Avoiding The race To The Middle

Transcript:

We often talk about needing to avoid the race to the bottom. We’re told it’s where brands go to die.

I’m going to pick a fight with that thesis, because the truth is, if you have an operational edge that allows you to viably and sustainably undercut your competitors, you should use it. People love cheap stuff and you will always have a market. Just ask Jeff Bezos.

The trouble is of course that 95% of brands that do compete on price don’t have that operational edge. They’re hurting themselves just as much as they’re hurting their competitors, and when their competitors retaliate then the race to the bottom really is on.

I think people get that. They understand that. What is less frequently discussed and far more insidious is the race to the middle. You see that’s where the bulk of brands converge. Afraid to position themselves away from the pack, one way or the other.

The problem is, to steal a quote from the brilliant Rory Sutherland, you don’t get a dopamine hit from the mid-market. When people go shopping, be it online or offline, they experience a thrill in one of 2 scenarios – either when they buy something they consider a luxury, or when they find a bargain. And this is just as true of rich people as it is of anyone else. So if you’re one of the many, many brands hiding in the mid-market, this presents a real problem.

It also explains why, after the financial crash, generally speaking the bottom and the top of each market were okay. It was the middle that was hit hardest. Take a sector I’ve done a lot of work in over the years – gyms. The really high end brands and expensive boutique studios have flourished since the financial crash, and likewise the budget market has grown exponentially. The mid-market, however, was annihilated.

So I encourage you to fight the urge to hide behind your competitors in the middle. It may feel safe but don’t be fooled. When a whale shark approaches plankton, it’s the little chaps on the fringes that have the best chance of survival. And with little sign of the pandemic coming to an end any time soon, there are no shortage of economic whale sharks emerging from the deep.

See you next time.