Posts Tagged ‘Stuck in the middle’

Beware of the Sticky Middle

August 21, 2009

One concept students (and scholars) of strategic management sometimes struggle with is the warning from Michael Porter about being stuck in the middle.  So too do businesses.

The idea is that firms who sit on the fence, differentiating somewhat while keeping costs at the lower end, will invariably struggle with the incompatibility of such goals, and thus fail.  More single-minded competitors will win out by pursuing EITHER (i) uniqueness that competitors value (and therefore pay for); OR (ii) cost efficiencies such that their products will have a low price advantage. 

Critics of Porter’s generic strategies have argued that he is too simplistic in his conceptualisation of markets and consumer behaviour, and that firms adhering to his gospel may miss a large, valuable middle ground of consumers where some slight differences and some best price offering will win out.

Source: The Economist (2009)Data presented in this Economist article (and the accompanying graph – right) would seem to support Porter’s arguments.  It shows the massive uptake in store brand groceries (a.k.a. private label or home brands), and the corresponding drop in sales for other brands in the German market over the past decade.

High end offerings and the most popular brand in a given category have held their ground. But elsewhere in a category, it is the more efficiently manufactured (due, in part,  to the enormous economies of scale guaranteed by retailer endorsement), lower priced products that have won out.

Message to firms:  be very, very good at what you do (that smells like the resource-based view to me)  and/or find an attribute consumers will pay considerably more for, or get extremely efficient at product manufacturing (thus winning the contract to produce a store brand). Otherwise, you will perish.