Entering New Markets: The Effect of Performance Feedback Near Aspiration and Well Below and Above it

Abstract

Research summary: This study draws on the resource-based view and the behavioral theory of the firm to gain new insights about the effect of performance relative to aspiration level (i.e., performance feedback) on the decision to enter new markets. Results show an inverted U-shaped relationship between performance both below and above aspiration level, and the probability of firms to enter new markets. That is, when firms are well below or well above their aspiration level, they significantly change their behavior. This article develops a theoretical framework to clarify and organize these findings.

Managerial summary: This study examines the effect of performance feedback, and particularly, large discrepancies between firm performance and aspiration level on the decision to enter new markets. It provides support to the role of performance feedback in affecting the decision to enter new markets, a factor that has received relatively little attention in the extensive literature that has examined the inducements of such moves. Results show that, as performance falls below or rises above aspiration, a firm’s probability of entering new markets increases up to a certain point after which this relationship decreases. This shows that the tendency to enter new markets is different for firms that are in the neighborhood of aspiration level compared to those that are well below or above it.

Keywords: entering new markets, resource-based view, behavioral theory of the firm, performance feedback, well below or above aspiration level