Choice of Focus strategy

1. The Choice of Focus

Focus strategies rest on differences among segments, either differences in the firm’s optimal value chain or differences in the buyer value chain that lead to differing purchase criteria. The existence of costs of coordination, compromise, or inflexibility in serving multiple segments is the strategic underpinning of sustainable focus strategies. By optimizing its value chain for only one or a few segments, the focuser achieves cost leadership or differentiation in its segment or segments compared to more broadly-targeted firms that must compromise. Focus strategies involve the entire value chain and not just marketing activities, as in market segmentation.

Focus strategies can encompass more than one segment and encompass several segments with strong interrelationships. However, the ability of a firm to optimize for any segment is generally diminished by broadening the target. Note that a firm can focus within an industry at the same time as it achieves interrelationships with business units competing in other industries that do not force it to compromise in serving the target segments. The choice of competitive scope involves simultaneously understanding interrelationships at both levels (see Chapter 15).

Firms can choose different groups of segments on which to focus, which may or may not overlap. Figure 7-10 illustrates a case where a number of firms are supplying information products to financial services firms. Company A has adopted a product-based focus strategy of supplying one product variety (data bases) to all buyers. Company B, on the other hand, has adopted a buyer-based focus strategy in which it sells the full array of products to insurance companies. Company C has yet another focus strategy which concentrates exclusively on providing consulting advice to finance companies. Its buyers either acquire the data elsewhere or generate it themselves. Company C’s focus strategy does not overlap with the segments served by companies A and B.12

As noted above, focus strategies involving several segments rest on the presence of strong interrelationships among the segments that outweigh the suboptimization of serving more than one. For example, company A has maximized interrelationships based on shared R&D and production of only data bases, which offset the fact that each buyer type would ideally prefer a somewhat different type of data base and perhaps a different delivery system. Company B, on the other hand, has chosen a buyer-based focus strategy that gains competitive advantage through optimizing its delivery and selling system for insurance companies. Company C has opted for the potential differentiation benefits of offering only consulting to finance companies and the internal benefits of product specialization, while forgoing potential scale economies of a broader focus. Thus each company has built a focus strategy based on different interrelationships and different competitive advantages, and each bears different costs of compromise.

Figure 7-10.       Alternative Focus Strategies in a Financial Information Industry

Interesting competitive issues arise in segments where focus strategies with different segment interrelationships overlap. In Figure 710 this occurs in the upper left-hand segment in the matrix. In that segment, the different focus strategies create competitive advantages and disadvantages of different types for the two firms competing in the segment. Company A brings extensive low-cost data bases and an acute understanding of data base design, while Company B brings an in-depth understanding of insurance companies and cost advantages from offering a full line. Just as interrelationships can lead to competitive advantages, they can also make a firm inflexible in competing in a segment. For example, company A could not easily modify its data base management system to better respond to the needs of insurance company buyers because of the effect this would have on its activities with banking and finance companies. The relative position of companies A and B in an overlapping segment is a function of net competitive advantage of interrelationships with other segments. Constraints in responding that arise from interrelationships can lead to a competitive interaction in which firms try to shift competition in a segment in the direction that best exploits their own segment interrelationships or advantages, while forcing competitors to compromise theirs.

2. The Feasibility of New Segments to Focus On

The feasibility of a focus strategy in a segment depends on the size of a segment and whether it will support the cost of a tailored value chain. Even if a tailored value chain would be more responsive to the needs of a particular new segment, the costs of the tailored chain may not be recoupable. Thus many potential segments should not be served with focus strategies.

There are four ways that new segments emerge as viable for focus strategies. The first is that tailoring gets less costly. Falling economies of scale may allow a focus strategy, for example. The second reason focus on a new segment becomes viable is that the segment grows enough to overcome the fixed cost of serving it. A third reason is that firms exploit interrelationships with other industries to overcome scale thresholds in serving the segment. Finally, a segment may become viable if a firm pursues it globally, using volume in many countries to overcome scale economies. Here the firm is pursuing geographic interrelationships.

Firms can preempt new focus strategies by perceiving new segmentation schemes or by identifying opportunities to make new segments viable. Recent reductions in scale economies have occurred in some technologies, including computerized manufacturing and design. These, coupled with enhanced ability to exploit interrelationships among business units (Chapter 9) and compete globally, will be continually creating opportunities for new focus strategies in the 1980s.

