How optimal is distinctiveness? Category heterogeneity and the distinctiveness-performance relationship

Prior work investigating whether or not organizations should strive to be moderately different from others in their market category has yielded fundamentally contradictory results, with some identifying such an inverted U-shaped relationship between distinctiveness and performance, yet with others finding U-shaped relationships. In this paper, I show how the delegitimation and competition reduction mechanisms jointly driving the distinctiveness-performance relationship can yield both U- and inverted U-shaped effects, even under nearly identical assumptions regarding these mechanisms’ nature. In particular, I show how it is the relative strength of these mechanisms that determines the outcome that is observed, rather than the existence of two countervailing forces, per se. Given this, I develop the hypothesis that the distinctiveness-performance relationship shape-flips from a U-shape into an inverted U-shape as organizations within a category adopt increasingly heterogeneous positions. A topic model of 70,232 websites combined with results from a questionnaire with 2,262 participants from the Dutch creative industries confirm an average U-shaped effect that flips into an inverted U as category heterogeneity increases. Overall, this paper therefore suggests that there is no one optimal level of distinctiveness. Rather, what level of distinctiveness is optimal depends entirely on how distinct others in one’s category are.