Approach 2
Offer niche buyers SOMETHING
DIFFERENT from other competitors
: a differenciation
strategy
- Requires a buyer segment
that demands unique product attributes
- For a focuser to earn
a sustainable competitive advantage, it
must :
- be the low-cost
producer in its target market niche
OR
- succeed in offering
niche buyers something different from
rivals OR
- do both (which
is difficult)
| |
Strategic
advantage |
Strategic
target |
|
Consumer's
perceived uniqueness |
Low cost
position |
Industry
wide |
Product differenciation |
Cost leadership |
Particular
segment |
Product differenciation
focus |
Cost leadership
focus |
Source : Porter,
Competitive strategy : Techniques for analyzing
industries and competitors, 1980
Examples of
focus strategies
:
Rolls Royce (luxury automobiles)
; Apple Computer (Desktop publishing)
What makes a segment
attractive for focusing ?
Segment is big enough
to be profitable
Segment has growth potential
Segment is not crucial
to the success of major competitors
Focusing firm has the
skills and resources to serve the segment
effectively
Focuser can defend itself
against challengers via the customer goodwill
it has built up and its superior ability
to serve buyers in the segment
Competitive strategy
principle :
The competitive power
of a focus strategy is greatest when :
The industry has fast-growing
segments that are big enough to be profitable
but small enough to be of secondary interest
to large competitors
No other rivals are
concentrating on the segment
Buyers in the segment
require specialized expertise or customized
product attributes
The competitive strengths
of a focus strategy
A focuser's specialized
ability to serve the target market niche builds
a defense against competitive forces (See
: Porter
5 forces : rival competitors,
buyers, suppliers, potential entrants, substitutes)
Situations where a
focus strategy works best
When it is costly or
difficult for multi-segment rivals to serve
the specialized needs of the target market
niche
When no other rivals
are concentrating on the same target segment
When a firm's resources
do not permit it to go after a wider portion
of the market
When the industry has
many different segments, creating more focusing
opportunities and allowing a focuser to
pick out an attractive segment suited to
its strengths and capabilities
The risks of a focus
strategy
Broad-line, multi-segment
competitors may find effective ways to match
the focused firm in serving the narrow target
market
The niche buyer's preferences
and needs may drift more and more towards
the product attributes desired by the market
as a whole
The segment may become
so appealing that it is soon crowded with
eager, aggressive rivals, causing segment
profits to be split too many ways.
Sources
:
Strategic Management, Raphael Amit, Professor at Wharton University of Pennsylvania, US
Strategy formulation and complementation : Tasks of the General Manager, by Arthur A. Thompson, Jr & A.J. Strickland III, 1992
Competitive Advantage, Michael E. Porter, 1985
Competitive Strategy, Michael E. Porter (1980) and Thompson & Strickland (1992)
Gaining and Soustaining Competitive Advantage, Jay. B. Barney, Addison-Wesley, 1997
Contemporary Strategic Analysis, Robert M. Grant, 3th edition, Blackwell, 1998
(c) ECOFINE, Prof Bernard Jaquier, Switzerland, 2020
