CHAPTER 3

STRATEGIC ANALYSIS: INTERNAL ENVIRONMENT

 Introduction
1. Strategic Analysis is equally important when it comes to internal
environment assessment. Internal environment refers to the sum total
of people individuals and groups, stakeholders, processes- input-
throughput-output, physical infrastructure- space, equipment and
physical conditions of work, administrative apparatus- lines of authority
& power, responsibility, accountability and organizational culture

2. In other words, the internal environment is specific to rise each

organisation. It is based on its structure and business model and
includes all stakeholders like top management, investors, employees,
board of directors, tors, investors, etc.

3. Internal environment also involves understanding of the ethics,

principles, work environment, employee friendliness, confidence of
investors.

 Understanding Key Stakeholders

1. A firm may be viewed as a coalition of stakeholders- all those
individuals and entities that have a stake in its success and can impact
it as well. They may be the employees, shareholders, investors,
suppliers, customers, regulators and so on.

2. Generally, stakeholders include management, employees,

shareholders, customers and vendors. Additionally, other individuals
and groups, such as governments, labour unions and local groups,
which are often considered as stakeholders depending on their impact
on the particular organisation.

3. It is important to first identify the key

stakeholders. Each stakeholder exerts a
different level of influence and can have
differing levels of interest in the organisation.

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 4. Shareholders, whose main concern is quick profits, may be more
hesitant to support the organisation spending funds on something that
they may not see the return in the near future.

5. Since the expectations of key stakeholders can influence the

organisation’s strategy, a clash of objectives may have unfavourable
consequences for the organisation.
Stakeholders Requirements
Shareholders ▪ Innovation and continuous creative
▪ content
▪ Total shareholder return (Rol)
▪ Corporate social responsibility
▪ Top rankings of the organisation
▪ Highest market share
CEO and Board of ▪ Prestige
Directors ▪ Market share
▪ Revenue and profit growth
▪ Market rankings
Major Vendors ▪ Growth
(Production Houses) ▪ Stability of ordering
▪ Stable margins
Consumers (Viewers) ▪ New content - Innovation
▪ Better deals - Pricing Benefits
▪ Value for money
▪ Continuous supply
Employees ▪ Wages and benefits
▪ Stability of employment
▪ Pride of working for a reputed organisation

Mendelow Matrix
1. The Mendelow Stakeholder matrix (also known as the Stakeholder
Analysis matrix and the Power-Interest matrix) is a simple framework to
help manage key stakeholders.

2. Managing a project is extremely complicated as it involves managing the

competing interests of various stakeholders.

3. However, managing stakeholders is critical to the

success of a project. This is where a stakeholder
analysis matrix i.e. Mendelow's Matrix can help.

4. Mendelow suggests that one should analyse

stakeh groups based on Power (the ability to
influence organisation strategy
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 5. A thing to remember is that all stakeholders may seem to have lots of
power and organisation may hope they would have lots of interest too. But
in reality, some stakeholders will hold more Power than others, and some
stakeholders will have more Interest than others.

For example, a big shareholder is likely to have high power and high
interest in the organisation, whereas a big competitor would have high
power to impact strategy. But potentially less Interest in success of rival
organisation.

 Developing a Grid of Stakeholders

1. Mendelow's Matrix is based on Power and Interest. It suggests to
identify which stakeholders are incredibly important.

2. The CEO is likely to have more Power to influence the work and also
high interest in it being successful. Keeping them informed almost daily
should be a priority.

 KEEP SATISFIED Stakeholders:

High power, less interested people - Organisation should put in enough work
with these people to keep them satisfied with their intended information on a
regular basis. For example, banks, government, customers, etc.

 KEY PLAYERS Stakeholders:

High power, highly interested people - Organisation's
aim should be to fully engage this group of
stakeholders, making the greatest efforts to satisfy
them, take their advice, build actions and keep them

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 informed with all information on a regular basis. For example, Shareholders,
CEO, Board of Directors, etc.

 LOW PRIORITY Stakeholders:

Low power, less interested people - Organisation should only monitor them
with no actions to satisfy their expectations. Strategically, minimal efforts
should be spent on this group of stakeholders while keeping an eye to check
if their levels of interest or power change. For example, business magazines,
media houses, etc.

 KEEP INFORMED Stakeholders:

Low power, highly interested people - Organisation should adequately inform
this group of people and communicate with them to ensure that no major
issues arise. This audiences can also help with real time feedbacks and
areas of improvement for an organisation. For example, employees, vendors,
suppliers, legal experts, etc.

