Porter's generic strategies: what it is and what to do instead

The idea worth keeping

Not as boxes to fill, but as questions that fall out of the maths of the goal:

• Which customers are we losing, and to whom?
• Can our costs match the cheapest rival? If not, what do customers pay us more for?
• Where are we still winning, and why?

Why reaching for it fails in an interview

• It is generic. "Choose cost leadership or differentiation" can be said to any firm, and the interviewer wants to know which one and why.
• It misses the driver that matters. The label hides the numbers: whether the client's costs could ever match a discounter's.
• It sounds rehearsed. Saying "stuck in the middle" sounds clever but adds nothing unless you show where the client wins.

What to do instead: a worked case

1. 1

   Pin the question

   Find where the chain can still win shoppers profitably and what to do with the stores where it cannot.

2. 2

   Write the maths of the goal

   • Profit = shoppers x visits per shopper x basket size x gross margin minus store costs
   • To match a discounter on price, our cost to run the business as a share of sales must fall to theirs
3. 3

   Use what you know about the business

   • Discounters keep cost low with a small range and mostly own-label products, so they can price well below a full-range supermarket.
   • Grocery margins are thin, so a few points of operating cost decide who can afford the lowest price.
   • Small urban stores win on convenience and fresh food, where shoppers care less about the last cent.

   The structure that falls out of it

   • Where shoppers are lost
     • By store format and location
     • To which rival
   • Can we match on price?
     • Our operating cost as a share of sales compared with discounters'
   • Where we still win
     • Formats and categories that grow
     • What those shoppers value

   Hypothesis: Our costs are too high to beat discounters on price, so the answer is to grow where convenience and fresh food win.

4. 4

   Find the facts that decide it

   • Operating cost is 22% of sales at the chain against 15% at discounters, so matching their prices would wipe out the chain's margin.
   • Large out-of-town stores lost 8% of shoppers where a discounter opened nearby; small urban stores grew shoppers by 3%.
5. 5

   Say so what

   Do not chase discounters on price: at 22% operating cost against their 15%, the chain cannot win that fight. Grow small urban stores built on convenience and fresh food, and convert or close the large stores that face a discounter nearby. The risk is the cost of closing stores, so start with the weakest ones.

Build the acumen behind it

The worked case used two things a list cannot give you: the five moves, and knowing how this kind of business makes money. These pages teach both.