Focus strategy concerns itself with the identification of a niche- market and launching a unique product or service in that market. A niche-market is a narrow segment of a total market.
A niche can be identified based on certain issues:
- particular buyer group (such as women, youths, adolescents or aged 50+),
- geographic uniqueness (such as south of USA or South of France),
- special product attributes that appeal only to niche members (such as specially designed neck-tie or fancy Punjabi),
- a particular product line (such as lemon juice, children’s shoes or detergent with bleach).
A company using a focus strategy may concentrate on geographic markets or a particular group of. customers or on a particular product line segment.
For example, when an insurance company specializes in ‘crop insurance’ only or a bank has concentrated on ‘housebuilding loans’, we can say that they are pursuing focus strategy.
After identifying the niche-markets, $ company can decide to enter into one or more of the niches with its products.
When the company decides to launch its products in niche markets, its strategy is also known as a niche strategy.
Since the focus of the company is on a niche market, it becomes a focus strategy.
Meaning of Focus Strategy
A focus strategy involves offering the niche-customers a product customized to their tastes and requirements. It is directed towards serving the needs of a limited customer group.
According to Hitt, Ireland, and Hoskisson, a niche strategy/focus strategy is an integrated set of actions designed to produce or deliver goods and services that serve the needs of a particular competitive segment. A company usually follows a focus strategy when it can serve a narrow piece of the market better than competitors.
Coca-Cola Company has introduced ‘diet cola’ to serve the niche market consisting of diabetic patients. Kohinoor Chemical Company for its Tibet Snow initially used niche strategy particularly directed towards rural women. Some real-life examples of niche strategy are given in Table.
Examples of Niche Strategies of Various Organizations.
|Nissan Motor Company||Mid-sized cars|
|Toyota Motor Company||Small-sized cars: CAMRY & SOLEIL|
|Hallmark||Greeting cards with distinctive look/contents|
|Electronic Data Systems||Outsourcing data-processing operations|
|Bisys Group||Software for banks|
|Systematics Company||Software for universities|
|Motel 6||Travelers having simple requirements|
The focus strategy is very different in terms of the segment the pursuing organization decides to serve. A limited segment to the complete exclusion of others is served. It is specific to a very narrow group of buyers.
Let us take the case of a travel company that has chosen to serve a specific segment of women travelers.
The profile of its target travelers is between 30 and 60 years of age, economically independent, having diverse interests and attitudinally geared to travel and explore on their own.
The entire value chain is configured to serve this segment.
The offering of destination, boarding, lodging, travel, entertainment and shopping after hours are designed specifically for this segment. The destination will be offbeat; service will be marked by precision, punctuality, and efficiency.
Each year a few destinations are developed according to the requirements of the select target and at a time only ten women travel together.
The focus is on creating a unique travel experience for the patrons. Word of mouth and references are the basis of publicity and entry into the travel group.
Most travel operators cannot serve the segment as their strategic choice tends towards larger groups going to destinations that have been tested and tried.
At times the opportunity for focus is created because conventional business models are not able to cater to the needs of some segments.
In a nutshell, it can be said that the focus strategy:
- Serves a limited segment by choice.
- The segment is understood and targeted.
- The organization has the resources, skill, and competence to serve the segment.
The organization can opt to offer a low cost or a high differentiation advantage to the served segment.
Types of Focus Strategy
A company can pursue a focus strategy either with a low-cost approach or a differentiation approach.
There can, thus, be 2 types of focus strategy;
- Focused Low-Cost Strategy.
- Focused Differentiation Strategy.
Focused Low-Cost Strategy
The focused low-cost strategy of entering into a niche market at a low cost with a unique type of product that has a special need among the customers in the niche market.
This strategy is targeted to those via so desire to have unique products at a low cost. the company that follows this strategy competes against the cost leader in the niche market where it has a cost advantage.
With this strategy accompany concentrates on small volume custom-built products for which it has a cost advantage.
The company may adopt this strategy to serve a buyer segment whose needs can be satisfied with less cost compared to the rest of the market.
Focused Differentiation Strategy
‘Focused Differentiation Strategy’ is the strategy of operating a business with a differentiated product in a chosen niche market. When a company pursues a focused strategy based on differentiation, it concentrates on a harrow buyer-segment and offers customized attributes in products better than competitors’ products.
Here, the focuser company competes against competitors not based on low-cost, rather based on product differentiation. Since the focuser company knows the needs of niche customer-groups, it can successfully differentiate its products
For example, Alam Soap Company competes against other soap producers in the ‘laundry bar soap’ segment of the soap market, not in the perfume-soap or liquid-soap markets. Its strategy is a focused differentiation strategy.
Example of Focus Strategy
Let us consider two examples here, NetJets (USA, Europe, and China) and another of DC designs (India.) to understand the nuances of the focus strategy.
NetJets is a company that buys aircraft and allows corporate clients to buy part-ownership of that aircraft.
It has middle-sized and small aircraft and the buying organization buys a share depending on its need, budget in either or both types of aircraft.
The aircraft has been refurbished for corporate clients. Its unique feature is that “it provides fractional jet ownership giving individuals and businesses the benefits of aircraft ownership and more at a fraction of cost.”
Before the organizations or individuals buy a share their needs are assessed and options rolled out. In 1998 NetJets was bought by Warren Buffet.
NetJets serves a very narrow segment of the business travel market. The segment it serves is between full ownership of a corporate jet or commercial travel.
The former is an expensive proposition with all the attendant problems of maintaining an aircraft. NetJets owners do not have to be involved with that.
