Focus Strategy is the strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. By selecting carefully a segment and meeting the needs of that segment better than competitors who target more broadly defined segments, companies can gain competitive advantage. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. It is these differences that result in a segment being poorly served by the broad-scope competitor. The firm that focuses on cost may be able to outperform the broad-based firm through its ability to strip out frills not valued by the segment. Alternatively, the product or service can be differentiated, taking into account the unique needs of the segment.
- If a company adopts a focused low‑cost strategy, it competes against the market cost leader only in those segments where it has no cost disadvantage, such as small niches or complex products that do not lend themselves to economies of scale.
- If a company adopts a focused differentiation strategy, it competes against the differentiator by exploiting their knowledge of a small customer set or of a particular specialization within the broader range of products. Focused differentiators may also be more innovative than larger firms, because the focuser is concentrating on the needs of just one type of customer.
To become a focuser a company must make choices about its product, market, and distinctive competencies.
- Product differentiation is low for a focused cost leader and high for a focused differentiator.
- Market segmentation is low, with the focuser filling just one or a few niches.
- The choice of distinctive competency depends on the company’s source of competitive advantage. If it is differentiation, the competency could be R&D or service; if it is low cost, the competency could be local manufacturing.
The focused strategy provides businesses with some advantages. Focusers can find a niche that is unfilled by the large firms, and then develop a specialized product to fill that need. Focused companies can also grow by taking over other focusers. Other advantages exist, as discussed in terms of Porter’s Five Forces Model.
- Focusers are protected against rivals because it can provide a product or service at a price or quality others cannot offer.
- Powerful suppliers are a threat because the focuser buys in such small volumes that it has less bargaining power. However, if the company is pursuing a focused differentiation strategy and can pass on price increases, this is less of a problem.
- A focuser’s ability to satisfy unique customer needs gives the company power over its buyers; they cannot get the same thing from other companies.
- Potential entrants have to overcome the hurdle of consumer loyalty, so the focuser is somewhat protected.
- Substitute products must overcome consumer brand loyalty, so again, the focuser is somewhat protected.
The obvious danger with the focus strategy is that the target segment may shrink or disappear over time for some reason. A new player may ‘outfocus’ the firm. Alternatively, shifting from broad to narrow targeting usually means a dramatic reduction in volumes. This can raise unit costs if the overheads have not been trimmed to match the smaller outputs demanded by the narrower customer base. If the focuser’s niche suddenly disappears because of changes in technology or consumer tastes, it is hard to switch to a new niche quickly. Also large differentiators may compete for the focuser’s niche if it becomes very profitable, as occurred in IBM’s fight with Apple.