An important thing that strategists should be aware of is the importance to remember

that environment is highly dynamic and certain things might happen that can cause
stakeholders to suddenly move between quadrants

 STRATEGIC DRIVERS
1. An important aspect of internal analysis is assessing the current
performance of the business. And in assessing current performance,
the strategic drivers consider what differentiates an organisation from
its competitors.

2. It involves analysis of the key markets in which the organisation

operates, as well as its key customers, the products and services it
provides, the channels in which the products or services are delivered,
and the organisation's competitive advantage.

3. There can be varied ways to assess the current

performance of a business and it is highly
subjective based on the managements metrics
and ways of doing business. It can either be
profit driven, or purpose driven.

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 4. But in general, the key strategic drivers of an organisation include:
▪ industry and markets
▪ customers
▪ products/services
▪ channels

 Industry and Markets

1. In terms of the internal environment, it is very important for an
organisation to understand it's relative position in the industry and in
the market in which it operates.

2. Similar companies are grouped together into industries. Basically,

industry grouping is based on the primary product that a company
makes or sells. For example, Maruti, Mahindra, Tata Motors, TVS,
Bajaj Auto, are all selling automotives as their primary product and thus
categorised into Automotive Industry. Similarly, Zara, H&M, Marks &
Spencer, Pantaloons, Westside, Uniqlo, are all selling apparels and
accessories for the youth, and thus categorised under apparels
industry.

3. A market is defined as the sum total of all the buyers and sellers in the
area or region under consideration. The value, cost and price of items
traded are as per forces of supply and demand in a market. The market
may be a physical entity or may be virtual like e-commerce websites
and applications. It may further be local or global, etc.

 Strategic Group Mapping

 Introduction,
1. The next step in examining the industry's competitive structure is
to study the market positions of rival companies.

2. Identifying the strongest and weakest companies help

understand what techniques can be implemented and which
ones are to be avoided.

3. For example, Smart Phone industry has

numerous options to select from. Thus,
grouping them into categories based on
various parameters can be really insightful
and time saving.
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 4. strategic group consists of those rival firms which have similar
competitive approaches and positions in the market.

5. Companies in the same strategic group can resemble one

another in any of the several ways:
• They may have comparable product-line breadth,
• Sell in the same price or quality range,
• Emphasize the same distribution channels,
• Depend on identical technological approaches,
• Offer buyers similar services and technical assistance.

6. An industry may contain only one strategic group when all sellers
pursue essentially identical strategies and have comparable
market positions.

 TYPES OF MARKETING STRATEGIES/TECHNIQUES

1. Social Marketing: It refers to the design, implementation, and control of
programs trying to increase the acceptability of social idea, cause, or
practice among a target group.

2. Augmented Marketing:
• It refers to provision of additional customer services and benefits
built around the actual products, and introduction of hi-tech
services etc.
• Such innovation offerings provide benefits which promise to
increase customer service to much higher levels. Ex: Movies on
demand

3. Direct Marketing:
• Marketing through various advertising media that interact directly
with consumers, or generally calling for the consumer to make a
direct response.
• Direct Marketing includes Catalogue
Selling, Mail Tele computing, Electronic
media marketing, tele-shopping and TV
Shopping.

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4. Relationship Marketing:
• Process of creating, maintaining and enhancing strong, value-
laden relationship (priority to long term relationship) with customers
and other stakeholders.

5. Service Marketing:
• Applying the concepts, tools and techniques, of marketing to
services.
• Service refers to any activity or benefit that one party can offer to
another, and is essentially intangible,
• e.g. Banking, Retailing. Educational or other utilities.

6. Person Marketing:
• Activities undertaken to create, maintain or change attitudes or
behaviour towards particular person.
• For example, politicians, sports stars, film stars etc. market
themselves to get votes, or to promote their careers and income.

7. Organization Marketing:
• Activities undertaken to create, maintain, or change attitude and
behaviour of target audiences towards an organization as a whole.
• Both profit and non-profit entities practice organization marketing

8. Place Marketing:
• Activities undertaken to create, maintain, or change attitudes and
behavior of target audience towards particular places.
• E.g. business sites marketing, tourism marketing.