NetJets takes care of all the operational details such as maintenance, fuelling, licenses, hangers, pilots, cabin crew and so on.
Commercial flying is restrictive and NetJets is customized to the flyer saving time and money. NetJets positions itself as a cost-saving company and at the same time providing a highly differentiated service.
The second example is of DC Design, a car design company started by Dileep Chabaria in 1983. Initially, the company was set up to provide car accessories.
The car market in India had just opened up and there was a craze for car accessories. Chavarria, who was trained at General Motors in the U.S., had an insight about car design and engineering and his accessories business was doing very well.
At this time he diversified in refurbishing cars. He set up a design company by the name of DC Design to redesign, refurbish and modify cars.
Today DC Design does aircraft design and is associated with the design processes of major carmakers. The designs are meant for the discerning car buyer who may often spend more on refurbishing than they did on the original car. The DC Design studio caters to custom car buyers.
The customization of a car at a plant is very expensive. Rolls Royce did so for the Indian Maharajas. The company has focused on the niche segment for differentiation.
Select customers get their cars refurbished to meet their different needs, be they swanky interiors, additions of amenities such as a fridge, television, more leg space, convert a sedan to a coupe, or change the internal configuration.
Focus is a strategy based on a set of unique attributes in skill, talent, and thinking, resources that an organization will use to serve and profit from a very limited segment.
In case an organization serves a limited segment without attendant uniqueness it may not be pursuing focus strategy by choice. It may be an outcome of positioning error.
Requirements for Effective Implementation of Focus Strategy
A company requires unique skills, capabilities, and resources for the successful implementation of focus strategy. Some of these are;
- Managers’ ability to explore a well-defined but, narrow market segment.
- Clear identification of competitors who serve a market broader than the niche market but are unable or disinterested to serve the niche for some reason.
- Firm’s ability to provide adequate-capital.
- Designing and maintaining a low-cost distribution system, with strong cooperation from the channel members.
- Strong marketing ability and creative flair.
Market Situations Favorable for Focus Strategy
A focus strategy does not work well in all situations. It becomes an attractive strategic option usually in the following situations;
Consumers’ distinctive preferences
Focus strategy is especially effective when consumers have distinctive preferences and the competitors are not offering products to satisfy those preferences.
If competitors are not trying to specialize in the same target niche market, a company’s focus strategy is likely to be effective.
The focus strategy is expected to be highly workable when the market-niche is big enough to be. profitable. A very small niche may not bring enough profit for the marketers.
High growth potential
Market niche becomes attractive when its growth potential is high. To be profitable, the market- niche must be able to offer good growth potential.
Availability of different niches in the industry
When an industry has different niches/market segments, the marketer can pick up the attractive niche(s) based on its strengths.
Inability or unwillingness of competitors to serve a niche market
The competitors who sell their products in many segments of the market may find it costly to operate in a small piece of a market where there is a need for specialized products.
In such a situation, the focus marketer (market-focuser) may do well with customized products. Also, market leaders may not like to enter into a niche market as they do not consider it important to be a niche marketer for their business success.
No risk of segment overcrowding
A company may find it useful to follow 9 focus strategy if rival companies avoid specializing in the same segment. This attitude of rivals reduces the risk of overcrowding in the niche market.
Overcrowding occurs when many producers operate in a narrow market segment. Few players in the market-niche always reduce competitive risk.
Focuser’s competitive ability
Success with a focus strategy to a large extent depends on the ability of the focuser-company to compete effectively in the market. Effective competition is possible when the company has enough resources, capabilities and market image.
To be successful with focus strategy, the focuser-company must have the farsightedness to pick up those niches that match with its specialized competencies and capabilities as well as attractive by all ^standards.
Reasons for Failure of Focus Strategy
Several risks are associated with a focus strategy. These risks originate mainly from more appealing products by rivals, shifting of product-preferences of customers, and high attractiveness of the niche-market.
Managers should have a clear idea about these risks so that they can consider them before deciding on the adoption of a niche strategy.
The risk from mode appealing products
If the competitors come up with such products that are more attractive to the customers, there is then a risk of losing the market. An example includes MUM (bottled drinking water) of Partex Group.
Many rivals have gone out of the market because of the appealing attributes of MUM.
Shifting of customers’ preferences
Another risk emanates from the possibilities of shifting customers’ preferences and needs for a particular product in the niche market.
Over time, customers’ preferences may change or they may need a product with different attributes. Such a situation may allure other producers to enter the niche- market. This would intensify competition in the niche market.
High attractiveness of the niche-market
The third risk may come from the niche itself. The niche-market may become so highly attractive that the rivals would jump into the segment and finally it may be flooded with so many competitors.
Thus, niche-market profits will slide down. This happened in the garments sector in Bangladesh in the 1980s and ‘accounting software’ in the 1990s.
The universality of customers’ needs
Another risk is that the needs of focused customers in the niche-market may become more similar to those of customers in a market as a whole. If this happens, the advantages of a focus strategy may be reduced or eliminated.
5 Withering cost advantages
If a company enters into a niche market with a low cost, it needs to take care of the ‘loss’ of cost advantage.
Cost advantages of the company .may not sustain for a long period of lime if they can be copied easily by the competitors who want to enter into the same niche market.
So, the ways to achieve cost advantage must be difficult for others to copy.’
Fear of low attractiveness
If a low-cost product in the niche market does not contain enough attributes to be attractive to prospective buyers, the strategy may fail.