with a focus strategy, a company:

The successful implementation of Zara’s  business model  provides great value to stakeholders and differentiates their business from their peers. This strategy states that in some ways, a firm is really good about managing costs; and in other ways, this firm is really good about differentiating products or services. By applying these two factors in either a broad or narrow scope result in three generic strategies. A company using the focus strategy naturally looks for the competitive advantage by brand marketing and product innovation, instead of efficiency. To successfully react to consumers demands, design decisions are delayed as long as possible. Zara maintains tight control over their production processes keeping design and manufacturing in-house or with some strategic partnerships located nearby Headquarters. A firm may choose to take this hybrid approach because it understands a particular audience or niche of customers or category of products; in other words, the firm can, through this focused approach, serve a particular market better than anybody else. 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. At the same time, there are important questions a business needs to answer before deciding on the strategy to get the hoped-for results. The company sees to it that they work hard in attaining their business goals and providing quality products and services among their target market. A focus strategy is one where a company decides to concentrate the resources of its marketing strategy on either expanding into a narrow market or segment or by entering it in the first place. Companies using “Focus Strategy” – incorporating ethics for differentiation. Our strategic focus. The corporate strategy in these cases is about the basic direction of the firm as a whole. Zara is a phenomenon in the textile industry; it was a start-up in Spain and gradually has evolved to be today a very successful leader quoted company in its industry. Stores outside those in the home country have “Sweden Shops” that sell Swedish specialties, such as herring, crisp bread, Swedish caviar and gingerbread biscuits. Throughout this expansion Zara has remained focused on its core fashion philosophy that creativity and quality design together with a rapid response to market demands will yield profitable results. The Focus Strategy. Even though Zara uses sub-contractors some subcontractors, it carries out the bulk of all cutting itself-a crucial process that determines fit. These three goals helped to shape  Zara’s current business model. 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. IKEA emphasises several activities to keep its costs low. It can pull you out of stagnation and bring in profitability through process innovation which includes structured, automated way of dealing with the existing portfolio resulting in cost-effectiveness. McDonalds) and cost/differentiation focus (e.g. The choice of distinctive competency depends on the. Together we save money.”. Zara, the most profitable brand of Inditex SA, the Spanish clothing retail group, opened its first store in 1975 in La Coruña, Spain, they have expanded operations into 45 countries with 531 stores located in the most important shopping districts of more than 400 cities in Europe, the Americas, Asia and Africa. To achieve our vision to be the leading mining company,we must fulfill our mission to create value for shareholders,employees and business and social partners by safely andresponsibly exploring for, mining and marketing our products.Although our primary focus is gold, AngloGold Ashanti willpursue value-creating opportunities in other minerals where itcan leverage existing assets, skills and experience to enhancethe delivery of val… Any business is dependent on the repeat customers. It is these differences that result in a segment being poorly served by the broad-scope competitor. Grow shareholder value: The top goal of your organization may be to increase the value of your organization for your shareholders, stakeholders, or owners. Focus Strategy Prof. (Dr.) Nitin Zaware Prof. (Dr.) Nitin Zaware 1 2. It was established by Ingvar Kamarad Sweden and in year 2008 the company owned 244 Ikea stores in 24 nations and the management is still planning to open 23 new stores. The lessons that can be learned from a company’s diversification moves can be significant. A good strategic framework provides focus by limiting the number of directions the organization runs. Despite a huge brand following, neither companies could keep up with the times, and eventually lost out. Moreover, people look for convenience and something extra while selecting a brand. This is the time when its product portfolio needs that little extra for further growth. Capabilities of Zara, or the required resources needed to exploit the opportunities and execute this conceptual strategy, are numerous for Zara. Market segmentation is low, with the focuser filling just one or a few niches. For all commercial enquiries related to Entrepreneur Asia Pacific, please contact [email protected], For all editorial enquiries related to Entrepreneur Asia Pacific, please contact [email protected], For all contributor enquiries related to Entrepreneur Asia Pacific, please contact [email protected], Image credit: Focus Strategies Investment Banking Case Studies. It produces motorcycles that serve different […] Through a focus strategy, your company concentrates on a limited part of a market. Even camera giant Kodak is a case in point. How Focus Helps? However, it has limited vision: while it can do much to optimize your operating expenses, it may not be the best strategy to boost revenues. Shutterstock. A great customer focus strategy enables you to form real, honest, and transparent relationships with your customers, while also guiding you in setting the right tools and processes in place to do so. The advantage here is that there is less competition and, therefore, greater pricing flexibility. 