Focus and Specialisation Strategies
A focus or specialisation strategy aims at building a competitive edge and carving out a market position by catering to the somewhat special needs of a particular group of customers, by concentrating on a limited geographic market, or by concentrating on certain uses for the product. The distinguishing feature of a focus strategy is that the firm specialises in serving only a portion of the total market. The underlying premise is that a firm can serve its narrow target market more effectively or more efficiently than rivals that position themselves broadly.
The competitive advantage of a focus strategy is earned either by differentiation (better meeting the needs of the target market segment), achieving lower costs in serving the target market segment, or both. A firm using a focus strategy can gain a cost advantage because more than one cost curve can prevail in an industry. The cost curve for a specialist firm concentrating on custom orders and short production runs can differ substantially from the cost curve for a firm pursuing a high-volume, low-cost strategy (as shown in Figure 4-1). In such cases small firms are positioned to be cost-effective focusers in the small-volume, custom-order buyer segments, leaving the mass market to large-volume producers.
Because of its specialised approach and unmatched skills in serving a limited market target, a focused firm develops a defence against the five competitive forces. Rivals do not have the same ability to serve the focused firm’s target clientele. Entry into the focused firm’s market niche is made harder by the competitive edge generated by the focused firm’s distinctive competence. The focused firm’s distinctive competence also acts as a hurdle that producers of substitutes must overcome. Focusers are partially shielded from the bargaining leverage of powerful customers by the latter’s unwillingness to shift their business to firms with lesser capabilities to serve their needs.
A competitive strategy based on focus or specialisation has merit:
(1) when there are distinctly different groups of buyers who either have different needs or utilise the product in different ways;
(2) when no other rival is attempting to specialise in the same way in the same target segment;
(3) when a firm’s resources do not permit it to go after a wide segment of the total market; (and that is very common) or
(4) when industry segments differ widely in size, growth rate, profitability and intensity of the five competitive forces, thereby making some segments much more attractive than others.
The risks of using a focus strategy include:
(1) the possibility that broad-range competitors with large resources, will find effective ways to match the focused firm in serving the narrow target market;
(2) shifts in buyer preferences and needs away from the focuser’s special product attributes toward more generally available features desired by the target segment (a condition which makes the market as a whole narrower and allows broad-range rivals a stronger competitive footing in the target markets of the focused firms); and
(3) the chance that competitors will find smaller segments within the target segment and “outfocus” the focuser.
What are your views?
Dr. Brian Monger