Focus
Cost leadership and differentiation strategies both target a broad market. In contrast, a focus strategy concentrates on a narrow segment of the market that is particularly attractive. A focus strategy, sometimes referred to as a niche strategy, is based on the assumption that these niche markets can be served more effectively and efficiently than by companies that are competing more broadly. Companies pursuing a focus strategy can adopt either a cost focus or a differentiation focus strategy.
Strategic Marketing Management
Cost focus
Companies pursuing a cost focus strategy are concentrating o a niche market but are also concentrating on reducing costs. EasyJet has adopted a cost focus strategy, which has been very successful. It has concentrated on a narrow segment of the population and has driven costs down by direct bookings and removing all the peripheral services associated with air travel, such as on-board meals.
Differentiation focus
This is concerned with producing superior products for narrow market segments, such as Rolex watches and Ferrari cars.
Activity 4.1
Using Porter's model, select an example of a company that pursues a cost leadership strategy.
To what extent does this model help companies to identify their competitive advantage?
Alliances and networks
Increasingly businesses are recognising that to gain a sustainable competitive advantage they may have to enter into alliances with other firms.
Definition
Strategic alliance:
Business associations in which knowledge and resources are shared to the benefit of the partners
Motivations for companies to enter into strategic partnerships include:
Desire to exploit economies of scale
Desire to create new knowledge and increase level of innovation
Reduce risk
Enter new geographical markets
Exploit other assets and competencies - for example Easyjet entered into a strategic partnership with Mercedes to provide cars for their car rental venture.
Strategic Marketing Management
Types of alliances
There are many types of alliances ranging from an informal buying co-operative to a joint venture where a legally separate company is formed. The following table (Table 4.1) illustrates the major types of alliances.
Table 4.1
Type of Characteristics Examples
Alliance
Acquisitions Includes both co-operative and Glaxo Wellcome merged with and mergers hostile takeovers. Often motivated SmithKline Beecham in 2000 to by desire to increase efficiencies form GlaxoSmithKline, the and to create synergy largest pharmaceutical company in Europe.Consortia and Involves independent organisations Eurofighter, a European joint ventures setting up specific projects or collaboration consisting of four ventures with other firms. Partner companies-BAE Systems (UK), Alenia (Italy), CASA (Spain), and DASA (Germany). The rationale was to reduce risk by sharing the significant development costs.Contract or Contractual agreements Franchising is utilized by a wide Licensing where the right to a product is variety of companies such as legally signed over to another McDonalds, Ford dealerships, Hertz party. This may take the form of car rental, and the Body Shop. franchising or sub-contracting.Networks Informal agreements based on Many airlines have informal code co-operation rather than contractual sharing agreements that allow agreements. passengers to use several different airlines on the same ticket.