9. Enlightened Marketing:
• Marketing with a philosophy - It says Company's marketing efforts
should support in the best long-run performance of the marketing
system.
• Its five principles include -
(i) customer-oriented marketing,
(ii) innovative marketing,
(iii) value marketing,
(iv) sense of-mission marketing, and
(v) societal marketing.
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 10. Differential Marketing:
• A market-coverage strategy in which a Firm decides, to target
several market segments and designs separate offer for each
segment.

11. Synchro marketing:

• When the demand for the product is irregular, due to season, some
parts of the day, or on hour basis, causing idle capacity or
overworked capacities.
• Synchro marketing can be used to smoothen or regularize the
pattern of demand through flexible pricing, promotion, and other
incentives.

12. Concentrated Marketing:

• It is a market-coverage strategy, in which a Firm goes after a large
share of one or few sub-markets.

13. De-marketing:
• Using marketing strategies to reduce demand temporarily or
permanently.
• The aim is not to destroy demand, but only to reduce or shift it.
• De-marketing is applied to regulate demand, in case of over
demand in certain cases.
• De-marketing is also applied to old product line when a new
product line is launched by the company.

 Channels
1. Channels are the distribution system by which an organisation
distributes its product or provides its service.
2. Examples of how the following companies distribute their products and
services;
Lakme - sells its products via retail stores, intermediary stores (like
Nykaa Westside, Reliance Trends), as well as
online mode like amazon, flipkart, nykaa online
and its own website.
Boat Headphones - only online via e-commerce
platforms like flipkart and amazon.

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 Coca Cola - retail shops across the nation, in each district, each town
as well as online mode via dunzo, blinkit, etc.

3. The wider and stronger the channel the better position a business has
to fight and win over competition. Also, having robust channels of
business distribution help keep new players away from entering the
industry, thus acting as barriers to entry.

 The sales channel:

• These are the intermediaries involved in selling the product through
each channel and ultimately to the end user.
• For example, many fashion designers use agencies to sell their
products to retail organisations, so that consumers can access them.

 The product channel:

• The product channel focuses on the series of intermediaries who
physically handle the product on its path from its producer to the end
user.

 The service channel:

• The service channel refers to the entities that provide necessary
services to support the product, as it moves through the sales channel
and after purchase by the end user. The service channel is an
important consideration for products that are complex in terms of
installation or customer assistance.

• For Example, a Bosch dishwasher may be sold in a Bosch showroom,

and then once sold it is installed by a Bosch contracted plumber.

Channel analysis is important when the business strategy is to scale up and expand
beyond the current geographies and markets. When a business plans to grow to newer
markets they need to develop or leverage existing channels to get to new customers.

For example - if a healthcare brand wants to

reach out to elderly customers - they need to be
more focused on offline mode of business where
agents reach out physically to the elderly as

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 most of their potential customers (i.e. the old aged) are not active on
smartphones.
Thus, channels, the partners in growth, play a crucial role in internal
strategic alignment.
Ever been to a hill station or a desert or a far-off location on vacation,
and still had access to bottled water and cold drinks?
This is possible because of strong channels of distribution. Some of the
most renowned brands who have created competitive advantage in
channels are Coca Cola, HUL, Patanjali, Asian Paints, Ola, to name a
few.

 Core Competence;
 Introduction;
▪ Core competencies are capabilities that serve as a source of
competitive advantage for a firm over its rivals.

▪ An organization's combination of technological & managerial

know-how, wisdom & experience are a complex set of
capabilities & resources that can lead to a competitive advantage
compared to a competitor.

▪ The optimal way to define core competence is to consider it as

sum of 5 - 15 areas of developed expertise.

▪ Competency is defined as a;
"Combination of Skills and Techniques rather than individual skill
or separate technique."

▪ C.K. Prahalad and Gary Hamel have advocated a concept of core

competency.

▪ Core Competency is defined as a; "the collective learning in the

organization, especially coordinating diverse production skills &
integrating multiple streams of technologies."

▪ Therefore, core competencies cannot be

built on one capability or single
technological know-how, instead, it has to
be the integration of many resources.

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Q.1 Explain core competencies and major areas in which core competencies are
identified?
 Core Competence;
According to C.K. Prahalad and Gary Hamel,
Major core competencies are identified in three (3) areas;
1. Competitor differentiation, - unique & it is difficult to follow.

2. Customer value, and - when provide fundamental benefits. 3]

Application to other markets. (i.e. apply same set of competencies
within the organisation.)

