The focus strategy is directed serving the needs of a limited customer group or segment. ‘A focused company concentrates on serving a specific market niche defined either geographically or by type of customer or by segment of the product line.
Choosing a niche by type of customer means the option of serving a particular type of customers such as only the very rich, or the very young or the very adventurous. Focusing only a segment of the product line implies choosing only a particular type of product such as fast motor- cars, or vegetarian foods. A focus strategy requires specialization in some way.
Marketing to such a niche would involve a choice between cost focus and differentiation focus.
Cost focus is a low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche and excludes others. In adopting cost focus, the company or business unit looks for a cost advantage in its target market. Differentiation focus fixes its attention on a specific group of the buyer, product line segment, or geographic market. Casey’s General Stores, Morgan Motor Car Company and local health stores successfully followed this strategy. In using differentiation focus, the company seeks differentiation in a targeted market segment.
In principle, a focus strategy exploits the differences in cost behavior in some segments, so it is only available where such segments are poorly served by the broadly targeted competitors and, of course, only sustainable for as long as the niche can be defended.
A focus strategy refers to ‘the choice of a narrow competitive scope in an industry. The focuser chooses a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. In cost focus a firm looks for a cost advantage in its target segment, while differentiation focus a firm seeks differentiation in its target segment. The difficult point for the focuser is reached when the niche has been exhausted, at which time he may be tempted, out of a false sense of security derived from his success within the narrow scope of the niche, to target the broader market. This can have catastrophic consequences.
Strategic Choices of Focuser: In the following paragraphs we discuss the strategic choices of a focuser in terms of product differentiation, market segmentation and distinctive competency.
(a) Product Differentiation: A focused company can choose high or low product differentiation as the company can pursue a low- cost or a differentiation approach.
(b) Market Segmentation : A focused company chooses specific niches in which to compete, rather than going for whole market,
(c) Distinctive Competency: A focuser may pursue any distinctive competency because it can pursue any kind of differentiation or low-cost advantage.
The focus strategy has the following main advantages:
1.The cost advantage of the cost leader protects it from competitors within industry. The lower costs also mean that the increases in the price of inputs will less affect the cost leader than its competitors if the suppliers become more powerful. Similarly, if the buyers grow more powerful, the fall in the price of its product will also affect the cost leader to a lesser extent as compared to its competitors.
2. The development of customer loyalty lessens the threat from substitute products.
3. The focus strategy permits a company to stay close to its customers and to respond to their changing needs. A focuser does not face the difficulty of managing a large number of market segments that a large differentiator has to.
Disadvantages of a Focus Strategy
1. Powerful suppliers often pose a threat to a focused company as it buys in small quantities. But as long as it can pass on price increases to loyal customers, this may not be a significant problem.
2. New entrants have to overcome the customer loyalty that the focuser company has created.
3. A focus company’s production costs often exceed those of a low-cost company as it produces at a small volume. This reduces profitability if a focuser is required to invest heavily in developing a distinctive competency, such as expensive product innovation, in order to compete with a differentiated firm. This difficulty is, however, overcome by the advent of flexible manufacturing systems. Small production runs have become possible at a lower cost. Consequently, small focus firms are increasingly able to compete with large companies in specific market segments where their cost disadvantage is very much reduced.
4. A focuser’s niche can suddenly disappear due to technological change or changes in consumer tastes. A focuser is unable to move easily to new niches as its resources and competency concentrate in one or a few niches while a generalist differentiator easily can.
5. It is possible that differentiators will compete for a focuser’s niche by offering a product that can meet the demands of the focuser’s customers. A focuser is vulnerable to attack and therefore has to constantly defend its niche.
A firm to ensure long-term profitability must be clear as to its basic strategy, as too many firms do not make the important choice between these three strategies and end up being ’stuck in the middle’.
Choosing a niche by type of customer means the option of serving a particular type of customers such as only the very rich, or the very young or the very adventurous. Focusing only a segment of the product line implies choosing only a particular type of product such as fast motor- cars, or vegetarian foods. A focus strategy requires specialization in some way.
Marketing to such a niche would involve a choice between cost focus and differentiation focus.
Cost focus is a low-cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche and excludes others. In adopting cost focus, the company or business unit looks for a cost advantage in its target market. Differentiation focus fixes its attention on a specific group of the buyer, product line segment, or geographic market. Casey’s General Stores, Morgan Motor Car Company and local health stores successfully followed this strategy. In using differentiation focus, the company seeks differentiation in a targeted market segment.
In principle, a focus strategy exploits the differences in cost behavior in some segments, so it is only available where such segments are poorly served by the broadly targeted competitors and, of course, only sustainable for as long as the niche can be defended.
A focus strategy refers to ‘the choice of a narrow competitive scope in an industry. The focuser chooses a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. In cost focus a firm looks for a cost advantage in its target segment, while differentiation focus a firm seeks differentiation in its target segment. The difficult point for the focuser is reached when the niche has been exhausted, at which time he may be tempted, out of a false sense of security derived from his success within the narrow scope of the niche, to target the broader market. This can have catastrophic consequences.
Strategic Choices of Focuser: In the following paragraphs we discuss the strategic choices of a focuser in terms of product differentiation, market segmentation and distinctive competency.
(a) Product Differentiation: A focused company can choose high or low product differentiation as the company can pursue a low- cost or a differentiation approach.
(b) Market Segmentation : A focused company chooses specific niches in which to compete, rather than going for whole market,
(c) Distinctive Competency: A focuser may pursue any distinctive competency because it can pursue any kind of differentiation or low-cost advantage.
The focus strategy has the following main advantages:
1.The cost advantage of the cost leader protects it from competitors within industry. The lower costs also mean that the increases in the price of inputs will less affect the cost leader than its competitors if the suppliers become more powerful. Similarly, if the buyers grow more powerful, the fall in the price of its product will also affect the cost leader to a lesser extent as compared to its competitors.
2. The development of customer loyalty lessens the threat from substitute products.
3. The focus strategy permits a company to stay close to its customers and to respond to their changing needs. A focuser does not face the difficulty of managing a large number of market segments that a large differentiator has to.
Disadvantages of a Focus Strategy
1. Powerful suppliers often pose a threat to a focused company as it buys in small quantities. But as long as it can pass on price increases to loyal customers, this may not be a significant problem.
2. New entrants have to overcome the customer loyalty that the focuser company has created.
3. A focus company’s production costs often exceed those of a low-cost company as it produces at a small volume. This reduces profitability if a focuser is required to invest heavily in developing a distinctive competency, such as expensive product innovation, in order to compete with a differentiated firm. This difficulty is, however, overcome by the advent of flexible manufacturing systems. Small production runs have become possible at a lower cost. Consequently, small focus firms are increasingly able to compete with large companies in specific market segments where their cost disadvantage is very much reduced.
4. A focuser’s niche can suddenly disappear due to technological change or changes in consumer tastes. A focuser is unable to move easily to new niches as its resources and competency concentrate in one or a few niches while a generalist differentiator easily can.
5. It is possible that differentiators will compete for a focuser’s niche by offering a product that can meet the demands of the focuser’s customers. A focuser is vulnerable to attack and therefore has to constantly defend its niche.
A firm to ensure long-term profitability must be clear as to its basic strategy, as too many firms do not make the important choice between these three strategies and end up being ’stuck in the middle’.
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