How can you fit in, and at the same time, stand out? It’s a tension we’ve all experienced in our personal and professional lives. Humans have a deep need to be accepted as part of the group — yet, having gained that validation, we long to be recognized as unique and special.
“Companies want to differentiate themselves to gain competitive advantage and attention. But studies have shown that it’s at least as important to meet the norms and expectations of the industry you’re in.”
In other words, to be accepted by customers and investors, firms must conform. “What you’re doing needs to be intelligible to people,” Goldberg says. “They have to be able to ‘place’ you as belonging to a certain market with a certain reference group of competitors.”
So how can a business balance these competing pressures? One theory envisions a curve showing profitability as a function of typicality, where there’s an optimal level of differentiation — a happy medium between blind imitation and confounding idiosyncrasy.
This view usually focuses on product differentiation, Goldberg says. But in a new paper, he, Paul Gouvard of the Università della Svizzera italiana, and Sameer Srivastavaopen in new window of the University of California, Berkeley, say this misses an essential aspect of brand identity: how a company presents itself to outsiders.
They point to successful companies like Trader Joe’s and Virgin, which sell ordinary products in mature industries but distinguish themselves in their style of doing business. At Virgin Atlantic, CEO Richard Branson set a playful tone that made older air carriers seem stodgy. TJ’s created a unique shopping experience and (what a concept!) hires friendly staff.
“A firm has to answer two questions: What do we do, and how do we do it? The first defines the category you’re in. The second is independent of that and is more performative,” Goldberg says. “In this latter sense, identity is not something you have but something you do.”
By applying a deep-learning model to the transcripts of over 60,000 quarterly earning calls between 2008 and 2016, they identified firms whose self-presentation was markedly distinct from their competitors. Tesla, unsurprisingly, ranked as much less conventional than Ford. The mobile banking platform Green Dot, likewise, was far removed from JP Morgan Chase. On the flip side, Dell and Bank of America ranked among the most conventional.
When they looked at earnings forecasts, they found that stock analysts who had been on the calls projected higher earnings for atypical firms, likely boosting their stock at the time. The researchers dubbed this the “performative atypicality premium.”
Conventionally Unconventional
“It’s a bit ironic,” Goldberg says. “But novelty is especially rewarded when it conforms to popular expectations of what constitutes novelty. The key is to be atypical — in a typical way.”
In a sadly rare citation of Monty Python in a scholarly paper, the authors recall a scene from Life of Brian, in which the protagonist, who has been mistaken for Jesus, “tells his thousands of followers that they are all individuals. ‘We are all individuals!’ they respond in unison — with the exception of one screechy voice shouting ‘I’m not!’”
Genius or Goofball?
As a CEO approaches a certain level of eccentricity, you might think analysts would begin to have qualms. However, the researchers found that the farther out an executive’s performance was, the more (unjustified) endorsement they received. Those in the highest quintile of atypicality earned the highest premiums. There was no inflection point.
Goldberg points to the tragicomedy of WeWork: “The product wasn’t new; shared workspaces had been around for 20 years. But they had this messianic CEO, Adam Neumann, who talked about living forever and referred to his company as a capitalist kibbutz. He’d pass out in board meetings and be spotted walking around barefoot in Manhattan.”
Read the article by Lee Simmons / Insights by Stanford Business