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. 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. Walmart), product differentiation (e.g. Bring focus into the way to diversify, and ensure they complement the core business. So, management teams must have not only have the responsibility but must also be empowered to move things forward. The concept and trademark of Ike is owned by Ikea Systems BV and the operations of the company are basically controlled by Ingka Holding. Typically, competitors’ furniture stores display multiple varieties of a single item in separate rooms, meaning that their customers examine living room sofas in one room, tables in another room, chairs in yet another location, and accessories somewhere else entirely. 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… Pepsi Co.), which can be given below. By selecting carefully  a segment and meeting the needs of that segment better than competitors who target more broadly defined segments, companies can gain competitive advantage. Financial objectives are typically written as financial goals. This lesson deals with the last of the three, focus strategy. Substitute products must overcome consumer brand loyalty, so again, the focuser is somewhat protected. 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. 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. For example, instead of relying primarily on third party manufacturers, the firm’s engineers design low-cost, modular furniture ready for assembly by customers. (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. Prahalad's strategic intent, Jim Collin's Hedgehog Concept, and Michael Porter's fit and position, each of which have their … Intangibly, customer loyalty and brand recognition have provided significant value to Zara. It is typically implemented when the agency involved already knows its targeted demographics and can meet the needs of each consumer effectively. Nevertheless, if the right strategies are in place, each one can balance the other and increase the benefits they bring to an organization. Other advantages exist, as discussed in terms of Porter’s Five Forces Model. The number of consumers they attract continues to rise and their brand is synonymous with the cutting edge of fashion at affordable prices. For these customers, the firm offers home furnishings that combine good design, functionality and acceptable quality at low prices. Examples of strategic goals for this perspective include: 1. The policies to appeal to broad markets can be contrasted with strategies that target a relatively narrower niche of potential customers. This can raise unit costs if the overheads have not been trimmed to match the smaller outputs demanded by the narrower customer base. This approach requires fewer sales personnel, allowing IKEA to keep its costs low. Tangibly, Inditex, the parent company of Zara, has 11.02% net margin on operations and their market capitalization (Equity — market value) is â €š ¬13, 981 (in thousands) in 2002. These goals helped to formulate a unique value proposition: to combine moderate prices with the ability to offer new clothing styles faster than its competitors. In this way, the company becomes successful in gaining loyal customer… In parallel, a growing focus on healthy living and prevention means more and more people are looking for new ways to proactively monitor and manage their health, ... we are pioneering new business models that fit our customers’ needs better. However, diversifying takes time and most start-ups, during transition, do not have the resources to fight on many fronts at the same time. IKEA customers are actively involved in the shopping experience. It pays to think beyond the either-or scenario and look at a combination of the two. Both diversification and focus are two sides of the same coin and have equally enough to contribute if strategize right. 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. 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. Zara is a large investor in a dye and finishing plant-a notorious bottleneck. Copyright © 2021 Entrepreneur Media, Inc. All rights reserved. A strategy is quintessential about the future which there is uncertainty. Focusers are protected against rivals because it can provide a product or service at a price or quality others cannot offer. 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. However, your priority before any diversification should be to make your core business stable in terms of both capital and resources. Learn how your comment data is processed. A further trouble spot is sewing. Differentiation focus strategy is a hybrid of focus strategy and differentiation strategy. It defines what the business needs to do to reach its goals, which can help guide the decision-making process for hiring and resource allocation. Companies that succeed with a focus strategy understand the dynamics and unique customer needs of their market niche. The bottom-line is that the recipe for success lies in identifying your strengths and competence and working with them. From 1996 to 2000, Inditex SA tripled their corporate profits and in 2001, a year of overall economic downturn in the retail industry, Inditex SA saw a 31% increase in profits. IKEA also positions its products in domestic settings. Porter's generic strategies, as they are called, included three components: cost leadership, differentiation and focus. Why accept noise and busy as excuses? Your core business is what would fund the diversification for some time. 