Getting into the weeds with strategy

As the date nears for cannabis legalization and regulations in Canada, many entrepreneurs are executing their business plans to make an entrance into this previously taboo market. Research from the Alberta School of Business points to three major factors that influence which strategy to employ to enter into 'stigmatized' markets.

"First off, we considered a market as 'stigmatized' when either the product, service or the consumer, or all, are negatively stereotyped," says Angelique Slade Shantz, assistant professor of Strategic Management and Organization at the Alberta School of Business. "A firm looking to enter a stigmatized market should pay attention to the nature of the stigma, the extent to which key stakeholders agree on the severity of the stigma, and the thickness of the market, as it decides whether to enter by stealth, disruption, or exploitation."

Nature of Stigma

A good place to start is to assess how 'sticky' the stigma is, by determining whether the stigma comes from the product, service or customer. In situations where the stigma is attached to the product or service, firms may be more likely to commit resources to try to disrupt the perception, because this kind of stigma is less sticky. For example, research has shown how firms have attempted to destigmatize the medical marijuana market by moralizing it, positioning it as needed relief for the sick and suffering, and also by reframing it as a normal product used by a much broader population. They may also try to exploit the stigma, leveraging it to their advantage. When the stigma originates from the customer, in contrast, firms may be more likely to avoid association with the negative stigma altogether by using a stealth entry strategy.

Stakeholder Convergence

Taking an inventory of stakeholder opinions enables firms a clear view of the 'lay of the land.' When all or most key stakeholders agree that a market is stigmatized, firms may also be more likely to use a stealth entry strategy, because it's less likely that they will be able to disrupt or change public perceptions about the stigma. In this case, firms may enter the market more discretely in terms of signage, location, marketing, and branding, or find a direct digital pathway to customers via highly targeted online marketing. For example, in the growing online payday lending industry, firms use online behavioural advertising to connect directly with potential customers looking online for financial help.

When some stakeholders judge a market as stigmatized and others don't, a firm may be more likely to attempt to disrupt or exploit public perceptions.

Market Thickness

Finally, firms would be remiss if they did not consider the market's thickness as they decide how to enter. A thick market is one in which there are many customers, suppliers or partners to transact with. In a thick market, firms may prefer to enter using a stealth or exploitation strategy, because they have little to gain by disrupting the stigma perceptions. An exploitation strategy is one where firms will actually embrace the stigma. For example, research has looked at the case of firm entry into the hotly contested mixed martial arts market, where many entrants into the market actually exploited the controversy around the market, generating a buzz among targeted customers. Whereas, in a thin market, a firm may elect to try to disrupt the negative stigma of a market in an effort to build it up.

While legislation paves the road for entrepreneurs to contemplate opening shop in the emerging sector of cannabis production and distribution, launching a firm still comes with a number of risks. Implementing a well thought out entry plan could be an edge for success.

The article, "Spoils from the Spoiled: Strategies for Entering Stigmatized Markets," by Angelique Slade Shantz, Eileen Fisher, Aurora Liu and Moren Lévesque is forthcoming in the Journal of Management Studies.

Angelique Slade Shantz Angelique Slade Shantz focuses her research on the role of business in addressing grand challenges, predominantly occurring at the intersection of entrepreneurship and poverty alleviation. Her current research explores institutional, cultural and cognitive barriers to entrepreneurial activities and workplace motivation in the contexts of resource scarcity. She attended Arizona State University (BA), Duke University (MBA), and York University (PhD). She is currently an Assistant Professor of Strategic Management and Organization at the Alberta School of Business.