Focus Strategy(Short Tutorial)

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Focus Strategy(Short Tutorial)

  1. 1. Focus Strategy <ul><li>Strategic plan under which a firm concentrates its resources on entering or expanding in a narrowly defined market segment. </li></ul><ul><li>The firm focuses on a narrow niche market in which to build a strong competitive advantage. </li></ul><ul><li>It is usually employed where the firm knows its segment and has products to competitively satisfy its needs. </li></ul><ul><li>Focus allows businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with larger resources. </li></ul><ul><li>The objective of the firm is to do a better job at serving the buyers in the target market than the rivals. </li></ul>
  2. 2. Niche Market <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  3. 3. What makes a segment attractive for focusing? <ul><li>Size of the segment is big enough to be profitable </li></ul><ul><li>Size of the segment is small enough to be of secondary interest to large rivals </li></ul><ul><li>Has good growth potential </li></ul><ul><li>Less vulnerable to substitutes </li></ul><ul><li>Not crucial to the success of major competitors </li></ul><ul><li>Buyers in the segment require specialized expertise OR customized product attributes </li></ul><ul><li>No other rivals are concentrating on the segment </li></ul>
  4. 4. Approaches to focus based strategies: <ul><li>Firms can effectively pursue focus-based strategies only in conjunction with differentiation or cost leadership-based strategies </li></ul><ul><li>Therefore the firm should either achieve lower costs than rivals in serving the segment- A low-cost strategy </li></ul><ul><li>OR </li></ul><ul><li>Offer niche buyers something valuable and different from the rivals- A differentiation strategy </li></ul>
  5. 5. Strategy - Cost Focus <ul><li>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 &quot;me-too‘s&quot;. </li></ul><ul><li>For example: </li></ul><ul><li>HUL used a cost focus strategy in its Wheel detergent line, which it used to reach the price sensitive customers seeking affordable quality. </li></ul>
  6. 6. Strategy - Differentiation Focus <ul><li>In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  7. 7. Advantages of using focus based strategies: <ul><li>Focus allows businesses to compete on the basis of low cost, differentiation, and rapid response against much larger businesses with greater resources. </li></ul><ul><li>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 </li></ul><ul><li>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 </li></ul><ul><li>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. </li></ul>
  8. 8. Competitive strengths of a focus strategy: <ul><li>Rivals/ Competitors: Rivals do not have ability to meet specialized needs of target clientele </li></ul><ul><li>Potential Entrants: Focuser’s core competence can act as a barrier </li></ul><ul><li>Substitutes: Focuser’s core competence provides obstacles to sellers of substitutes </li></ul><ul><li>Buyers: Focuser’s unique ability to meet niche buyer’s needs can blunt the bargaining power of the largest niche buyers </li></ul>
  9. 9. When does a focus strategy work best? <ul><li>When the target market niche is large, profitable and growing </li></ul><ul><li>When it is costly or difficult for multi-segment rivals to serve specialized needs of the target niche. </li></ul><ul><li>When no other rivals are concentrating on the same segment </li></ul><ul><li>When the firm’s resources do not permit it to go after a wider portion of the market </li></ul><ul><li>When the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources. </li></ul><ul><li>When the industry leaders do not consider the niche to be crucial to their own success </li></ul>
  10. 10. Risks in employing focus based strategies: <ul><li>Major competitors that have waited for your business to ‘prove’ the market may get attracted </li></ul><ul><li>For example, Domino’s proved that a huge market for pizza delivery existed and now faces serious challenges. </li></ul><ul><li>Firm may become takeover target for large firms seeking to fill out a product portfolio </li></ul><ul><li>Consumer preferences and needs may shift </li></ul><ul><li>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 </li></ul><ul><li>A competitor may find a smaller segment within the target segment and thus out-focus the focuser. </li></ul>

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