Focus Strategy(Short Tutorial)
- 1. Focus Strategy Strategic plan under which a firm concentrates its resources on entering or expanding in a narrowly defined market segment. The firm focuses on a narrow niche market in which to build a strong competitive advantage. It is usually employed where the firm knows its segment and has products to competitively satisfy its needs. Focus allows businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with larger resources. The objective of the firm is to do a better job at serving the buyers in the target market than the rivals.
- 2. Niche Market A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. In focusing strategy the key to success is choosing a market niche where buyers have distinctive preferences, special requirements, or unique needs and developing a unique ability to serve those needs. Example Family Dollar, targets poor urban American families who can not drive to Wal-Marts in the suburbs because they do not own a car. Its is now a growing Fortune 400 Company.
- 3. What makes a segment attractive for focusing? Size of the segment is big enough to be profitable Size of the segment is small enough to be of secondary interest to large rivals Has good growth potential Less vulnerable to substitutes Not crucial to the success of major competitors Buyers in the segment require specialized expertise OR customized product attributes No other rivals are concentrating on the segment
- 4. Approaches to focus based strategies: Firms can effectively pursue focus-based strategies only in conjunction with differentiation or cost leadership-based strategies Therefore the firm should either achieve lower costs than rivals in serving the segment- A low-cost strategy OR Offer niche buyers something valuable and different from the rivals- A differentiation strategy
- 5. Strategy - Cost Focus Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too‘s". For example: HUL used a cost focus strategy in its Wheel detergent line, which it used to reach the price sensitive customers seeking affordable quality.
- 6. Strategy - Differentiation Focus In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants. For Example, Ferrari and Rolls-Royce are classic examples of niche players in the automobile industry. Both these companies have a niche of premium products available at a premium price.
- 7. Advantages of using focus based strategies: Focus allows businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with greater resources. Focus lets a business learn its target customers- their needs, special considerations they want accommodated- and establish personal relationships in ways that differentiate the smaller firm or make it more valuable to the target customer Low costs can be achieved filling niche needs in a buyer’s operations that larger rivals either do not want to bother with or cannot do as cost effectively With enhanced knowledge of its customers and intricacies of their operations, the small, focused company builds up organizational knowledge about timing sensitive ways to work with a customer. This allows the firm to respond rapidly to customer requirements.
- 8. Competitive strengths of a focus strategy: Rivals/ Competitors: Rivals do not have ability to meet specialized needs of target clientele Potential Entrants: Focuser’s core competence can act as a barrier Substitutes: Focuser’s core competence provides obstacles to sellers of substitutes Buyers: Focuser’s unique ability to meet niche buyer’s needs can blunt the bargaining power of the largest niche buyers
- 9. When does a focus strategy work best? When the target market niche is large, profitable and growing When it is costly or difficult for multi-segment rivals to serve specialized needs of the target niche. When no other rivals are concentrating on the same segment When the firm’s resources do not permit it to go after a wider portion of the market When the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources. When the industry leaders do not consider the niche to be crucial to their own success
- 10. Risks in employing focus based strategies: Major competitors that have waited for your business to ‘prove’ the market may get attracted For example, Domino’s proved that a huge market for pizza delivery existed and now faces serious challenges. Firm may become takeover target for large firms seeking to fill out a product portfolio Consumer preferences and needs may shift Also a great risk is slipping into the illusion that it is focus itself, and not some special form of low cost, differentiation, or rapid response, that is creating the business’s success A competitor may find a smaller segment within the target segment and thus out-focus the focuser.