Why Companies Don’t Compete in the Middle Market

Dunzo, an Indian e-commerce company that promised to deliver anything in 60 minutes or less, launched in 2014. By 2019, it was operating in in eight Indian metros, and by August 2021, it had expanded into quick commerce, launching Dunzo Daily to deliver essentials in 19 minutes or less. Customers liked the convenience that Dunzo provided, investors loved its growth, and the phrase “Dunzo it” became a common idiom in India akin to “Google it” in the U.S. Dunzo wanted to serve everyone in urban India, so it charged modest premiums. But competition quickly intensified as rivals entered the sector to cater to more specific customer needs. Competitors redesigned their supply chains around dark stores and dense delivery radii to deliver anything in under 10 minutes. They also used data to identify profitable niches, cater to them cost-effectively, and build operating models that could scale. Because of its large range and complex cost structure, Dunzo could neither match commodity-level efficiency nor justify premium pricing associated with specialty services. The company initially delighted customers but failed to design an operating model that could sustain that delight profitably. By 2023, the company had to downsize, and by January 2025, Dunzo had to shut down. Dunzo failed because its strategy wasn’t anchored at either end of the commodity-specialty (standardized-to-custom) spectrum. It was trapped in the middle. Dunzo illustrates an important reality of the digital age: Industries now reward extremes and punish incrementalism. So, as the saying goes, companies must learn to play one or both ends against the middle. Incremental Differentiation No Longer Works In analog times, marginal differentiation was optimal. Companies had limited visibility into individual customer behavior and journeys, and feedback to the actions they took was slow, coarse, and expensive to collect. As a result, they used rivals as reference points, asking: What are others doing? How can we do it (slightly) better? They became “competitor-centric.” In such an environment, the middle of the market offered cover. The game was to make incremental improvements that were harder for competitors to observe, or more difficult to copy, but sufficient to sustain short-term profitability. The emphasis was on being marginally better, not fundamentally different. Survival depended on relative positioning, not customer validation. That logic has collapsed in the digital age. Customer-journey data is ubiquitous, granular, and available in real time. Marginal advantages become transparent immediately and can be copied. Companies in the middle get squeezed by both low-cost players who use data to strip out waste with precision, and by specialty players who use data to deliver resonant, personalized experiences that justify premiums. The middle of the market no longer offers shelter, so companies need different strategies to survive. This barbell pattern is not confined to one sector, but shows up across many industries: In grocery retail, loyalty data, point-of-sale analytics, and digital ordering make basket economics and cost-to-serve painfully clear. The market has polarized into hard discounters such as Aldi and Lidl at one end and premium specialists such as Whole Foods on the other. Traditional full-line supermarkets are facing an increasingly uncomfortable squeeze. In video and television, streaming data makes engagement and churn visible every minute. The market favors either free, ad-supported players such as Tubi and Pluto TV or premium, personalized subscription-providers such as Netflix. Traditional cable pay-TV bundles are bleeding in the middle. In digital news, real-time audience metrics and advertising markets reward either massive scale or deep habit. High-volume ad-driven publishers such as the Daily Mail Online and subscription-first institutions such as The New York Times play hugely different games, but both are more successful than the generalist middle of the market models that are struggling to survive. In asset management, performance, fees, and risk exposures are clearly visible. Capital flows toward low-cost passive investment vehicles on one side and toward differentiated outcomes, access, and customization on the other. Benchmark-like strategies charging active fees have quietly lost their relevance. The analog world allowed survival in the middle; the digital world does not. Marginal advantages evaporate quickly, and the middle offers no cover. Winners use data to escape the middle, scale the extremes, and build people-centric businesses by becoming data-centric. They win by focusing on satisfying their target customer needs and making their customer a hero. Companies that Avoid the Middle Let’s look at an example. Consider Indonesia’s Bobobox, which entered the country’s budget hotels market in 2018. For decades, everyone in the industry had competed in the middle. Hotel chains shaved costs as much as they could, matched competitors’ features, and fought for market share with price cuts. The outcome was predictable: declining margins, poor customer experiences, and little loyalty. Bobobox’s Bobopods brand took a different tack. Instead of asking how to be better than other budget hotels, it asked who was being ignored. Customer data revealed that nearly 90% of the guests in Indonesia’s budget hotels were men. Families, women, and