Market Categories and Strategic Positioning: When Deviating From Prototypes Hurts Performance Less

Audience expectations within categories often create pressures for firms to conform to prototypical behaviors. Drawing on categorization theory, this study examines how strategic deviation from the category prototype influences firm performance. While prior research has highlighted the penalties associated with nonconformity, recent work suggests that these effects may vary depending on firm- and category-level characteristics. This study proposes three factors that moderate the negative impact of strategic deviation on performance: firm reputation, category distinctiveness, and category social mission. Empirical evidence is drawn from a panel dataset comprising Spanish retail banking firms between 2000 and 2007. Results from fixed-effects models with Driscoll-Kraay standard errors indicate that firms that deviate from the category prototype exhibit lower performance. However, this effect is significantly attenuated for firms with strong reputations, those operating in highly distinctive categories, and those belonging to categories aligned with socially valued missions. JEL CLASSIFICATION: L10, M10