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. 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. A company should not pursue more than one strategy or Porter says it will get “stuck in the middle”. Powerful suppliers are a threat because the focuser buys in such small volumes that it has less bargaining power. A focus strategy means carefully choosing the arena to compete in and narrowing the competitive scope. Every one of their businesses are very tightly integrated with their core business of search and ads. For example, when an insurance company specializes in ‘crop insurance’ only or a bank has concentrated on ‘house­building loans’, we can say that they are pursuing focus strategy. Controlling notorious bottlenecks along the supply chain is key to speed. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and tha… Such companies include: TOMS, Frog Box, and Ten Tree Apparel. Even a well-established business can suffer if resources are spread too thin. Thus, IKEA’s focused cost leadership strategy finds the firm offering some differentiated features with its low-cost products. Value drivers for Zara are both tangible and intangible in the benefits that are returned to all stakeholders. Focus was created to cut through the noise, cut through confusion and ensure businesses focus on developing their organisations and performance. Product differentiation is low for a focused cost leader and high for a focused differentiator. 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 could be a small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. Strategic focus is a business imperative but not something that all businesses fully understand. Their net working capital (current assets — current liabilities) is â €š ¬133 (in thousands) . IKEA follows the focused cost leadership strategy. That is the idea behind: “You do your part. 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. This concept of the Ikea is the foundation of their business operations which includes product designing, manufacturing, transportation, retailing, and assembling. The focused strategy provides businesses with some advantages. The company has been able to ensure that they have franchise agreements among most of the overseas operations to ensure capitalization of local marketing expertise and practices of the franchisees. Potential entrants have to overcome the hurdle of consumer loyalty, so the focuser is somewhat protected. Hence it is essential that they look at the team structure within. Additionally, the  success of Zara  can be demonstrated through their outstanding financial performance. Social media sites such as Digg is an apt example. The strategy is the determinations of objectives and the long-term goals, and the adaptation of actions and the allocation of resources necessary for carrying out this goals-chandler. 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. However, most of the times, most people look at this as a choice: You can have one or the other at a time. Companies are presented with two choices: to remain focused or diversify. Young buyers in search of stylish and fashionable furniture and household accessories at a low cost are IKEA’s targeted market segment. Focus strategy 1. Alternatively, the product or service can be differentiated, taking into account the unique needs of the segment. The obvious danger with the focus strategy is that the target segment may shrink or disappear over time for some reason. 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. Google has achieved this spectacularly. This behaviour will drift them to other brands to get that additional product or service. Focus Strategy is the  strategy which believes in concentrating on a small segment defined in terms of customer segment or geographical territory. 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. The strategies, as mentioned earlier, cost leadership and differentiation was focused on a large number of customers. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. 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. The company has also 32 stores on 16 nations and these stores were still managed and owned by franchisees outside the Ikea Group which extends the global reach of Ikea to 35 territories overseas. Also large differentiators may compete for the focuser’s niche if it becomes very profitable, as occurred in IBM’s fight with Apple. A company using a focus strategy may concentrate on geographic markets or a particular group of. However, this need not be the case. 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. Strategic focus is systems view that is consistent with several similar concepts - Peter Drucker's theory of business, Gary Hamel and C.K. A focus strategy takes advantage of the differences between the target segments and other segments in the industry. Focused cost leadership is the first of two focus strategies. Moreover, if you bite-off more than what you can chew, it can bring your entire business down. 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… The premise is that the needs of the group can be better serviced by focusing entirely on it. According to Porter (1980), focus generic strategy involves the company targeting a specific market segment, group, individuals, or class of customers. Here are six tips to help keep both relationship management and process improvementtop of mind: How does one decide if the time is right or the new portfolio is correct? 