3. The Sustainability of a Focus Strategy

I have discussed how a firm can choose a segment or small group of segments on which to focus, based on the attractiveness of those segments and the interrelationships among them. A final issue in choos-ing a focus strategy is the sustainability of the focus strategy against competitors. The sustainability of a focus strategy is determined by three factors:

  • Sustainability against broadly-targeted The size and sustainability of the competitive advantage created through focus vis-à- vis more broadly-targeted competitors.
  • Sustainability against imitators. The mobility barriers to imitating the focus strategy or being outfocused by a competitor with an even narrower target.
  • Sustainability against segment substitution. The risk that buyers will be drawn away to other segments the focuser does not serve.


Broadly-targeted competitors may either already compete in a focuser’s segment or be potential entrants to the segment as an extension of their existing base in other segments. The focuser’s competitive advantage over a more broadly-targeted competitor is a function of:

  • the degree of compromise a broadly-targeted competitor faces in serving the focuser’s segments and other segments at the same time
  • the competitive advantage of sharing value activities with other segments in which the broadly-targeted competitor operates

The more different the focuser’s value chain is from the value chain required to serve other segments, the more sustainable is the focus strategy. In the airconditioning industry in the United States and Europe, for example, the distribution channels that serve the residential and commercial market are separate from those that serve the industrial market. In Latin America, Asia, and the Middle East, however, the same channels tend to stock the whole line. A focus strategy has been much more successful and sustainable in the United States and Europe than in other parts of the world, because focusers can tailor the value chain to the channel that specializes in their target segment. The focus strategy is more sustainable as buyer needs in the target segment are more different and unusual vis-à-vis other segments.

The problems of Royal Crown in the soft drink industry illustrate these principles. Royal Crown focuses on colas, unlike Coke and Pepsi, which supply a broader line of soft drink flavors. Supplying only colas does not involve a significantly different value chain than supplying a broad line. Buyer needs and purchasing behavior are not much different for colas than for other flavors except for the flavor preference. Conversely, supplying a broad line allows significant benefits of sharing activities in production, distribution, and marketing. Hence Royal Crown’s focus strategy leads to no competitive advantage against its broadly-targeted competitors, only disadvantages. On the other hand, Mercedes gains strong advantages through focus in automobiles by using a tailored value chain compared to its broad-line competitors.

Mead’s strategic evolution in the paper container industry illustrates how the factors underlying the sustainability of a focus strategy can change. In response to intense cost competition in high volume containers in the late 1970’s, Mead chose a focus strategy targeted at low volume, high value-added segments. In the early 1980’s, however, new continuous-run paper corrugators were developed that operated faster but at the same time required much less setup time. This made it increasingly possible for broad line competitors to service small orders economically. Mead was forced to modify its focus strategy and serve a broader range of segments while investing in the new equipment. In this case, the value chain required to serve Mead’s target segments became less different from that required to efficiently serve the high volume segments.

The sustainability of a focus strategy will erode if a segment’s differences from others fall over time, if technological change reduces the cost of compromise in serving multiple segments or increases the ability to reap interrelationships (see Chapter 9), or if a tailored value chain for the segment becomes too expensive relative to a more standardized chain. Hence there is an important dynamic element in choosing the segments on which to focus, reflecting an ongoing tradeoff between the advantages of focus on a particular segment and the gains of sharing through competing in multiple segments.


The second type of risk facing a focuser is that another firm will choose to replicate the focus strategy, either a firm new to the industry or one dissatisfied with its existing strategy. The sustainability of a focus strategy against imitators is based on the sustainability of the competitive advantage a focuser possesses, analyzed using the concepts in Chapters 3 and 4. The mobility barriers to imitating a focus strategy are the scale economies, differentiation, channel loyalty, and/ or other barriers unique to the focus strategy. The height of the barriers against imitation of a focus strategy thus depends on the structure of the particular segment. Imitating Kodak’s high-end focus in copiers, for example, requires that a firm overcome barriers due to proprietary technology as well as economies of scale in establishing an in-house sales and service network.

The size of a segment can affect the threat of imitation of a focus strategy. In a small segment, even modest scale economies may be significant relative to segment size if they cannot be offset by interrelationships, and competitors may not be interested in entering. Conversely, in a growing industry there is the continual possibility not only that a focus strategy will be imitated but also that a focuser will be “outfocused” as ever-narrower segments become viable. In the rapidly growing information industry, for example, outfocusing is pervasive as firms develop ever more specialized data bases for narrower target buyer groups.


