Focus business strategy: cost focus and differentiation focus

Business-level strategy and focus

Business-level strategy decides how a business will compete in its market. Michael E. Porter identified generic strategies based on two choices: the source of advantage (lower cost or uniqueness) and the competitive scope (the broad market or a narrow segment). Cost leadership and differentiation target the broad market; the focus strategies target a narrow segment.

Focus business strategy

A focus strategy concentrates on serving a particular segment: a specific customer group, a geographical area, a product line or a niche: better than competitors who serve the broad market. The firm studies the segment's special needs closely and tailors its offering to it. Because broad-market competitors try to serve everyone, they often serve a niche's special needs poorly, which creates the opportunity. Focus suits smaller firms and firms with specialised skills.

Cost focus strategy

The firm seeks a cost advantage within its chosen segment, offering the segment a low price. It keeps costs low by simplifying the product, serving customers whose needs are basic, operating in one area, and avoiding the costs of serving many segments.

Examples:

• a chain of budget hotels serving only students and travelling salespersons in one state, with simple rooms, no restaurants and online booking;
• a regional brand of low-priced packaged snacks sold only in small towns through local distributors;
• a no-frills coaching centre offering recorded lectures and doubt-clearing sessions at a fraction of the price of premium institutes.

Differentiation focus strategy

The firm offers unique products or services tailored to the special needs of a narrow segment, which customers are willing to pay more for. It differentiates through specialised design, quality, expertise, service or image.

Examples:

• a jeweller specialising in traditional bridal designs of one community;
• a clinic offering only sports-injury treatment and rehabilitation for athletes;
• a travel firm organising premium wildlife-photography tours with expert guides.

Risks of focus strategies

• The segment may shrink or its needs may become similar to the broad market's.
• Broad-market competitors may decide to serve the segment directly.
• Other focusers may find sub-segments within the segment.
• For cost focusers, a broad-market cost leader with large-scale economies may undercut prices; for differentiation focusers, the price premium may become too high for customers.

Conclusion

Focus strategies let a business win by serving a niche better than broad-market rivals, either at lower cost or with special value. Their success depends on choosing a segment with distinct needs, enough size, and a defensible position. A focuser must also keep studying its niche closely, because its advantage lasts only as long as it understands those customers better than anyone else.