19 Mar 2008  Research & Ideas

Finding Success in the Middle of the Market

Let's face it—the middle market isn't sexy. Sears isn't Victoria's Secret. But it can be very profitable to know how to play "midfield" adroitly, says professor and soccer enthusiast John Quelch. Key concepts include:

  • Midfield represents the middle of the market, to which one end of the market aspires to trade up while the other end may have to trade down.
  • A company controls midfield by fielding a complete product line that includes backs and forwards.
  • Cost and service tradeoffs are required of companies that continue to dominate the middle ground.

 

Editor's Note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.

In soccer, it's axiomatic that controlling midfield is critical to success. The team that controls midfield dictates the pace of play, gives its forwards and defenders more time to set up their plays, and breaks up attacks by the opposing team's front line.

In business, it's not fashionable to concentrate on midfield. Focus, we are told, is essential. But you either have to be a specialist niche provider of premium-priced products tailored to a particular customer segment, or you have to shoot for scale, using low prices and volume purchasing to attract a mass market and drive down your cost structure. Midfield has been characterized as a "ditch" populated by companies with lower returns on investment than those pursuing the first two strategies. The woes of once great retailers like Sears Roebuck are cited as evidence.

But midfield is critical. It represents the middle of the market, to which one end of the market aspires to trade up and the other end of the market may have to (for economic reasons) or decide to (for lifestyle reasons) to trade down. General Motors and Ford used to control midfield in the U.S. auto market with the Chevrolet Malibu and the Ford Taurus. Nowadays, the Toyota Camry controls midfield. That control is critical to Toyota's product line strategy.

It's not that Toyota only sells in the middle market. Far from it. They sell to all segments (except the luxury segment which they address with Lexus). But midfield is where the bell-curve distribution of auto buyers by price of car reaches its peak. Sales of midfield product are a bellwether for dealers and consumers alike. The other products in the line—and their relative prices—hinge on the midfield entry.

"Midfield is a moving target."

A company controls midfield by fielding a complete product line that includes backs and forwards. In its supermarkets, Tesco, the successful UK retailer, offers consumers three options—good, better and best—in most high turnover product categories. In addition, Tesco doesn't just sell groceries through one-size-fits-all supermarkets. Recognizing the need to shape as well as respond to an increasingly segmented market, Tesco reaches its consumers through at least seven different store formats, from convenient Tesco Express outlets at one end of the spectrum to full assortment hypermarkets at the other. But, within all its stores, Tesco implements the same merchandising principles: Better, Simpler, Cheaper.

Talk to Chuck

The question arises: Can a company control midfield by playing only in midfield? The answer is "yes" but only if there is a precise and persuasive value proposition. Until three years ago, Charles Schwab had lost its way. The former king of discount brokerage had let its cost structure drift upwards and its prices had been undercut by Ameritrade and E*trade. Research identified a large middle market of investors, bruised by the end of the dot-com bubble, in need of more advice and brand assurance than Vanguard and Fidelity provided but without enough investable assets to be important to Merrill Lynch. The successful "Talk to Chuck" campaign appealed to this group, presenting Charles Schwab as an approachable partner serving the best interests of investors. Charles Schwab's asset growth over the past two years has topped the industry charts.

Midfield is a moving target. If Charles Schwab serves its customers well, their assets will grow to the point that they'll need more sophisticated services and advice. To control midfield, companies like Charles Schwab must stay consistent in their positioning but also respond to the evolving needs of their existing customers with new products and services. Very careful cost and service tradeoffs are required of companies that continue to dominate the middle ground.

Nowhere is controlling midfield more important than politics. With just two mainstream political parties evenly balanced, the winner is invariably the party that appeals best to "middle class values" and "middle America" and that captures a majority of the independents in the middle. The middle may not be as clearcut or exciting as the left or the right. It is a fuzzy zone that requires constant compromise. Yet midfield is where the votes are.

Do you agree that controlling midfield is a viable strategy? Can you think of other success stories?

Join the discussion on Harvard Business Online.

About the author

John Quelch is Senior Associate Dean and Lincoln Filene Professor of Business Administration at Harvard Business School.