In business management, the influence of Michael Porter is unparalleled. He founded the modern strategy field and published over 15 books and 120 articles. Of the many theories he developed, Porter's generic strategies stands out. The theory explains how a given organization can determine its direction in a market.
There are four strategies that a business can focus on to determine its place in the market. A business can use a cost leadership strategy to target a large market or reduce prices. To apply this strategy, a manager should ensure that they considerably reduce costs or have control in a broad market. These options enable the business to keep its costs low.
In the case of differentiation, a company must target a large market but provide customers with unique products. Essentially, the managers must focus on exclusivity to attract more customers than competitors. Michael Porter Postulated that cost focus is when a business focuses on a small market and introduces lower prices. To succeed in this niche, a company must understand consumers' needs. Regarding differentiation focus, a business focuses on a small market but produces differentiated products.
What is focus strategy definition? Focus strategy is a method businesses apply to determine the niche market to target. Managers will focus on how to develop, market, and sell products in the niche market. A niche market is identifiable by considering specific consumers, geographic areas, and unique product lines. For instance, a bank can decide to provide consumers with specialized services such as education loans. In such a case, the business will have applied a focus strategy in delivering targeted products to specific groups.
The focus strategy aims to achieve exclusivity because consumers are provided with unique products. Generally, a company such as Porsche can focus on producing differentiated products. This is a niche market because many people will not demand these products. After all, the business is targeting specific customers.
Why Focus Strategy?
Business is a focus strategy to ensure alignment of its products with a specific niche. Most importantly, the business focuses on developing new relationships with consumers. When competing in a broad market, a business is faced with tough competition. However, when the attention is on a niche market, a company has a chance to stand out and gain stability in the long run.
When an organization uses a focus strategy, it can treat consumers as the target audience to evaluate new products. Consumers want to have the best products. Any business must consider this desire. In many cases, consumers will be willing to pay more, if the products are of the right quality. Therefore, entering a niche market enables a company to pay attention to a particular product. As a result, it ensures that customers receive quality products.
A focus strategy enables a business to develop relationships with the target market. To succeed in a niche market, a business must listen to consumers' needs. When the needs are determined, it becomes possible to consider the value proposition. Consequently, the products will meet the needs of the customers. As a result, consumers will feel that the products were designed specifically for them. A focused strategy results in consumer loyalty, which ensures the business's longevity in the market. Furthermore, the approach contributes to the creation of focus groups that can help in evaluating and developing new products.
A company can ensure the improvement of its pricing structure. In a niche market, a business has many loyal consumers. Therefore, it becomes possible to charge high prices. When consumers feel that the company has provided them with the right products, they will be willing to buy them to support it. Ultimately, a company becomes a power brand.
To serve a given niche market, a company must have specific knowledge of producing the products. Focus on a targeted demographic requires specialized knowledge. A company must have comprehensive details on how to meet consumers' needs. Subsequently, it is imperative to work with the best employee in the industry.
However, the application of a focus strategy results in limited initial demand. There is a limited chance of expansion. When operating in a specialized market, there are instances when a company can generate zero results. It takes time to build a brand to the point that consumers can trust it. When a business begins its operations, it can generate few sales.
Businesses that operate in the broad market have a chance to offer many products to customers. These businesses can expand their operations to reach new customers. However, when a business specializes in a given niche, it becomes impossible to grow the business. Because of specificity, a company has a limited number of customers it can serve.
Types of Focus Strategy
A business can use a low-cost-focused strategy. This strategy allows a company to focus on a micro-market where the production of a given product can meet customers' needs. To apply this strategy in the market, businesses focus on lowering the cost of production. There are various specific aspects, such as transportation and marketing that a company can control to reduce costs. For instance, the company can source materials locally, reducing the transportation cost. For example, if a business is operating in an area where avocados are produced abundantly, it can focus on producing guacamole at reduced costs. Consequently, consumers will prefer to buy these products over those offered by competitors.
A focused differentiation strategy is necessary when there is a focus on customizing products. Instead of lowering prices, a business will decide to differentiate its products to increase value. Because of this action, targeted consumers will be willing to pay more because of created value. Such a business can operate in different locations and match market needs. When a company identifies a niche market, it will focus on providing customers with differentiated products.
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