Focus strategy

Focus strategy is one of Michael Porter's three generic competitive strategies, involving concentration on a narrow market segment rather than competing across the entire industry ^[1]. Organizations pursuing focus strategies select specific customer groups, product lines, geographic areas or distribution channels and tailor their offerings to serve these segments exceptionally well. By concentrating resources and attention on carefully chosen niches, focused competitors can achieve advantages against broader rivals who must spread efforts across multiple segments.

Theoretical foundation

Michael Porter introduced the focus strategy concept in his 1980 book "Competitive Strategy" as part of a framework distinguishing three fundamental approaches to achieving competitive advantage ^[2]. Cost leadership pursues industry-wide low cost position. Differentiation offers unique valued attributes across the broad market. Focus targets narrow segments using either cost or differentiation approaches within limited scope.

Porter argued that successful competition requires clear strategic choice rather than attempting multiple approaches simultaneously. Companies trying to pursue cost leadership and differentiation together risk becoming "stuck in the middle" with neither advantage fully developed ^[3]. Focus strategies avoid this trap by concentrating all resources on serving chosen segments better than competitors.

The focus strategy rests on the observation that market segments differ from each other in meaningful ways. Some customers have specialized needs poorly served by mainstream offerings. Some geographic areas or distribution channels operate differently from industry norms. These differences create opportunities for focused competitors to outperform broader rivals within chosen niches ^[4].

Variants of focus strategy

Cost focus

Cost focus seeks lowest cost position within a target segment rather than across the entire industry. Serving narrow segments may enable cost advantages unavailable to broader competitors. Specialized production facilities, simplified product lines, concentrated geographic coverage or targeted distribution can reduce costs below what generalists achieve ^[5].

Southwest Airlines exemplifies cost focus in the airline industry. By concentrating on short-haul point-to-point routes with standardized aircraft and simplified service, Southwest achieved costs substantially below hub-and-spoke carriers offering comprehensive route networks ^[6]. Motel 6 similarly focuses on budget-conscious travelers seeking clean basic accommodations without amenities that add cost.

Cost focus requires that the target segment have cost drivers different from broader industry patterns. If the same cost structure applies across segments, focused competitors cannot achieve cost advantage by narrowing scope. The segment must be large enough to support scale economies within its boundaries.

Differentiation focus

Differentiation focus offers superior value to target segment customers through specialized features, service or brand positioning rather than pursuing lowest cost ^[7]. Deep understanding of segment-specific needs enables offerings more closely matched to customer requirements than generic alternatives from broad competitors.

Luxury goods manufacturers exemplify differentiation focus by serving affluent consumers willing to pay premium prices for exclusivity, craftsmanship and prestige. Specialty retailers focus on enthusiast segments with merchandise assortments and expertise that general retailers cannot match. Professional service firms may concentrate on specific industries where deep expertise justifies premium fees ^[8].

Differentiation focus requires that target customers value specialized attributes enough to pay premium prices covering the cost of differentiation. Generic alternatives must be perceived as inferior despite lower prices. Customer loyalty to focused offerings must resist competitive price pressure.

Selecting target segments

Successful focus strategies depend on identifying segments where concentration creates advantage. Several characteristics make segments attractive targets for focus ^[9]:

Distinctive requirements mean that segment customers have needs sufficiently different from mainstream markets that specialized offerings deliver meaningful benefit. Without distinctive requirements, focused competitors offer nothing generalists cannot match.

Adequate size ensures the segment can support viable business operations. Segments too small to achieve minimum efficient scale or sustain competitive returns are unattractive regardless of how well they can be served.

Defensibility against larger competitors matters for sustaining focus advantages. Segments easily entered by industry leaders once they recognize opportunity provide only temporary havens. Barriers including specialized expertise, distribution relationships, brand reputation or switching costs protect focused positions.

Growth potential enhances segment attractiveness since expanding markets accommodate new competitors more readily than mature or declining ones. However, rapid growth may attract attention from larger players, threatening focused positions.

Alignment with capabilities ensures the organization can actually serve segment needs effectively. Focus strategies fail when companies choose attractive segments they lack competence to serve well.

Advantages of focus strategy

Deep market knowledge

Concentrating on narrow segments enables thorough understanding of customer needs, buying behavior and competitive dynamics. Focused competitors can track segment developments more closely than generalists monitoring multiple markets ^[10]. This knowledge advantage supports product development, marketing effectiveness and customer service quality.

