Income or education? Community-level antecedents of firms' category-spanning activities

Research Summary: This study investigates the relationships between consumer income, consumer education, and firms' propensities to span multiple market categories. Despite their positive correlation, I theorize contrasting effects of income and education on firms' variety-enhancing spanning. Specifically, I propose that the strong purchasing power of high-income communities should reduce the need for firms to operate in multiple categories, but culturally omnivorous preferences among educated elites should encourage firms' spanning. Analyses of 6,072 restaurants in a metropolitan area and a large-scale survey offer support for these predictions. Education, though not income, has a further positive effect on firms' atypicality-enhancing spanning. This study contributes to category and management research by focusing on audience heterogeneity as important antecedents of firms' action and explicating the multifaceted nature of spanning. Managerial Summary: This study examines how restaurants decide their culinary categories and menus depending on residents' income and education levels of a city they are located in. I find restaurants in higher-income communities tend to be more specialized in a single or fewer categories while those in lower-income communities are more likely to diversify into multiple categories to reach a broader customer base. By comparison, restaurants in more educated communities tend to diversify into multiple categories and provide fusion food because educated cultural omnivores like to explore novelty. These findings imply that retail firms should consider the separate effects of income and education levels of target consumers in determining their business scope and product portfolio.