Remember Porter's three generic strategies?

I'm sure you do, and that's why before diving into the second part of our

pricing and product decision module, let's do an in video quiz and I'll see

you back in three. So, thanks for doing the in video quiz.

I'm sure you're all now up to speed, you've gotten it back into your

minds. Let's now have a look at what happens if

you combine these strategies, how you try to combine these strategies, if at all

possible. I'm going to be talking about a strategy

or a setting called stuck in the middle.

And you can already may guess from the name, that this is not a great place to

be in.. What does it mean?

What does it mean to be stuck in the middle?

So, if you're a firm that fails to develop your strategy, at least one of these

three directions. Differentiation, cost leadership or

focus. Then you're in a bad place.

You're not very profitable. You're not perceived as delivering high

value. You're basically in a poor position,

you're in a bad place. Why is that?

You may lack the market share, the capital investment, the resolve, the

mindset, to play the low-cost game in the first place.

You may lack the industry wide differentiation in the eyes of consumers

to obviate the need for low cost position, right.

So, if you don't have a great case for being differentiated, you would have to

be delivering lower cost. And if you can't do that, then you're not

differentiated, you're in a bad place. And finally, you also might lack the

focus to create differentiation or low cost positions.

So, you're not even taking one market segment and you deliver superior value

either in terms of cost or in terms of differentiation to that market segment.

So, then you're stuck in the middle. How does that look like?

Well, here, we have a graph, looking at profits, and looking at market shares.

Now, where would you be if you follow a differentiation strategy?

Well, you're going for low market share. Trying to be a niche player, but you want

to be very profitable. If you're cost leader, you have to get high

market share and the high market share is the justification for

efficiency, for high efficiency, and that's going to make you profitable.

So, high profits here, high profits there.

What happens in between? In between, you're stuck in the middle.

You neither have the value proposition in a niche, that gives you higher profits or

lets you charge higher price plus margin. Nor do you have the market share to make

it particularly efficient. And if you're very efficient, you could

also achieve high profits.

Probably at a low margin, but over a high volume, that again is going

to make you profitable. But being stuck in the middle means

you're focused on neither of the two strategies, and you are unprofitable.

So, the clear implication here, is that you would either go for one or the other,

but never try to do both. Now, however, sometimes this can be

profitable, sometimes you can combine the two,

and be what you call ambidextrous. So, being stuck in the middle does not

mean that firms cannot pursue multiple strategies simultaneously, but they have

to have the organization for it. They have to be set up to do exactly

that. So, pursuing hybrid, or ambidextrous

strategies, might lead to even better results than following, pure

strategies. But, what's important is that you

organize. You structure your organization.

You structure your firm precisely for that goal.

So, you need to be actively developing skills to be very cost efficient, and

skills to be good in differentiation. So, one example here would be NikeID

shoes. So, what you do there, or what Nike does

there, is you can mass customize your own sneaker.

Right, so you can go, you can mass customize through online stores.

You go on an online store and you could just, you customize, you choose your

specific design. So, that's going to be, on the one hand,

it's very cost efficient because it's mass customized.

On the other hand, you can customize, so you can use one specific design

for yourself, you can individually choose your own

design. So, in these past two videos, we've looked

at three generic strategies that firms can implement to ensure high profits.

The generic strategies we talked about are cost leadership, differentiation, and

focus. All three of these strategies will

promise a strong competitive position, and most of all, they will promise high

profits. But it's important that companies

do not try to implement all of these at the same time without being organized for

it, if you wish. So in this case, if they're not organized

and if they try to do both at the same time, they get stuck in the middle and

profits are lower, profits are at risk. So, only in certain circumstances, if

you're set up specifically for trying both, firms might be successful in

pursuing these multiple strategies simultaneously, and we call this very

special case ambidexterity. So now, thanks very much for staying on

throughout the course, throughout this very last video, and I'll see you back in

the wrap-up video. Thanks very much.

Stuck in the Middle

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