What are the competitive strategies for small and medium enterprises?
The vitality of an enterprise is shown in its competitiveness in the market. To compete and take market share, enterprises need to find out an approaching strategy that is suitable to their resources as well as the market, competitors, products, etc. The most popular marketing strategies are lower cost, following, differentiation, and focus.
However, SMEs have limitations in capital and management scale so that lower cost or differentiation won’t work for long-term strategies. Hence, in this post, we will focus on the definition, appliance time, limits, and how competitors can deal with focus strategy – the most suitable one for SMEs.
1) What is “focus strategy”?
Focus strategy is a competitive plan that the enterprises concentrate on exploiting a segment, the most niche market, specific products/services for a group of customers. This marketing plan is usually co-operated with the lower cost or differentiation strategy to create benefits thanks to a small amount of cost, less competitiveness, and optimal exploitation of customer data.
A familiar example is the “Bach Khoa’s porridge” which is well-known in universities and Hanoi foodies for its features of super affordable price - just 7k VND for one set, good taste, and its location in one of the biggest campus including Hanoi university of science and technology, national university ò civil engineering, and national economics university. The right segment along with the lower price strategy, Back Khoa porridge has become a familiar destination for many students in particular and Hanoi youngsters in general.
2) When should the enterprises apply focus strategy?
a) When enterprises find out a small segment with big potential and less competitiveness.
Finding out a niche market with specific target customers stands the enterprises out in comparison with other competitors who identify as general enterprises. It also increases the prestige and the unique position of the enterprises in the target customers’ minds. For example, you may not realize that most daily utensils are produced for right-handed people. Recognizing this fact, the owner of Lefty’s – a store in Los Angeles – opened a retail utensils store consisting of kitchen tools, school things, and souvenirs for left-handed people who account for 10% population only. Finding out a potential market as well as applying proper marketing tools help Lefty’s San Francisco survive, succeed, and emerge as a tourism destination of the city.
b) The segment is large enough to get profits.
You may find a segment by observation, research, or your inspiration. Take note: it is possible a niche market that "sounds" potential and interesting but it cannot actually pass the revenue-cost test. You can realize that few places sell paintings or sketches of rural life during the war against the US, but it shows that the demands on these paintings are low. Hence, you need to elevate the segment with “a cold head”.
c) Customers have big demands
The target customers in a niche market usually cannot find what they need or the available products that fit their needs. Therefore, the demand of this market is not fluctuant much but it has high differentiation. For example, people who live in areas with difficult access or love to work themselves will choose a freelance job. They need prestigious channels with various freelance jobs and a good connection to employers who recruit freelancers. Basing on this, in the context of an increasing rate of freelancers in the UK, Freelancer At Work was born to supply a large range of part-time jobs for freelancers.
3. What are the limits of focus strategy?
a. Risk when the niche market becomes a part of the general market.
The niche market will never exist forever because when an enterprise finds out a niche market, many other competitors will join, copy, and invade it either. It is hard for SMEs to compete with other famous brands with various products and resources when the niche market becomes a part of the general market. Simply, there is mostly no chance for Lefty’s San Francisco to develop if IKEA focuses on producing utensils for left-handed people.
b. The distinct tastes are accepted and copied in a bigger segment.
Years ago, it was not easy to buy organic cosmetics because the taste for this product line is not as popular as it is today. Moreover, you can buy handmade cosmetics with natural ingredients only. Nearly, consumers are aware of bad cosmetics with a big amount of chemicals in the cosmetics industry, hence, the tastes and demands have changed, the niche market of organic cosmetics expands, and enterprises focus on producing this product line. Therefore, the market share of individuals and the handmade company is narrowed.
c. Competitors innovate their technology, develop products’ features, and redefine demands for the niche market.
Customers don’t know what they want sometimes. The innovation in technology and new and differentiated products will properly the method to get ahead in the competition that you used to be the pioneer. A typical example is the born of the iPhone series Apple. Since iPhone 4, Apple continues launching new models with new and unique features that no one can think about such as a sharp camera, Health tracking app, interactions with Apple watch, etc. Customers used to look for individual products for individual purposes. Now, they can find all the features they need in a luxurious and delicate phone. Apple not only creates pressure on other brands but also takes more market share of other fields such as a watch, heart rate monitor, and so on.
4. How do your competitors deal with your focus strategy?
a. Exercise the lower cost strategy
Your competitors with bigger scales and more resources can cut down on their input costs thanks to the high technology to produce cheaper products that meet the demands of target customers in the niche market.
b. Turn the segment into a part of the general market
Popularizing the taste of a niche market can help your competitors to get more market share and expand and merge the niche market into the bigger one with a large range of products.
c. Apply the following strategy
Even though it is impossible to imitate the models and production procedure perfectly, your competitors can copy your ideas as well as your method to approach customers. It may dilute the market, turn it into a part of the bigger market, and lose the advantages of focus strategy.
We hope this post supplies an overview of the focus strategy for the owners of SMEs and marketers.
Markus Marketing School.