Research

Category-spanning: Are you confusing customers or winning new ones?

How would you react if your favorite brand of golf clubs started selling tennis racquets? Or if your favorite beer started manufacturing juice? Would you rush to purchase, or would you view these newcomer products with suspicion?

By Joe Bardin

2022-03-07

How would you react if your favorite brand of golf clubs started selling tennis racquets? Or if your favorite beer started manufacturing juice? Would you rush to purchase, or would you view these newcomer products with suspicion?

The practice, known as category-spanning, has traditionally been considered a risky business. The conventional wisdom is your audiences need to know you for something, and going beyond that area of focus can make you look like a jack of all trades but master of none. Scholarly research seems to support this.

“The general finding from previous category research has been that category spanners are penalized,” says Assistant Professor of Management Heewon Chae,

So you as an organization should not span multiple boundaries as it can confuse consumers.

But the fact is category-spanning occurs successfully sometimes — Caterpillar, the heavy equipment manufacturer, now also makes boots; Netflix, the streaming service, added on a movie studio; Amazon, the ultimate online brand, opened in-person bookstores.

Even more problematic to the conventional wisdom is that all innovation in the marketplace is essentially born out of category-spanning. Consider the greatest recent business success story of our time, Tesla. Tesla’s electric vehicles are often described as computers on wheels. In fact, they span the two categories, computers and cars, to create a whole new category — the Tesla EV.

If category-spanning is bad for business, why is Elon Musk who founded Tesla, the wealthiest person in the world? Chae sought to explore this paradox of category spanning further. Specifically, she wanted to challenge the monolithic idea of it being good or bad, by testing conditions and audiences to attempt to identify how they might impact the success of category spanning.

A taste for expansion

Chae chose to focus on restaurants since their category is easily identifiable, as is their category-spanning activity. We all know what category an Italian restaurant falls into. We also know that when an Italian restaurant serves burgers, it’s a clear example of category-spanning. Many of us are exposed to category-spanning restaurants on a regular basis, Chae says.

Chae has a toddler at home, a 30-month old boy. For convenience, she often orders from a nearby Chinese restaurant. When she moved to central Scottsdale, she didn’t know the restaurants in the area. She found a Korean restaurant on the food delivery service, Door Dash, and ordered some typical Korean dishes. It turned out those Korean dishes were from the same Chinese restaurant from the old neighborhood. It had become a Chinese Korean-restaurant, to attract just this kind of added business.

How was the food? “Not bad,” says Chae, who is Korean.

The very existence of category-spanning restaurants suggests that at least sometimes, it’s good for business. For her study, Chae gathered data from 6,072 restaurants in the Washington, D.C. metropolitan area to better understand when and how is category-spanning most likely to work and when to avoid it.

The timing of this study was especially significant. In the wake of the COVID-19 pandemic, the restaurant industry has been very stressed. If they were ever considering category-spanning as a strategy to grow or maintain their business, or even just to cut their losses, now would be the time.

Chae conducted city-level research, meaning she viewed each city she looked at as a single data sample. Because each city has different demographics, she was able to consider the success of category-spanning, not just as an absolute, but in light of differing demographics.

Chicken low mein and cheesesteak

In the city of Beltsville, Maryland, for example, where money is relatively tight, she found a lot of category-spanning, but it involved typical dishes. Eddie’s Café in Beltsville claims to be a Chinese and American restaurant, which offers cheesesteak sandwiches alongside chicken low mein. Both dishes are familiar to most of us, just not under the same roof.

This is known as a type of category-spanning that is variety enhancing. Chae suggests that variety enhancement makes sense for certain restaurant owners in lower-income areas because they can attract more customers at a lower per-unit cost. Just as Chae was attracted to the Chinese restaurant that added on Korean food.

This kind of category-spanning makes sense for consumers, too. “When your budgets are tight,” she explains, “you don’t want to take risks, since more is at stake for you with each meal you purchase.” This would explain why Eddie’s does not offer a low mein sandwich.

It was to tease out these kinds of insights that Chae, unlike most category-spanning researchers, differentiated between this type of variety enhancing spanning, and the other kind: atypicality enhancing. Atypicality enhancing is when a true fusion of different categories occurs to create something new (such as a Tesla, or that delicious sounding low mein sandwich).

Chae notes that:

Variety-enhancing spanning determines a firm’s overall business boundaries by demonstrating the diversity of market categories in which it operates its business (e.g., Restaurant A serves Mexican, Restaurant B serves Mexican and Korean). Atypicality-enhancing spanning provides a way to position its products within those boundaries.

For example, a Korean restaurant that serves kimchi tacos along with other typical Korean dishes is still a Korean restaurant.

When income does not equal education

Most category-spanning research also typically blurs the line between income and education levels, assuming that they correlate — that more education leads to more income and vice versa. But Chae’s research found a contrasting effect between income versus education where category-spanning is concerned.

College Park, the town that is home to the University of Maryland’s main campus, is highly educated, but not high income. The numerous undergraduate, graduate, and post-doctoral students who live there do not enjoy high incomes to match their education, at least not at this point in their careers. In College Park, Chae found a proliferation of fusion cuisines (atypicality-enhancing category-spanning) restaurants. She attributes this to the residents being more culturally omnivorous. Kangnam BBQ in College Park is categorized as a Korean, Japanese, Barbeque, and Sports Bar restaurant. That’s quite omnivorous.

By contrast, in the high-income suburb of Bethesda Maryland, Chae didn’t find as much fusion cuisine. “Even though you can try new things at a relatively small cost for a high earner, like $50, I didn’t see a lot of it,” she says. Instead, Chae found that restaurants remained aligned with their category along traditional terms.

An even more defined example of the distinction in behavior between high education and high income was found in Dunkirk Maryland, were people tend to enjoy high income, but not high levels of education. Here restaurants tend to stick to their lanes, and offer the dishes you would expect from each particular culinary style.

New wine in a new bottle

So is category spanning a good thing or not? Like so many business strategies, the answer depends on whom you are trying to appeal to. “Think about your target consumer,” Chae advises. “and not just in terms of income, but education as well.”

It also seems to depend on how the novelty of category-spanning is introduced. Chae’s next research project is to explore gourmet food trucks and how they influence innovation in eating habits. She cites the example of the Kogi line of food trucks (Kogi is Korean for meat), which introduced Korean tacos that then became popular in restaurants.

The core identity of gourmet food trucks is to bring novelty,

says Chae, “it makes sense to people that a new form, like a gourmet food truck, would bring out something new, like new wine in a new bottle.”

Research Management and Entrepreneurship