 Core Competence; (Major areas)

1] Competitor Differentiation;
The company can consider having a core competence if the
competence is unique and it is difficult for competitors to imitate (i.e.
Copy or Follow).
This can provide a company an edge compared to competitors. It
allows the company to provide better products or services to market
with no fear that competitors can copy it.

2] Customer Value;
When purchasing a product or service it has to deliver a
fundamental benefit for the end customer in order to be a core
competence.
It will include all the skills needed to provide fundamental benefits.
The service or the product must have real impact on the customer
as the reason to choose to purchase them.

3] Application to other markets; (i.e. apply same set of competencies

within the organisation.)
Core competence must be applicable to the whole organization; it
cannot be only one particular skill or specified area of expertise.

Examples;
Hindustan Unilever Limited (HUL)

Marketing and Sales is a core competence.

Wal-Mart Walmart
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 Focused on lowering its operating costs.
Refer /CAl study material {2.16}

Q.2 Explain core competencies and how to build core competencies?

 Core Competence;
According to C.K. Prahalad and Gary Hamel,

How to build Core Competencies;

1] Valuable, - allow firm to face external environment.
2] Rare, - CC is it self very rare capabilities.
3] Costly to Imitate (copy or follow), &
4] Non - Substitutable. - When firm do not have strategic equivalents.

 Core Competence; (How to build)

1] Valuable;
Valuable capabilities are the ones that allow the firm to exploit
opportunities or prevent the threats in its external environment.
A firm created value for customers by effectively using capabilities
to exploit opportunities.

2] Rare;
Core competencies are very rare capabilities and very few of the
competitors possess this.
Capabilities possessed by many rivals are unlikely to be sources of
competitive advantage for any one of them. Competitive advantage
results only when firms develop and exploit valuable capabilities that
differ from those shared with competitors.

3] Costly to Imitate (copy or follow);

Costly to imitate means such capabilities that competing firms are
unable to develop easily.

Refer /CAl study material {2.18}

4] Non- Substitutable;
Capabilities that do not have strategic
equivalents are called nonsubstitutable
capabilities.

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 This final criterion for a capability to be a source of competitive
advantage is that there must be no strategically equivalent valuable
resources that are themselves either not rare or imitable.
Refer /CAl study material {2.19}

Q.3 Explain core competencies and criteria of core competencies?

 Core Competence; (criteria)
A Core competency fulfils three criteria;
1. It should provide potential access to a wide variety of markets.
2. It should make a significant contribution to see customer benefits of
the end product.
3. It should be difficult to imitate for competitors i.e. rivals.

Q.4 Explain core competencies and test of core competencies?

 Core Competence; (test)
A core competence is identified by the following tests;
→ Leverage Test : Does it provide potential access to a wide variety of
markets?
→ Value Enhancement Test : Does it make a significant contribution to
see customer benefits of the end product?
→ Imitability Test : Can it be imitated? Does it reduce the threat of
imitation by competitors?

Q.5 Explain core competencies and advantages of identifying core

competencies.
 Core Competence; (Advantages)
Advantages of identifying core competencies;
→ Provide competitive advantage,
→ Ensure profits,
→ Helps firm stretches into new opportunities,
→ Help in maintaining progress, etc. ..

 Core Competency of Big retails stores:

→ Lower prices,
→ Securing low cost supplies,
→ Managing in - store activities more efficiently,
→ Computerized stock - ordering systems,
→ Own/ brand labels, etc ...

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Q.6 Explain competitive advantage and its major characteristics.
 Competitive Advantage;
 Introduction;
Competitive advantage allows a firm to gain an edge over rivals
when competing.
Companies, achieving superior performance relative to rivals is the
ultimate challenge. If a company's strategies result in superior
performance, it is said to have a competitive advantage.

"If you don't have a competitive advantage, don't compete"

 Benefits of competitive advantage;
▪ Competitive advantage is the position of a firm to maintain and
sustain a favourable market position when compared to the
competitors.

▪ Competitive advantage is ability to offer buyers something different

and thereby providing more value for the money.

▪ It is achieved advantage over rivals when a company's profitability

is greater than average profitability of firms in its industry.

▪ This position gets translated into higher market share, higher profits
when compared to those that are obtained by competitors operating
in the same industry.
(a) Durability;
The period over which a competitive advantage is sustained
depends in part on the rate at which a firm's resources and
capabilities deteriorate.
(b) Transferability;
The easier it is to transfer resources and capabilities between
companies, the less sustainable will be the competitive
advantage which is based on them.
(c) Imitability;
How easily and quickly can the
competitors build the resources and
capabilities on which a firm's competitive
advantage is based? This is the true test
of imitability.
(d) Appropriability;

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 It refers to the ability of the firm's owners to appropriate the
returns on its resource base.

