When selecting and creating your financial objectives, consider what you’re trying to accomplish financially within the time span of your strategic plan. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. Our strategic focus. A company using a focus strategy may concentrate on geographic markets or a particular group of. Despite a huge brand following, neither companies could keep up with the times, and eventually lost out. Both diversification and focus are two sides of the same coin and have equally enough to contribute if strategize right. Every one of their products are aimed at getting more and more people into Google’s ecosystem or vice versa, i.e., use the ecosystem to push other products. Intangibly, customer loyalty and brand recognition have provided significant value to Zara. In contrast, IKEA’s customers can view different furniture combinations (complete with sofas, chairs, tables, and so forth) in a single setting, which eliminates the need for sales associates or decorators to help the customer imagine how a furniture arrangement would look when placed in the customer’s home. The focus strategy is really a hybrid of the cost and differentiation strategies. Moreover, people look for convenience and something extra while selecting a brand. Their net working capital (current assets — current liabilities) is â €š ¬133 (in thousands) . A focus strategy is one business approach outlined by management expert and author Michael Porter in his "Generic Strategies" model. For example, instead of relying primarily on third party manufacturers, the firm’s engineers design low-cost, modular furniture ready for assembly by customers. So when we, at BankBazaar.com, diversified from B2B business of providing technology-based banking solution into the B2C business of personal finance marketplace, our focus remained same – technology. Every startup reaches a market stagnation point during its transition to a bigger organization. This behaviour will drift them to other brands to get that additional product or service. Focus strategyis a marketing and business concept that was first introduced by Harvard University business professor Michael Porter in the mid 1980s. It sells a lifestyle that customers around the world embrace as a signal that they have arrived, that they have good taste and recognize value. Focus Strategies is a leading middle-market investment bank offering services that include raising capital, company sales, merger & acquisition advisory, and partial sale/recapitalization. The firm that focuses on cost may be able to outperform the broad-based firm through its ability to strip out frills not valued by the segment. Moreover, if you bite-off more than what you can chew, it can bring your entire business down. If it is losing its steam and becoming unviable, then your priority should be to shore it up rather that looking for other options. The successful implementation of Zara’s business model provides great value to stakeholders and differentiates their business from their peers. Focus Strategy is the strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. Your email address will not be published. If the focuser’s niche suddenly disappears because of changes in technology or consumer tastes, it is hard to switch to a new niche quickly. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. A further trouble spot is sewing. Thus Zara reserves mill capacities to ensure production facilities are available when needed. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. Focus – Target a specific industry segment, ignoring the rest. Such companies include: TOMS, Frog Box, and Ten Tree Apparel. The lessons that can be learned from a company’s diversification moves can be significant. Hence it is essential that they look at the team structure within. With focus strategy, a company chooses a small segment of the industry to focus its marketing efforts on. For all commercial enquiries related to Entrepreneur Asia Pacific, please contact sales@entrepreneurapj.com, For all editorial enquiries related to Entrepreneur Asia Pacific, please contact editor@entrepreneurapj.com, For all contributor enquiries related to Entrepreneur Asia Pacific, please contact contributor@entrepreneurapj.com, Image credit: This can raise unit costs if the overheads have not been trimmed to match the smaller outputs demanded by the narrower customer base. They are cost leadership (e.g. Strategy is all about planning done for the next day or future and is expected to get the best results out of the strategy, it is important for us to cope up for the uncertain tomorr… Before we launch into the how of it, let us consider the why. Even though Zara uses sub-contractors some subcontractors, it carries out the bulk of all cutting itself-a crucial process that determines fit. Cost leadership strategy and differentiation strategy share one important characteristic: both are used to attract customers in general. (a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. These strategies are known as focus strategies and they are applicable to both cost leadership and differentiation. Our foray into B2C complemented our B2B business. A business strategy refers to the actions and decisions that a company takes to reach its business goals and be competitive in its industry. A new player may ‘outfocus’ the firm. Substitute products must overcome consumer brand loyalty, so again, the focuser is somewhat protected. The concept and trademark of Ike is owned by Ikea Systems BV and the operations of the company are basically controlled by Ingka Holding. We do our part. In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. Focus does not necessarily have to be about how broad or narrow your business is; it has to do more with how every one of your diverse capabilities tie together to create value to your company. Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Porter's generic strategies, as they are called, included three components: cost leadership, differentiation and focus. Value can be define… Although a cost leader, IKEA also offers some differentiated features that appeal to its target customers, including in-store playrooms for children, wheelchairs for customer use and extended hours. In order to realized these results Zara developed a business model that incorporated the following three goals for operations: develop a system the requires short lead times, decrease quantities produced to decrease inventory risk, and increase the number of available styles and/or choice. These diversification ensured repeat purchase by the same customer for different but related needs. Unsurprisingly, success stories abound: Nokia and Virgin to name a couple, and so do costly failures: Lego’s attempt at being a lifestyle brand or Coca Cola’s purchase of Columbia Pictures still leave one bewildered. A third practice that helps keep IKEA’s costs low is expecting customers to transport their own purchases rather than providing a delivery service. Companies that adopt this generic strategy engaging the customers of specific demographicmainly focuses on fulfilling the unserved needs of customers. The Focus Strategy. A company using the focus strategy naturally looks for the competitive advantage by brand marketing and product innovation, instead of efficiency. A good strategic framework provides focus by limiting the number of directions the organization runs. The number of consumers they attract continues to rise and their brand is synonymous with the cutting edge of fashion at affordable prices. Zara maintains a strong relationship with their contractors and suppliers-viewing them as part of the company. So, despite having seemingly diversified into so many things including self-driving cars and solar power plants, their core business in the centre of all diversification and all their strategies are focused around it. McDonalds) and cost/differentiation focus (e.g. