A focus strategy refers to a strategy in which companies choose a narrower market (we call it a niche market). It is one of the three generic strategies introduced by Michael Porter, in addition to the differentiation strategy and the cost-leadership strategy.
Those strategies are the company’s way of achieving a competitive advantage. By select one of the strategies, a company can deliver superior value to customers and generate an above-average return.
Types of focus strategy
To meet demands, companies can choose two focused alternatives:
- Focus on costs
- Focus on differentiation
Both are similar to Porter’s other two generic strategies, only concentrating on a narrower market.
Cost focus aims to provide excellence through low costs in the targeted niche market. Companies adopt this strategy when consumers are more cost-conscious while also desiring a relatively unique product.
However, because the target market is narrower, the challenge for companies is to operate on the market profitably. Demand in niche markets is typically small to enable companies to reach economies of scale.
The focus of differentiation seeks to differentiate products and provide unique value to customers in the market. An example is Gucci in the clothing industry. Typically, in this market, companies can offer premium prices because customers are relatively less price-conscious.
Implications of focus strategy
When implementing a focus strategy, companies should realize that demand size is relatively smaller. For this reason, many big companies do not enter this market.
Because big companies don’t want to serve the niche market, the competition pressure is usually less fierce.
In selecting the market, companies should make sure that they can operate profitably. The niche market must also offer growth potential and not at a mature stage. Also, the market is unattractive for potential competitors, so competitive pressure would relatively minimal in the future.
Companies can identify a target market niche through several criteria, including geographical factors, buyer characteristics, product specifications, and customer requirements.
Companies can also find exciting niche markets by examining the specific needs of existing product lines in the main markets. Examples are e-Bay in the auction market and Porsche in the sports car market.
