Paharia, Avery, and Keinan 2014). By contrast, investigations that found the opposite result were conducted in relatively low-tech domains (e.g., food services; Morgan 1993; Trinca, Duizer, and Keller 2022). Putting these pieces together, we considered that one explanation that could help resolve these conflicting patterns was that the relationship between company size and quality evaluations was moderated by whether products were perceived as low- or high-tech.

Q: Your work provides guidelines for companies of different sizes on how to portray their products better (as low- or high-tech) to increase perceived product quality. So, even for the exact same product, consumers’ quality perceptions may shift depending on how companies market their products. As for consumers, how should they overcome biased quality perceptions?

A: Exactly—our research indicates that companies can boost quality evaluations and increase choice share of their products by strategically supporting or challenging lay theories and shifting consumers’ perceptions of company size or product type. Large companies that make low-tech products can frame their company as smaller than competitors, highlight the intrinsic motivation of the employees who make the products (e.g., featuring testimonials from employees who love the work on the company website), or frame aspects of the overall low-tech product category or industry as more high-tech (e.g., emphasizing the precision of the production technology). Small companies that make high-tech products can frame their company as larger than competitors, highlight their “high” R&D spending (e.g., relative to other smaller competitors or its prior history of lower R&D spending), or frame the overall high-tech product category or industry as relatively low-tech.

Although we did not examine the question of how consumers can overcome biased quality perceptions, one possibility is that they can seek out more objective quality information about the product, rather than relying on their lay theories for how company size influences companies’ ability to produce quality goods. For example, consumers could look for relatively more unbiased reviews from reputable sources (e.g., in the high-tech domain: CNET, PCMag, or TechRadar; in the low-tech domain: Consumer Reports or other trusted sources) where experienced reviewers test and evaluate products.

Q: When making product choices, many consumers won’t go into detail about the actual size of the company. Instead, they would make an inference about the size based on how “well-known” the company/brand is. How does being well- vs. less-known influence your findings in this research?

A: In our pilot study, we found that most consumers report being at least sometimes aware of company sizes when making purchase decisions (81%). Of course, their beliefs about a company’s size may not always accurately reflect the true size of the company, and we find that it is ultimately consumers’ perceptions of company size that determine their quality evaluations. Whether a company is well-known or less-known could potentially influence perceptions of company size, as consumers might infer that well-known brands are also larger companies. However, if a consumer has not heard of a company before, they may still have a belief about how large or small that company is (e.g., based on the company’s industry, the company’s features such as its name or logo, or what the company reminds them of).

Q: The studies looked at physical goods. How can the findings of this research be extended or adapted to a service setting such as retail, healthcare, or accounting?

A: Our theoretical framework suggests that our findings regarding the relationship between company size and perceived quality—and how this relationship differs across low-tech versus high-tech categories—would likely apply more broadly to service offerings. While the experiments primarily focused on physical goods, the underlying mechanisms and lay theories proposed in the framework can be relevant in understanding consumer perceptions of service-based companies.

Support for this comes from Study 1, where we utilized secondary data to examine quality evaluations for companies on the Fortune 500 list, which included not only companies that manufacture physical goods but also companies offering retail, healthcare, and financial services. Given that we find the predicted pattern using this secondary data, this study suggests that our framework and findings may extend more broadly to these domains.

Indeed, in a service setting, consumers may still rely on their perceptions of company size for inferring quality. The intrinsic motivation lay theory, where consumers associate smaller companies with greater employee intrinsic motivation, and the financial resources lay theory, where consumers perceive larger companies as having more resources for research and development, can come into play when evaluating the quality of services.

Q: For companies that offer low-tech and high-tech products (e.g., Amazon), how can marketing managers align their messaging strategies to ensure that the perception of one does not negatively impact the other?

A: One possibility is for marketing managers of companies that offer both low-tech and high-tech products to employ strategic sub-branding to ensure that the perception of whether one type of product is low-tech or high-tech does not impact the perception of whether a different type of product is low-tech or high-tech.

Taking Amazon as an example: Amazon could establish distinct sub-brands for different product categories. For instance, Amazon might create a sub-brand specifically for clothing, a category that may be perceived as relatively low-tech. In the messaging for this sub-brand, the marketing strategy could emphasize the intrinsic motivation of employees involved in the production of these goods. This strategy could help counteract any potential negative perceptions associated with larger company size.

Simultaneously, Amazon could also have a separate sub-brand for their high-tech electronic goods. In this case, the messaging strategy should emphasize the advantages that come with the larger size of the company. By highlighting the company’s financial resources and R&D capabilities, consumers would be more likely to associate these high-tech products with the quality benefits that can come from a larger company size.

Q: Are these lay theories and resulting consumer preferences universal, or do you believe they vary by whether consumers live in an emerging or developed country? For example, in an emerging country, large foreign companies from a developed country might be seen as more innovative and capable of providing high-quality, high-tech products than large domestic companies.

A: Consumers’ preferences and lay theories may indeed vary across different countries, influenced by factors such as media exposure, culture, economics, and history.

In our research, we focused on participants from the United States who evaluated both real companies (i.e., from the Fortune 500 list) and hypothetical companies. However, it is worth considering in future research whether these effects are influenced by whether consumers reside in an emerging or developed country as well as whether consumers evaluate foreign versus domestic companies differently in terms of their ability to provide high-quality, high-tech products, controlling for company size.