Strong customer relationships

Specialization builds credibility with target customers who recognize the focused competitor's commitment and expertise. Loyalty develops when customers perceive offerings designed specifically for their situation rather than generic solutions ^[11]. Relationship depth creates switching costs that protect against competitive encroachment.

Reduced direct competition

Focus strategies avoid head-to-head competition with industry leaders across broad markets. Within chosen niches, focused competitors face fewer rivals and often weaker ones. Large players may find small segments insufficiently attractive to contest aggressively ^[12]. This competitive shelter enables profitability that direct competition with industry giants would preclude.

Operational efficiency

Narrow scope permits operational optimization impossible for generalists serving diverse requirements. Standardized processes, specialized equipment, focused training and concentrated logistics reduce complexity and cost. Learning accumulates faster when activities repeat frequently within constrained domains.

Limitations and risks

Segment vulnerability

Focused competitors depend heavily on their chosen segments. Changes in customer preferences, technology, regulation or economic conditions affecting the segment threaten the entire business ^[13]. Diversified competitors can offset decline in one segment with growth elsewhere; focused firms cannot.

Competitor imitation

Successful focus strategies attract imitation. Other focused competitors may target the same segments. Broad competitors may decide segment attractiveness justifies dedicated attention ^[14]. Superior resources may enable imitators to surpass originators once they commit to competing.

Segment evolution

Market segments evolve over time, potentially undermining focused positions. Segment boundaries may blur as customer needs converge. Segments may grow large enough to attract major competitors. Technology changes may eliminate segment distinctiveness ^[15]. Focused competitors must monitor segment dynamics and adapt strategies accordingly.

Limited growth

Narrow scope inherently limits growth potential. Having captured available share within target segments, focused competitors face choices of harvesting existing positions, expanding to additional segments (abandoning pure focus), or accepting limited scale. The discipline required to maintain focus conflicts with growth imperatives common in publicly traded companies.

Examples across industries

The focus strategy applies across diverse industries. In automobiles, Ferrari concentrates on ultra-luxury sports cars rather than competing with mass-market manufacturers. In healthcare, specialty hospitals focus on specific procedures achieving higher volumes and outcomes than general hospitals. In financial services, boutique investment banks serve niches like technology mergers or municipal finance ^[10].

Retail examples include outdoor gear specialists serving hiking and camping enthusiasts, running shoe stores focused on serious athletes, and comic book shops catering to collectors. Each succeeds by understanding their target customers more deeply than generalist retailers and offering assortments, expertise and experiences those customers value.

Geographic focus concentrates on regional markets rather than attempting national or global coverage. Regional banks, local newspapers, and area-specific real estate developers exemplify geographic focus strategies.

Focus strategy — recommended articles

Strategy — Strategic planning — Decision making — Market research — Investment — Risk management

References

• Barney J.B., Hesterly W.S. (2018), Strategic Management and Competitive Advantage, 6th Edition, Pearson.
• Grant R.M. (2016), Contemporary Strategy Analysis, 9th Edition, Wiley.
• Hill C.W.L., Jones G.R., Schilling M.A. (2017), Strategic Management: Theory & Cases, 12th Edition, Cengage Learning.
• Porter M.E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press.
• Porter M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press.
• Thompson A.A., Peteraf M.A., Gamble J.E., Strickland A.J. (2018), Crafting and Executing Strategy, 21st Edition, McGraw-Hill.

Footnotes

1. Porter M.E. (1980), pp. 38-46
2. Porter M.E. (1980), pp. 34-38
3. Porter M.E. (1985), pp. 16-20
4. Grant R.M. (2016), pp. 234-248
5. Hill C.W.L., Jones G.R., Schilling M.A. (2017), pp. 156-170
6. Thompson A.A., Peteraf M.A., Gamble J.E., Strickland A.J. (2018), pp. 189-205
7. Porter M.E. (1985), pp. 24-28
8. Barney J.B., Hesterly W.S. (2018), pp. 134-148
9. Grant R.M. (2016), pp. 256-270
10. Hill C.W.L., Jones G.R., Schilling M.A. (2017), pp. 178-192
11. Thompson A.A., Peteraf M.A., Gamble J.E., Strickland A.J. (2018), pp. 212-226
12. Porter M.E. (1980), pp. 42-46
13. Barney J.B., Hesterly W.S. (2018), pp. 156-170
14. Grant R.M. (2016), pp. 278-292
15. Porter M.E. (1985), pp. 267-284

Author: Sławomir Wawak