Focus Strategy/Niche Market Strategy
In the previous articles, we were discussed about the Low Cost Leadership Strategy, Broad Differentiation Strategy and Best Cost Provider Strategy of Strategic Management. Today, We’ll discuss about the Focus Strategy or Niche Market Strategy.
Focus Strategy/Niche Market Strategy:
Focus strategy concerns itself with the identification a niche-market and launching a unique product or service in that market. A niche-market is a narrow segment of a total market. Niche can be identified on the basis of certain issues:-
- Particular buyer group
- Geographic uniqueness
- Special product attributes that appeal on to niche members
- A particular product line
A company using focus strategy may concentrate on geographic markets or on a particular group of customers or on a particular product line segment.
Classification of Focus Strategy:
There are identified the two classification of focus strategy. Such as:-
- Focused Low Cost Strategy
- Focused Differentiation Strategy
1. Focused Low Cost Strategy:
Focused low cost strategy is the strategy of entering into a niche market at low cost with unique type of product that has a special need among the customers in the niche market.
2. Focused Differentiation Strategy:
Focused differentiation strategy is the strategy of operating business with a differentiated product in a chosen niche market.
Effectiveness of Focused Strategy:
A company requires unique skills, capabilities and resources for successful implementation of focus strategy. Some these are:-
- Manager’s ability to explore a well-defined but narrow market segment.
- Clear identification of competitors who serve a market broader than the nice market but are unable or disinterested to serve the niche for some reasons.
- Firm’s ability to provide adequate capital.
- Designing and maintaining a low cost distribution system with strong cooperation from the channel members.
- Strong marketing ability and creative flair.
Favorable Situations for Focus Strategy:
A focus strategy does not work well in all situations. It becomes an attractive strategic option usually in the following situations:-
1. Consumer’s distinctive preferences:
Focus strategy is particularly active when customers have distinctive partialities and the competitors are not contribution products to mollify those preferences.
2. Competitor’s apathy:
If competitors are not trying to specialize in the same target niche market, a company’s focus strategy is likely to be effective.
3. Profitable niche:
The focus strategy is expected to be highly workable when the niche market is big enough to be profitable. Very small niche may not bring enough profit for the marketers.
4. High growth potential:
Niche market becomes attractive when its growth potential is high. In order to be profitable, the niche market must be able to offer good growth potential.
5. Accessibility of diverse niches in the industry:
When a manufacturing has dissimilar niche market sections, the marketer can give a ride to the eye-catching niche based on its fortes.
6. Inability or unwillingness of competitors to serve niche market:
The competitors who sell their products in many segments of the market may find it costly to operate in a small pieces of market where there is a need for specialized products. In such a situation, the focus marketer may do well with customized products. Also market leaders may not like to enter into a niche market as they do not consider it important to be a niche marketer for their business success.
7. No risk of segment overcrowding:
A company may find it useful to follow a focus strategy if rival companies avoid specializing in the same segment. This attitude of rivals reduces the risk of overcrowding in the niche market. Overcrowding occurs when many producers operate in a market as they do not consider it important to be a niche marketer for their business success.
8. Focuser’s competitive ability:
Success with a focus strategy to a large extent depends on the ability of the focuser company to compete effectively in the market. Effective competition is possible when the company has enough resources, capabilities and market image.
9. Company’s farsightedness:
To be fruitful with focus strategy, the focuser company must have the foresight to give a ride to those niches that match with its dedicated competencies and abilities as well as nice-looking by all standers.
Risks Associated with Focused Strategy:
There are described about the risks associated with focused strategy. Such as:-
1. Risk from more appealing products:
If the competitors come up with such products that are more attractive to the customers, there is then a risk of losing the market. Example includes MUM of Partex Group. Many rivals have gone out of the market because of the appealing attributes of MUM.
2. Shifting of customer’s preferences:
Another risk emanate from the possibilities of shifting customer’s presences and needs for a particular product in the niche market. Over time, customer’s preferences may change or they may need a product with different attributes. Such a situation may allure other producers to enter the niche market. This would intensify competition in the niche market.
3. High attractiveness of the niche market:
The third risk may come from the niche itself. The niche market may converted so extremely beautiful that the adversaries would hurdle into the section and lastly it may be water-logged with so many competitors. Thus, niche market incomes will move down. This occurred in the garments segment in Bangladesh in 1980s and in “accounting software” in 1990s.
4. Universality of customer’s needs:
Additional danger is that the requirements of attentive clienteles in the niche market may converted more alike to those of consumers in a market as an entire. If this occurs, the advantages of focus strategy may be abridged or removed.
5. Price war:
It may invite aggressive price cutting by competitors, which may eventually lead to price war that may lead to low profitability.
6. Withering cost advantages:
Cost advantages of the company may not sustain for a long period of time if they can be copied easily by the competitors. So, the ways to achieve cost advantage must be difficult for others to copy.
7. Fear of low attractiveness:
If low cost product does not hold enough qualities to be good-looking to potential purchasers, the strategy may fail. Low price is not always appealing to buyers. Attractiveness may be lost if the product is feature poor or quality deficient.