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3 Ways to Sustain a Competitive Advantage with a Focus Strategy

Michael Porter of Harvard Business School revolutionized how business leaders think about competitive strategy with his publications starting in the 1980s. This included the classic books, more Competitive Strategy: Techniques for Analyzing Industries and Competitors and Competitive Advantage: Creating and Sustaining Superior Performance that Free Press published in 1980 and 1985, respectively. Still today, Michael Porter’s treatises on competitive strategy influence executives and political leaders worldwide with decisions they make about their organizations and nations.

However, his premise warns that companies that try to do some of each strategy get “caught in the middle.” This prevents the realization of the benefits of any of the three strategies. Most of all, it results in losing to competitors who choose just one strategy.

In summary, the three strategies your company can choose from to sustain a competitive advantage include:

  • Cost Leadership involves a company that is able to produce and sell its products and services at a much lower cost than its competitors. This enables a low cost leader to earn above average profits. “Big box retailers” such as Walmart, The Home Depot, and Best Buy, as well as McDonalds, Southwest Airlines, and Teva Pharmaceuticals, are low cost leaders.
Cost leadership is not a practical strategy for most companies, especially small to mid-sized companies. This is because it requires a high investment to achieve economies of scale.
  • Differentiation is a strategy in which a company distinguishes its products and services by its features and benefits from its competitors. Through differentiation, a company creates a product or service that customers perceive as unique in the industry. As a result, you are able to charge a premium price and earn profits with above average margins. Companies that have succeeded with a differentiation strategy include Apple, BMW, and Nike.
A differentiation strategy is a more common and viable strategy for many companies. This is in part because there can only be one cost leader in an industry, but there can be several companies that differentiate features and/or benefits. Yet, it can be expensive to be a dominant leader in your industry through differentiation. It requires extensive research, product development, and marketing to a broad segment to sustain leadership.
  • Focus is a strategy that enables a company to dominate a niche. Through a focus strategy, your company concentrates on a limited part of a market. Companies that succeed with a focus strategy understand the dynamics and unique customer needs of their market niche. As a result of developing and promoting “niche” products and services, you can attract a higher share of customers in that market segment than competitors. Plus, you can earn above average profits and reduce the threat of competitors entering the niche.
Novo Nordisk, AARP, and Motel 6 are examples of companies and organizations that have sustained competitive advantage with a focus strategy. Novo Nordisk has focused on being a leader in diabetes medications. AARP is the preeminent leader in advocacy for the 50+ age group. Motel 6 has sustained competitive advantage for over 50 years by focusing on budget-conscious consumers.
Focus is the easiest and least costly of the three strategies for most companies.There are three marketing ways you can sustain a competitive advantage with a focus strategy.

  1. Focus on a Narrow Target Market
  2. Limit Promotional Channels
  3. Focus Leads to Long-Term Success

To read more about each focus strategy, click this link: http://blog.i7marketing.com/small-business/3-ways-sustain-competitive-advantage-focus-strategy

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