There are two things you want to considering while doing business, where you want to go and how you want to reach there.
Mainly there are two types of strategies offensive and defensive course of action to gain a defendable position in the market. But according to Michael Porter, three generic strategies can be used by the firms to achieve a competitive advantage in the industry and perform above the average.
These generic strategies include;
- Cost Leadership
- Differentiation; and
Most firms use one of the above strategies at a time but some companies by putting extra effort to pursue more than one strategy and they develop a differentiated product at a low cost. Such companies are unable to sustain for a longer period.
In this article, we are going to talk about the focus strategy.
When talking about business, the term ‘focus’ becomes more important. You have to be very precise about every aspect of your business strategy. That said, you need a focus strategy for your business. A focus strategy helps you to stand out or differentiate from your competitors in the industry.
What is Focus Strategy?
Focus strategy or niche strategy, in the simplest term, means focusing on a narrow and specific segment in the market. The idea behind the focus strategy is to develop, market, and sell a specific product to a specific group of customers.
Hoskisson, Ireland, and Hitt defined focus strategy as a marketing strategy that focuses on delivering a product or a service to a specific market segment. Companies mostly opt for the focus strategy option to maximize their penetration in a specific market segment. It helps businesses to establish a competitive advantage through effectiveness.
Why Focus Strategy?
Focus strategy can serve businesses in multiple ways. For starters, it is the best approach to understand your target customers’ needs effectively. Focus strategy concentrates on the specific needs of a specific group of customers.
When a business understands what its potential customers need, it can create a better and valuable product. This not only generates regular profits for the business, but it also helps businesses to establish a relation of trust with their customers.
Moreover, customer loyalty is another perk of satisfying a specific group of customers. When a customer is elated, he/she will develop a strong affiliation with a brand. Once you have a pleased customer, he/she will act as your brand ambassador, and this will be like “free of cost marketing.”
Types of Focus Strategy
The focus strategy has two variants:
- Focused differentiation strategy
- Focused low-cost strategy
Here is the explanation of both types with examples:
Focused Differentiation Strategy
Focused differentiation strategy is the first type of focus strategy that focuses on developing a differentiated product for a specific market segment. An organization focusing on differentiation strategy concentrates on a narrow customer segment adding differentiable and customized attributes to the product.
Breezes Resorts is one of the finest practical examples of a focused differentiation strategy. The company only serves couples without children. The company has seven tropical resorts, and it guarantees a children-free and noise-free place to its customers. Couples who wish to spend some time alone highly favor these types of services.
Augustino LoPrinzi Guitars & Ukuleles is another classic example of a focused differentiated strategy. The firm has been making customized high-end guitars for almost 50 years now. Their hand made products range between $1100 to $10,000.
Focused Low-Cost Strategy
A focused low-cost strategy is often a common choice for firms entering the market. These firms enter the market with a different product offering more benefits to their target customers at a lower price. However, this doesn’t mean that established firms cannot or do not follow the focused low-cost strategy.
It is obvious that a new entrant cannot compete against the market giants directly. Therefore, these companies prefer market penetration with lower prices for their products. Of course, it can be difficult to continue this strategy in the long term, but it is very effective for new entrants.
Moreover, many firms choose this marketing strategy for different reasons. For instance, some firms can satisfy some groups of customers with low-cost products easily. Now, what does that mean? Well, there are customer groups that prefer low-price products rather than quality products. This market strategy is very prevalent in underdeveloped countries, where people’s purchasing power is comparatively low.
Papa Murphy’s, a highly reputed company, is a classic example of the focused low-cost strategy. Papa Murphy’s is the United States fifth largest Pizza chain. The company operates differently from traditional pizza makers.
Papa Murphy’s prepares the pizza but does not bake it. The customers buy the pizza and bake it themselves. This approach favors both parties. The cost of operations becomes lower for Papa Murphy’s because the firm does not need baking equipment, and it requires less restaurant space. On the other hand, customers with a low budget can enjoy restaurant-made pizza.
Examples of Focus Strategy
Diet Coke-Coca Cola
A very common and probably a global example of the focus strategy is “diet coke” by the coca-cola company. The company made this product specifically for people having diabetes or similar issues. Moreover, diet coke was an excellent addition for those who prefer low-sugar beverages.
Bubblegummers – Bata Pakistan
Bata Pakistan is one of the oldest and leading shoemaking companies. The company introduced a special segment, “Bubble gummers,” for kids. Bata has been making shoes for every type of customer since 1951, but bubble gummers was a specific subdivision of Bata targeting a specific group of customers (children).
Well, Rolls Royce is a name known to almost everyone. The iconic British company has established itself as one of the leading luxury automobile makers globally. The company specifically follows a focus strategy as they only deal in making luxury cars.
Why Focus Strategy Fails?
There is no doubt that focus strategy is one of the smartest marketing strategies, but there are several risk factors attached to it. Focus strategy may not work for everyone in longer terms, and here is why:
Focus strategy concentrates on creating a competitive advantage by offering something unique. However, it is very challenging to hold that competitive advantage because the competitors often come up with further advancements and improvements, and you will have to keep up with them. Moreover, when the competition rises, profit margins often decline because it splinters among the competitors.
Unless it is something mandatory for the customers, they tend to merge in the majority. That said, customers with different preferences often start shifting towards the preferences of the majority. However, if a company creates something different and mandatory for customers, it can last longer. For instance, diet coke is very suitable, and most probably the only option for diabetic patients.
What Makes a Niche Attractive for Focusing?
Focus strategy looks like an excellent and effective way to establish and develop your brand. But, is it that easy to successfully implement what you planned? Well, there are several factors which you must consider before you choose a focus strategy option.
It is easier to find smaller segments of the market where you can serve easily. But, does it mean that the segment you are looking for is profitable too? The core objective of any business is to earn profits. Therefore, the segment you are choosing must be big enough to make decent and regular profits.
Another very important element businesses must consider in focus strategy is the room for growth. A business that does not grow with time may find it difficult to survive because of the highly competitive nature of the market. Therefore, before targeting a specific segment of the market, businesses should assess the room for potential growth.
Developing a competitive advantage is like the backbone of focus strategy or even any business strategy. A company targets a specific group of customers with a unique offering to stand out. If you can create something really valuable for your customers, you will make it difficult for others to compete easily. That is why there are many low competition niches because it is difficult to compete against the pioneers of that industry.
Having enough financial and other resources is equally important if you are going for a focus strategy. The costs may be higher at the start, and it may take more effort to market your product to your target group. Moreover, businesses must make sure that they can offer a product regularly.
If a company is delivering a rare item/product or a product that is made of scarce ingredients, the company must ensure that it can get those ingredients regularly. If a business can manage these resources effectively, then the focus strategy is a good option to choose.