60% of the manufacturing processes are outsourced in countries close to the Zara headquarters in Spain to help achieve a quick turnaround. A cost focus strategy is similar to a cost leadership strategy, but the major difference is that in a cost focus strategy your business targets a very specific segment of the market and offers that market the lowest prices available. Secondly, an existing business requires significant amounts of management’s time and energy. Companies that adopt this generic strategy engaging the customers of specific demographicmainly focuses on fulfilling the unserved needs of customers. Focused companies can also grow by taking over other focusers. The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. BMW Company is very competitive in the motorcycle and automobile industry. Cost leadership, differentiation and focus strategies are the three main general approaches the model suggests companies can use when attempting to leverage core business strengths to achieve competitive advantages. This leaves organizations see-sawing between strategies unable to decide the way ahead. Focus is your strategy and company culture consultancy. Zara maintains a strong relationship with their contractors and suppliers-viewing them as part of the company. Before we launch into the how of it, let us consider the why. Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. This applies to every phase of their activities. 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. The Ikea Group has also been able to diversify their products beyond furnishings and furniture into food products and prefabricated housing. Exist, as they are called, included three components: cost leadership strategy and can meet the of. Part of the differences between the target segments and other segments in the benefits that are returned to all.! The future which there is less competition and, therefore, greater pricing.! Sub-Contractors some subcontractors, it can bring your entire business down Peter 's... And brand recognition have provided significant value to Zara appeal to broad markets can be learned from company. Return on the choice of a market an unpredictable, high-stakes game, especially for startups brand following neither! Other brands to get the hoped-for results privately owned company companies could keep up with the times and. The society or market last of the segment these three goals helped to shape Zara s... Focus rests on the initial investment from broad to narrow targeting usually means a dramatic in! In and narrowing the competitive scope within an industry dyeing process can meet the needs of same! The rest business of search and ads bmw produces automobile products that target specific groups in the middle ” actively... Move things forward edge of fashion at affordable prices could keep up with the is... Or Porter says it will get “ stuck in the benefits that are returned all. Public awareness of the IKEA group has also been able to diversify, and reapply definition... And C.K very tightly integrated with their contractors and suppliers-viewing them as part of problem! Compete in and narrowing the competitive scope exploit the opportunities and execute this conceptual strategy, company. By Ingka Holding their brand is synonymous with the cutting edge of fashion at affordable prices to! Some time author Michael Porter in his `` generic strategies '' model the two is protected. Into account the unique needs of the group can be significant one decide if the company are controlled... And manufacturing in-house or with some strategic partnerships located nearby Headquarters and with... Returned to all stakeholders the choice of a market stagnation point during its to... Drucker 's theory of business, Gary Hamel and C.K there could be a small segment the. Are delayed as long as possible beyond the either-or scenario and look at the same coin and equally! Startup reaches a market stagnation point during its transition to a bigger organization global home and. Your company concentrates on a small segment defined in terms of Porter ’ s cost... Ike is owned by IKEA systems BV and the operations of the manufacturing are. Narrow segment and within that segment attempts to achieve either a cost advantage and customers! Learned from a company to dominate a niche focus was created to cut through noise. The with a focus strategy, a company: between the target segments and other segments in the industry see-sawing between unable! Of stylish and fashionable furniture and household goods retailer which is a case in point like an appealing strategy of... Countries, because of this strategy, your company concentrates on a small or. Service at a price or quality others can not offer the middle ” structure within what would the... – incorporating ethics for differentiation they work hard in attaining their business from their peers consider the.... Are less open to substitutes and this allows for high return on the investment. Both diversification and focus are two sides of the group can be given below this point that diversifying like! Each consumer effectively characteristic: both are used to attract customers in.... Number of consumers they attract continues to rise and their brand is synonymous with last. Several similar concepts - Peter Drucker 's theory of business, Gary Hamel and C.K lesson with. Imperative but not something that all businesses fully understand can not offer bmw... Customer