 SWOT Analysis;
 Introduction;
The identification and analysis of strengths, weaknesses,
opportunities, and threats is normally referred to as SWOT analysis.

For the generation of a series of strategic alternatives or choices, it is

necessary to analyse the firm's internal strengths & weaknesses and
its external opportunities & threats.

The major purpose of SWOT analysis is to enable the management to

create a firm - specific business model that will best fit with
organisational resources and capabilities to the demands of the
environment in which it operates.

 Strength:
Strength is an inherent capability of the organization which it can use
to gain strategic advantage over its competitors .

 Weakness:
A weakness is an inherent limitation or constraint of the organization
which creates strategic disadvantage to it.

 Opportunity:
An opportunity is a favourable condition In the
organisation's environment which enables it to
strengthen its position .

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  Threat:

A threat is an unfavourable condition in the organisation's environment

which causes a risk for, or damage to, the organisation's position.

 The significance of SWOT analysis;

▪ It provides a logical framework of analysis .
▪ It guides the strategist in strategy identification .
▪ It presents a comparative account.
▪ SWOT analysis helps managers to craft a business model that
will allow a company to gain a competitive advantage in its
industry.

 TOWS Matrix;
TOWS matrix IS an action tool whereas SWOT analysis is a planning tool.
Thus TOWS matrix has a wider scope when compared to SWOT analysis.
The TOWS Matrix is tool for generating strategic options. Through TOWS
matrix four distinct alternative kinds of strategic choices can be identified.

 SO (Maxi - Maxi): Aggressive Strategy

SO is a position that any firm would like to achieve. The strengths can
be used to capitalize or build upon existing or emerging opportunities.
Such firms can take lead from their strengths and utilize the resources
to build up the competitive advantage.

 ST (Maxi - Mini): Conservative Strategy

ST is a position in which a firm attempt to
minimize existing or emerging threats through its
strengths.

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  WO (Mini - Maxi): Competitive Strategy
The firm needs to overcome internal weaknesses and make attempts
to exploit opportunities to maximum.

 WT (Mini - Mini): Defensive Strategy

WT is a position that any firm will try to avoid. A firm facing external
threats and internal weaknesses may have to struggle for its survival.
WT strategy is a strategy which IS pursued to minimize or overcome
weaknesses and as far as possible, cope with existing or emerging
threats.

 Michael Porter's Generic Strategies;

Introduction
According to Porter, strategies
allow organizations to gain
competitive advantage from the
different bases: Focus,
Differentiation, and Cost
leadership Porter called these
base generic strategies.

These strategies have been

termed generic because they
can be pursued by any type or
size of business firm and even by not-for- profit organisations
▪ The company makes use of its core competencies to develop and
expand its strategies or competitive advantage.
▪ The purpose of business level strategies is to enhance competitive
advantage through effective use of these resources, skills and
synergies.
▪ Customers are the foundation of an organization’s business- level
strategies. Who will be served, what needs have to be met, and how
those needs will be satisfied are determined by the senior
management.
Business level strategies are concerned with:
(a) Positioning the business against
competitors.
(b) Anticipating changes in demand and
other factors and adjusting to provide
for them.
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 (c) Influencing the nature of competition through strategic action.
(d) Meeting the needs of key customers.
(e) Achieving advantage over competitors.
(f) Avoiding competitive disadvantage.

 Michael Porter’s Generic strategies

▪ According to Porter, strategies allow organizations to gain competitive
advantage from three different bases: cost leadership, differentiation,
and focus.

▪ These strategies have been termed generic because they can be

pursued by any type or size of business firm and even by not-for-profit
organisations.

 Cost Leadership Strategies

▪ Cost leadership strategies means offering a product / service of the
same quality at a lower per unit price than the rival firms in the same
broad target market.
▪ It is a low-cost competitive strategy that aims at broad mass market.
▪ It requires vigorous pursuit of cost reduction in the areas of
procurement, production, storage and distribution of product or service
and also economies in overhead costs.
▪ Because of its lower costs, the cost leader is able to charge a lower
price for its products than its competitors and still make satisfactory
profits.