even tourists stayed away not because of price, but because of the lack of safety and cleanliness. Bobopods entered the commodity end of the spectrum, but on the customer’s terms. Using data, it stripped away everything guests didn’t value and invested in what mattered most: spotless pods, soundproofing, controlled lighting, security, and app-based access and check-ins. The result wasn’t a frills-heavy experience, but a precisely engineered one. Women quickly became a majority of its guests, repeat-visit rates climbed, and customers became advocates. What appeared to be a commodity business generated profit margins of more than 40% a year. At the other end of the hotels market, Bobobox launched Bobocabins in 2021, moving away from standardization to specialty. It offered modular cabins for glamping in lovely scenic locations, where guests could configure amenities, ambiance, and activities to suit their preferences. It used data to understand individual preferences well enough to deliver tailored experiences at scale. The operating model supported premium pricing because of customers’ high willingness to pay. Bobopods was about precision efficiency; Bobocabins was all about scaled intimacy. By 2024, Bobocabin had expanded to dozens of locations across Indonesia, and was earning a profit with EBITDA of 55%. By avoiding the middle, Bobobox managed to win at both ends of the market. The 4S Framework To move from data-based insights to gaining advantage, companies need a new marketing strategy framework that links customer choice, delight, operating design, and economics. The 4S framework I’ve developed shows how winning companies can escape the middle of the standardized-to-custom spectrum to build sustainable business models at either or both ends. Select only customers you can truly satisfy. The starting point shouldn’t be the product or the competitor; it must be the customer. Data allows companies to regard customers not as a homogeneous mass, but to segment them into distinct groups, even individuals, with different needs, willingness to pay, and cost-to-serve profiles. The strategic question then becomes: Which customers can we serve exceptionally well? Which customers can we make a hero? In a digital world, trying to serve everyone guarantees that companies will get stuck in the middle. Dunzo attempted to serve everyone who valued convenience without picking a segment whose needs aligned with a sustainable operating model. Bobopods, on the other hand, chose an underserved segment of travelers who valued safety, cleanliness, and dignity more than frills. Satisfy—and delight—those customers. The next step is to satisfy your chosen customers deeply, and, ideally, to delight them. Delight comes from validation: Customers should feel seen, respected, and understood. That is what making the customer a hero is all about. Data across customer journeys reveals what truly matters and what doesn’t. At one end of the market, Bobopods delighted customers not by adding features, but by removing what they didn’t value and investing in what they did. At the other end, Bobocabins delighted customers by recognizing individual preferences and enabling bespoke experiences. In both cases, delight was precise, not generic. Serve customers consistently (through a fit-for-purpose operating model). Episodic delight doesn’t create an enduring advantage. Companies must translate data-driven insights into an operating model that delivers the promised experience each and every time. That requires aligning business processes, technology, incentives, and partner relationships around the chosen customer. Dunzo illustrates the risk of catering to customers without an operating model that could be sustained at scale. As demand rose, inconsistency and cost overruns followed. For commodity-oriented models like Bobopods, consistency stems from standardization, automation, waste elimination and, in the process, setting employees up for success. For specialty models such as Bobocabins, consistency comes from modular design, configurable offerings, and empowered frontline employees. Both demand data. Survive in the short run; thrive in the long run. The last step is to ensure financial viability. A strategy that delights customers but cannot survive financially isn’t a strategy; it’s a liability. Data must be used not only to enhance customer experiences, but also to manage the economics, tracking cost-to-serve, lifetime value, churn risk, and scalability constraints. Dunzo, lacking a viable path to scale, was forced into bankruptcy. Bobopods survived in the short run because its stripped-down model kept costs low, and it thrived in the long run because customer stickiness, advocacy, and data-driven learning created barriers to imitation and switching. Bobocabins, on the other hand, thrived because its personalization supported premium pricing and a high willingness to pay. . . . The 4S framework’s power comes from adhering to the sequence. More broadly, you have to recognize that you cannot serve everyone. Indeed, you cannot serve customers well unless you select the right ones for your business. You cannot survive unless your operating model is designed to serve your chosen customers consistently. And you cannot thrive over the long term unless you use data to sharpens all four choices continuously.

Why Companies Don’t Compete in the Middle Market

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