The final determinant of the sustainability of a focus strategy is the risk of segment substitution. A focus strategy concentrating on a segment is vulnerable to the disappearance of that segment. This may be the result of changes in the environment, technology, or competitor behavior. The risk of segment substitution is analyzed in the same way as substitution in general (see Chapter 8). Segment substitution can be influenced by competitors just as industry-level substitution can—if anything, even more so. Competitors often attempt to shift demand away from a focuser’s segments through techniques such as marketing, technological innovation, or even lobbying for government standards that worsen conditions in the segment. Where a focuser faces competitors serving much larger segments, there is a risk that their advertising spending and other marketing may shape buyer attitudes and lead buyers away from the focuser’s segment.

Pitfalls and Opportunities for Focusers and Broadly-Targeted Competitors Several important lessons emerge from this analysis both for focusers and for broadly-targeted competitors:

Successful focus strategies must involve compromise costs for competitors. Focusing on a segment or group of segments is not sufficient to achieve competitive advantage in and of itself. The chosen segments must involve buyers with different needs, or require a value chain that differs from that which serves other segments. It is differences between the focuser’s segment and other segments that lead to subop. timization by broadly-targeted competitors, and provide the source of a sustainable competitive advantage for the focuser.

Identifying a new way of segmenting an industry can be a major opportunity. A properly constructed industry segmentation matrix will often expose segments that are not reflected in the behavior of existing competitors. By identifying a new way of segmenting the industry, a firm can often design a focus strategy around a product variety, buyer group, channel, or geographic subdivision that has not previously been recognized as a segment but that has structural or value chain differences. New segments can be narrower or broader than segments currently recognized. Its differences imply that the new segment needs a distinctive strategy and value chain, and that competitors serving it together with other segments will be suboptimizing.

The firm that recognizes a meaningful new segmentation first can often gain a sustainable competitive advantage preemptively. Federal Express, for example, saw the small parcel requiring overnight delivery as a segment that no firm had focused on before. Federal Express designed a strategy around this segment involving a reconfigured value chain, and gained enormous advantages over competitors who were serving it as part of broader strategies. Similarly, Century 21 was first to recognize a broader nationwide segment in real estate brokerage.

Broad targeting does not necessarily lead to competitive advantage where there are industry segments. A broadly-targeted competitor must gain sustainable competitive advantage from competing in multiple segments if it is to enjoy above-average returns. These competitive advantages usually come from the interrelationships among segments. A cost leadership strategy rests on achieving a low-cost position through the scale and other advantages of competing in many segments. A differentiation strategy is based on achieving uniqueness in meeting use or signaling criteria that are widely valued by many segments. Without some tangible competitive advantage from breadth, the struc-tural differences among segments will usually guarantee that a broadly- targeted competitor will be “stuck in the middle.”

Broadly-targeted firms often serve too many segments. A firm aiming at an overly broad strategic target runs the risk of suboptimization, increasing its vulnerability to focusers. Reducing the number of segments served may decrease vulnerability, as well as increase profitability through eliminating unattractive segments. A broadly-targeted firm should consider dropping out of segments where:

  • it gains little advantages from interrelationships with other segments
  • it is forced to modify its entire strategy in order to serve the segment
  • the segment is structurally unattractive
  • sales and growth potential in the segment is limited
  • defensive considerations do not require presence in the segment to block competitors

The relevant segments and breadth of target must be continually examined. The strategically meaningful segments in an industry will evolve over time due to shifts in buyer behavior, the emergence of new buyer groups, and technology that alters segment interrelationships. Thus the choice competitive scope within an industry must be continually reexamined. A firm cannot automatically accept a historically important segmentation as meaningful, despite the fact that old segmentations have a tendency to fade slowly from managers’ minds. Viewing the choice of segments served as a permanent decision will inevitably bring strategic disaster.

New technology is changing old assumptions about segmentation. New technology, particularly microelectronics and information systems, is creating opportunities for both new focus and new broadly- targeted strategies. Flexibility in manufacturing, logistics, and other value activities is making it possible for broadly-targeted firms to tailor activities to segments while maintaining a single value chain. This is reducing opportunities for sustainable focus in some industries. At the same time, the same technological revolution is making strategies tailored to new segments viable. Computer-aided design, for example, K lowering the design cost of new product varieties. Firms must pay particular attention to how the new technologies might shake up the traditional logic of focus or broad targeting in their industries.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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