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.The focus strategy has two variants. There are two levels to building an effective customer focus strategy: an emotional level and an operational level. Supportive Communication – Meaning and Attributes, Supply Chain Integration Strategies – Vertical and Horizontal Integration, Understanding the Importance of International Business Strategy, Employee Participation and Organization Performance, PRINCE2 Methodology in Project Management, Evolution of Logistics and Supply Chain Management (SCM), Case Study on Entrepreneurship: Mary Kay Ash, Case Study on Corporate Governance: UTI Scam, Schedule as a Data Collection Technique in Research, Role of the Change Agent In Organizational Development and Change, Case Study of McDonalds: Strategy Formulation in a Declining Business, Case Study: Causes of the Recent Decline of Tesla. It pays to think beyond the either-or scenario and look at a combination of the two. The Ikea Group has also been able to diversify their products beyond furnishings and furniture into food products and prefabricated housing. This lesson deals with the last of the three, focus strategy. For example dyeing and fit are critical processes within the supply chain. The IKEA Concept relies on customers to choose, collect, transport and assemble IKEA products themselves. According to Porter (1980), focus generic strategy involves the company targeting a specific market segment, group, individuals, or class of customers. However, if the company is pursuing a focused differentiation strategy and can pass on price increases, this is less of a problem. A focused cost leadership strategy requires IKEA customers are actively involved in the shopping experience. The premise is that the needs of the group can be better serviced by focusing entirely on it. A focuser’s ability to satisfy unique customer needs gives the company power over its buyers; they cannot get the same thing from other companies. Market segmentation is low, with the focuser filling just one or a few niches. Focus does not necessarily have to be about how broad or narrow your business is; it has to do more with how every one of your diverse capabilities tie together to create value to your company. While the traditional thought has been that the decision to focus or diversify is an either-or case, the truth is that focus and diversification can coexist. 60% of the manufacturing processes are outsourced in countries close to the Zara headquarters in Spain to help achieve a quick turnaround. Walmart), product differentiation (e.g. Other advantages exist, as discussed in terms of Porter’s Five Forces Model. Focus Strategies Investment Banking Case Studies. The idea behind focus strategy is developing, marketing and selling products or services to a niche market, such as a particular type of consumer, a specific product line or a targeted g… IKEA believes that these services and products are uniquely aligned with the needs of its customers, who are young, not wealthy, likely to have children, and because they work for a living, need to shop outside of regular hours. However, your priority before any diversification should be to make your core business stable in terms of both capital and resources. For these customers, the firm offers home furnishings that combine good design, functionality and acceptable quality at low prices. Young buyers in search of stylish and fashionable furniture and household accessories at a low cost are IKEA’s targeted market segment. Why accept noise and busy as excuses? Google has achieved this spectacularly. The choice of distinctive competency depends on the. Value drivers for Zara are both tangible and intangible in the benefits that are returned to all stakeholders. Financial objectives are typically written as financial goals. Differentiation Focus an approach to competitive advantage in which a company attempts to outperform its rivals by offering a product that is perceived by consumers to be superior to that of competitors even though its price is higher; in adopting a differentiation focus strategy, the company focuses on narrow market coverage, seeking only to attract a small, specialised segment. Companies are presented with two choices: to remain focused or diversify. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. Porter’s Generic Strategies – Focus Strategy, Segmentation, Targeting and Positioning - STP Model, Business Level or Generic or Competitive Strategies, Difference Between Business Strategy and Corporate Strategy, Porter’s Generic Strategies – Differentiation Strategy, Definition of Globalization – Stages of Globalization. But this generic strategy focuses on a small group of customers that narrow down the focus of efforts of a company on a small group of customers or a niche market. 4 Key Things Employees Are Looking for From Their Next Workplace, Supply Chain Integration Strategies - Vertical and Horizontal Integration, Understanding Different Types of Supply Chain Risk, How to Motivate Your Team Through Mobile Messages, Supportive Communication - Meaning and Attributes, company’s source of competitive advantage, Zara is a phenomenon in the textile industry, Zara reserves mill capacities to ensure production facilities are available when needed. Also large differentiators may compete for the focuser’s niche if it becomes very profitable, as occurred in IBM’s fight with Apple. Nevertheless, if the right strategies are in place, each one can balance the other and increase the benefits they bring to an organization. Potential entrants have to overcome the hurdle of consumer loyalty, so the focuser is somewhat protected. These three goals helped to shape Zara’s current business model. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. Even at BankBazaar, each time we diversified into a new segment – be it loans, insurance, or investments – it was a part of reinforcing our value proposition. When asked to name a few companies that uses the “Focus Strategy”, a strategy that targets a niche market by differentiation or cost advantage, a few companies immediately came to my mind. 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