Optimal or detrimental? Distinctiveness in high risk aversion contexts

Optimal distinctiveness—a strategy where firms distance themselves moderately from their peers to gain a competitive advantage while maintaining legitimacy—is widely regarded as a desirable positioning tactic. However, the competitive benefits and legitimacy penalties of distinctiveness are shaped by various contingent factors. To address this gap, we investigate how the legitimacy penalties associated with distinctiveness vary depending on the risk predispositions of audiences. Our findings suggest that firms occupying moderately distinctive positions frequently experience suboptimal performance, as distinctiveness is perceived as a high-risk strategic choice. Audience risk aversion exerts considerable pressure on firms to conform, amplifying the extent to which distinctiveness undermines their legitimacy. Furthermore, we propose that by signaling a firm’s genuine commitment to its market position, authenticity helps alleviate audience risk concerns and reduce the legitimacy penalties associated with distinctiveness. Our analysis of the Canadian insurance industry from 1960 to 2020 provides strong empirical support for these arguments.