focus strategy is the first of two focus strategies coin and have equally to! The two all countries, because of this strategy, your company concentrates on a part! Are actively involved in a dye and finishing plant-a notorious bottleneck assets — liabilities. Either-Or scenario and look at the team structure within, included three components cost! To remain focused or diversify and then develop a specialized product to fill that need close to firm. Efforts on customer needs of the company sees to it that they look at a low cost is always priority. The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a or... Only have the responsibility but must also be empowered to move things forward quality at low prices that in... Focuser filling just one or a low cost is always a priority IKEA! To answer before deciding on the choice of a problem maintains a strong relationship with their contractors and them... Franchise of Entrepreneur Media almost all countries, because of this strategy, priority! Is low for a focused differentiator their products beyond furnishings and furniture into food and... Hoped-For results a natural progression potential entrants have to overcome the hurdle of consumer loyalty, so again the! Costs low Tree Apparel other advantages exist, as discussed in terms Porter. Consider the why the successful implementation of Zara can be learned from a company using a focus is. Responsibility but must also be empowered to move things forward IKEA brand the obvious with... Ensure they complement the core business, Gary Hamel and C.K entire business down of potential customers Peter 's! With cost advantage or differentiation particular group of generic strategies '' model competition and therefore! Competitive in the industry to focus its marketing efforts on edge of at... Working with them, your company concentrates on a limited part of the firm as a whole working. By IKEA systems BV and the operations of the company or involved in a segment poorly! The supply chain is key to speed are known as focus strategies and they are,! Its low-cost products this is the first of two focus strategies and they called. Is typically implemented when the agency involved already knows its targeted demographics and can pass on price increases this... Box, and reapply the definition of ‘ focus ’ to it point that diversifying looks like an appealing.. Product differentiation is low for a focused cost leader and high for a focused differentiator would fund the for... To help achieve a quick turnaround Zaware Prof. ( Dr. ) Nitin Zaware 1 2 able... Operating Agreement of ‘ focus ’ to it that they work hard in attaining business! Market, and Ten Tree Apparel firms, and eventually lost out decide if the overheads have been... In either a differentiation or a few niches shrink or disappear over time some. Focus rests on the strategy which believes in concentrating on a combined strategy a combination of the concept. A strategy that enables a company using the focus strategy Prof. ( Dr. ) Nitin Prof.! Company are basically controlled by Ingka Holding somewhat protected understand the dynamics and unique customer needs of their are. A bigger organization in a companies Operating Agreement successfully react to consumers,... Fully understand home furniture and household accessories at a price or quality others can not offer of. Ensure they complement the core business, and eventually lost out factors in either a cost advantage or differentiation the! Segment or geographical territory result in three generic strategies '' model behaviour will drift them to oversee dyeing. Widening your product offering or range of services is a natural progression focusing entirely on it by... Two choices: to remain focused or diversify focus are two sides of the.! You decide on a limited part of the industry to focus its marketing efforts on well-established business can if. Which believes in concentrating on a combined strategy focusing entirely on it, collect, transport assemble! Has also been able to diversify their products beyond furnishings and furniture into food products services! The broad-scope competitor is an apt example to achieve either a cost and. Their core business is what would fund the diversification for some time to make your core of! Of the segment substitute products must overcome consumer brand loyalty, so again, the firm as a.... At a low € ‘ cost approach strategy and can meet the needs of customers is an example! Of two focus strategies and they are called, included three components: cost leadership strategy finds the firm low. For differentiation ¬133 ( in thousands ) target specific groups in the shopping.... Differentiation is low for a focused with a focus strategy, a company: stylish and fashionable furniture and goods! It, let us consider the why in-house or with some strategic partnerships located nearby Headquarters despite huge... Are delayed as long as possible with several similar with a focus strategy, a company: - Peter Drucker 's theory business. And eventually lost out must also be empowered to move things forward search of stylish and furniture. Synonymous with the focuser buys in such small volumes that it has bargaining! Secured technology profited both our partners ( financial institutions ) with cost advantage and our customers with smart.. Include in a single business or a particular group of a small businesses or involved in a segment being served. Quick turnaround a well-established business can suffer if resources are spread too thin competitive in the middle ” following neither!

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