Why did Unilever enter the market for plant-based alternatives to meat? Why was BP engaged in solar panel manufacturing? And why did Patagonia enter the organic food market?
Usually market entry decisions are ascribed to superior resources or capabilities: companies enter markets where they can leverage their knowledge, technology, or expertise to gain an advantage. But of the three instances mentioned above, only one is largely consistent with this story. What accounts for market entry decisions when companies do not have the requisite resources and capabilities?
A first step to solving this puzzle is to acknowledge that the markets these companies have entered—markets for organic food, solar energy, and plant-based meat alternatives—are all instances of so-called “moral markets”: sectors that emerge not just to create economic value, but to explicitly offer market-based solutions to social and environmental problems.
All markets can offer some societal benefits (for example, employment opportunities), but moral markets are distinct for at least two reasons: First, their products, services, or means of production are considered to be normatively superior to alternatives. Second, as a consequence, these markets are typically supported by actors driven by moral considerations, such as non-governmental organizations (NGOs) and broader social movements.
In a paper published in Strategic Organization, we argue that attention to social movements together with corporate identity can help explain why companies enter moral markets, and why social movements contribute to greater organizational diversity in these markets.
How social movements shape moral markets
In recent decades, coalitions of activists, NGOs, and broader social movements have helped accelerate the formation of moral markets—including the fair trade market, wind and solar energy, ethical fashion, green buildings, cage-free eggs, and local or organic food, grass-fed and later plant-based meat. How are social movements shaping these markets?
On the supply side, by articulating a problem with existing markets ( such as brown energy, meat production, unfair trade), social movements prompt the search for alternative solutions and induce motivation for committed entrepreneurs. By pointing to specific solutions (for example, solar energy, plant-based protein, fair trade), activists and NGOs draw attention to entrepreneurial opportunities. For instance, in the early U.S. wind energy industry, local chapters of environmental organizations constituted critical information providers for entrepreneurs seeking to start wind energy farms.
On the demand side, the identification of the problem together with campaigning to support solutions induces changes in consumer preferences—especially amongst people committed to the cause—and contributes to more widespread acceptance of the new market. For instance, in the early 2000s a coalition of NGOs mobilized to educate consumers about forestry and paper production practices; the campaign resulted in several U.S. universities’ and large corporations’ adopting post-consumer recycled paper.
Finally, social movements make moral markets more attractive by helping create industry infrastructure, such as standards, certifications, or policy tools that favor moral markets. For instance, social movement organizations assisted the establishment of sustainability standards in markets for fair-trade coffee and grass-fed beef, and pushed for policies that supported the early renewable energy sector.
The role of organizational identity
To return to the opening examples, when Unilever entered the “plant-based meat” market by acquiring the Vegetarian Butcher, it could already build on its extensive knowledge in marketing vegan and vegetarian products across Europe. But one would be hard-pressed to explain how resource relatedness accounts for the other two examples. What business did Patagonia, an outdoor clothing retailer, have in the food industry? And what was BP doing in solar panel manufacturing, an industry that relies on fundamentally different technology, culture, and routines than the oil business?
In the case of Patagonia, the companies’ founder clarified that Patagonia’s move into the organic food market was not about leveraging the company’s existing resources. Instead, the company saw in this decision an opportunity to realize its corporate identity. With Patagonia being “in business to save our home planet”, the sustainable food market was consistent with the company’s raison d’etre.
But social movements also prompt firms with oppositional identities to enter moral markets. While they try to make moral markets more attractive, they simultaneously target corporations they see as responsible for the problem, such as when environmentalists protest against meat producers as culprits for the climate crisis. These efforts draw such companies’ attention to alternative markets and may even trigger them to enter these markets, either to enjoy the benefits sown by activists’ market-building efforts, or to pre-empt criticism. Thus, contrary to conventional markets where companies fail to notice opportunities that contradict their identity, moral markets draw companies with consistent and conflicting identities.
Some companies, however, have a more flexible identity than others. Either because they are newer organizations and what they stand for has not settled; or because their identity labels are more encompassing. For example, investment in renewable energy is more palatable for a company that defines itself and is seen by others as an “energy company” than for an “oil company”, even if the two organizations are otherwise similar. As stakeholders are more accepting of strategic moves consistent with a company’s identity, we expect the potential costs of entry to be lower and the likelihood of entry higher for companies with a more flexible identity.
Social movement characteristics
The characteristics of the social movement supporting the market also play a role in understanding which companies enter. Identity movements, driven by a need to express an identity than to instigate broader societal changes, tend to emphasize the authenticity of producers. In these markets, specialist firms with a resonant identity are more welcome, while firms with an oppositional identity experience greater scrutiny, which might deter them from entering. By contrast, organizational identity is less important for moral markets backed by instrumental movements whereby activists’ focus on advocating the mainstreaming of the market rather than on ensuring producer authenticity.
Moreover, when activists rely more on prognostic framing and tactics related to the promotion of new markets (such as consumer information campaigns; lobbying for demand-support policies) the prospective benefits of market entry—and thus incentives to enter—are greater for companies already offering those products. And when activists rely more on diagnostic framing and tactics that emphasize flaws in established markets (for example, protests against incumbents), it is harder for incumbents to enter and avoid criticism in the presence of “policing” by the social movement. In other words, the focus of the social movement on diagnostic versus prognostic tactics influences how firms’ identity will shape their decisions to enter moral markets.
It is unclear whether the broader movement for the moralization of markets will succeed. What is clear, however, is that social movements have succeeded in shaping moral markets, at least in their formative stages. Activists’ involvement appears to contribute to greater organizational diversity in moral markets, but the consequences of organizational diversity for these markets’ subsequent development remain to be seen. Given their potential to address major sustainability challenges, more research is needed to help social movements accelerate the adoption of moral markets.
Panikos Georgallis and Brandon Lee. “Toward a theory of entry in moral markets: The role of social movements and organizational identity” in Strategic Organization 2020.
Image: Ivan Radic via Wikimedia Commons (CC BY 2.0)