How Is Competitive Advantage Used in Focus Strategy?
A focus strategy is one business approach outlined by management expert and author Michael Porter in his "Generic Strategies" model. Cost leadership, differentiation and focus strategies are the three main general approaches the model suggests companies can use when attempting to leverage core business strengths to achieve competitive advantages. In any business strategy, competitive advantage must play a big role.
The cost leadership and differentiation strategies are recommended for businesses that have products or services with broad market appeal. Focus strategies are more useful for smaller companies or those with a more narrow or niche audience. Porter divided the focus strategy into two sub-strategies -- cost focus and differentiation focus. The approach a business should use depends on its strength relative to the market it seeks to serve.
A company that has a narrow market and an advantage of a low-cost business model may opt for the cost focus strategy. This is a very challenging approach for many companies, because niche markets with limited overall buying power can inhibit your ability to buy products and supplies at lower costs. Thus, a company that manages to set up a low-cost operation and distribution system can build a huge competitive advantage. Efficient operational processes, investments in automated inventory and management technology systems and effective marketing and pricing to attract targeted customers can contribute to success using this strategy.
Differentiation focus is a bit more feasible, because it is a match between a niche provider with specific expertise and a narrow market with particular needs. Many small companies use this strategy to gain advantages over large chain competitors. Specialized or customized products, personalized service, knowledgeable experts and customer relationship programs are among the benefits small companies may leverage to develop loyalty and profit when targeting a narrow market.
The strongest advantages with a focus strategy result when a narrow market has particular needs not already addressed by the mass market. A company with the ability to design, develop or offer a distinct product or service solution to meet niche preferences usually finds profitability. A key challenge results when larger providers recognize the niche market needs and offer a competing solution at an equal or lower price. Smaller businesses sometimes lack the ability to quickly adjust and flex their offerings to maintain competitive benefits.