Page 152 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes As Porter observes, while the low cost and differentiation strategies are aimed at achieving their
objectives industry-wide, the entire focus strategy is built around serving a particular target
very well.
Sometimes, according to Porter, neither a low-cost leadership strategy nor a differentiation
strategy is possible for an organisation across the broad range of the market.

Example: The costs of achieving low-cost leadership may require substantial funds which
are not available.
Equally, the costs of differentiation, while serving the mass market of customers, may be too
high. If the differentiation involves quality, it may not be credible to offer high quality and
cheap products under the same brand name. So a new brand name has to be developed and
supported. For these and related reasons, it may be better to adopt a focus strategy.

The focus strategy has two variants:
1. Cost focus: A firm seeks to achieve low cost position in its target segment only.
2. Differentiation focus: A firm seeks to differentiate its products in its target segment only.
The essence of focus strategy is the exploitation of a narrow target’s differences from the balance
of the industry. Focus builds competitive advantage through high specialization and
concentration of resources in a given niche. A focus strategy can serve the needs of a niche
segment (a) by identifying gaps not covered by existing players, and (b) by developing superior
skills or efficiency while serving such narrow segments. By targeting a small, specialized group
of buyers it should be possible to earn higher than average profits, either by charging a premium
price for exceptional quality or by a cheap and cheerful low priced product. In the global car
market, Rolls Royce and Ferrari are clearly niche players. They have only a minute percentage
of the market world-wide. Their niche is premium product and premium price.

The focus strategy rests on the premise that the firm is able to serve its narrow strategic target
more effectively and efficiently than competitors who are competing more broadly. As a result,
the firm achieves either differentiation from better meeting the needs of the particular target, or
lower costs in serving this target, or both. Even though the focus strategy does not achieve low
cost or differentiation industry-wide, it does so in its narrow market target.
The focus strategy requires for its success the same common factors, as are required for the
success of cost leadership and differentiation, except that they are directed at the particular
target market. In the Indian context, examples of focus strategy are Ayur Herbal Brand, Anjali
Kitchenware, Anchor toothpaste, T-series Cassettes etc.

There are, however, some problems with the focus strategy:
1. By definition, the niche is small and may not be large enough to justify attention.
2. Cost focus may be difficult if economies of scale are important in an industry such as the
car industry.
3. The niche is clearly specialist in nature and may disappear over time.
None of these problems is insurmountable. Many small and medium-sized companies have
found that this is the most useful strategy to explore.

8.3.1 Risks in Competitive Strategies

No one competitive strategy is guaranteed for success. Some companies that have successfully
implemented one of Porters’ competitive strategies have found that they could not sustain the
strategy. Each of these generic strategies has its own risks.

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