 Achieving Cost Leadership Strategy:

Following are the actions that could be taken:
(a) Forecast the demand of a product or service promptly.
(b) Optimum utilization of the resources to get cost advantages.
(c) Achieving economies of scale leads to lower per unit cost of
product/service.
(d) Standardisation of products for mass production to yield lower cost per
unit.
(e) Invest in cost saving technologies and try using
advance technology for smart working.
(f) Resistance to differentiation till it becomes
essential.

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 Advantages of Cost Leadership Strategies
(a) Rivalry – Competitors are likely to avoid a price war, since the low cost
firm will continue to earn profits after competitors compete away their
profits and enjoy larger market share.

(b) Buyers – Powerful buyers/customers would not be able to exploit the

cost leader firm and will continue to buy its product.

(c) Suppliers – Cost leaders are able to absorb greater price increases
before it must raise price to customers.

(d) Entry barriers for the new entrants – Low cost leaders create barriers
to market entry through its continuous focus on efficiency and reducing
costs.

(e) Substitutes – Low cost leaders are more likely to lower costs to induce
customers to stay with their product.

 Disadvantages of Cost Leadership Strategy

(a) Cost advantage may not be remaining for long as competitors may also
follow cost reduction technique.

(b) Cost leadership can succeed only if the firm can achieve higher sales
volume.

(c) Cost leaders tend to keep their costs low by minimizing advertising,
market research, and research and development, but this approach
can prove to be expensive in the long run.

(d) Technology changes are a great threat to the cost leader.

 Differentiation Strategy
▪ This strategy is aimed at broad mass market and involves the creation
of a product or service that is perceived by the
customers as unique.

▪ The uniqueness can be associated with product

design, brand image, features, technology,
dealer network or customer service. Hence the
business can charge a premium for its product.
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 ▪ Differentiation does not guarantee competitive advantage, especially if
standard products sufficiently meet customer needs or if rapid imitation
by competitors is possible.

▪ Successful differentiation can mean greater product flexibility, greater

compatibility, lower costs, improved service, less maintenance, greater
convenience, or more features.

 Basis of Differentiation
▪ Product: Innovative products that meet customer needs can be an area
where a company has an advantage over competitors.

▪ Pricing: Companies that differentiate based on product price can either

determine to offer the lowest price, or can attempt to establish
superiority through higher prices.

▪ Organisation: Maximizing the power of a brand, or using the specific

advantages that an organization possesses can be instrumental to a
company’s success.

 Achieving Differentiation Strategy

(a) Offer utility for the customers and match the products with their tastes
and preferences.
(b) Elevate the performance of the product.
(c) Offer the promise of high quality product/service for buyer satisfaction.
(d) Rapid product innovation.
(e) Taking steps for enhancing image and its brand value.
(f) Fixing product prices based on the unique features of the product and
buying capacity of the customer.

 Advantages of Differentiation Strategy

(a) Rivalry - Brand loyalty acts as a safeguard against competitors. It
means that customers will be less sensitive to
price increases, as long as the firm can satisfy
the needs of its customers.

(b) Buyers – They do not negotiate for price as they

get special features and also they have fewer
options in the market.
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 (c) Suppliers – Because differentiators charge a premium price, they can
afford to absorb higher costs of supplies and customers are willing to
pay extra too.

(d) Entrants – Innovative features are an expensive offer. So, new entrants
generally avoid these features because it is tough for them to provide
the same product with special features at a comparable price.

(e) Substitutes – Substitute products can’t replace differentiated products

which have high brand value and enjoy customer loyalty.

 Disadvantages of Differentiation Strategy

(a) In long term, uniqueness is difficult to sustain.
(b) Charging too high a price for differentiated features may cause the
customer to switch-off to another alternative.
(c) Differentiation fails to work if its basis is something that is not valued
by the customers.

 Focus Strategies
▪ Focus strategy is based upon selecting a segment or a group of
segments of the market and then focusing on serving their needs and
wants. The essence of focus strategy is the exploitation of particular
market to the maximum.

▪ Focus strategies are most effective when consumers have distinctive

preferences or requirements and when rival firms are not attempting to
specialize in the same target segment.

▪ An organization using a focus strategy may concentrate on a particular

group of customers, geographic markets, or on particular product-line
segments in order to serve a well- defined but narrow market better
than competitors who serve a broader market.

▪ Focus strategies are further classified in to

Focused Cost leadership Strategy and Focused
differentiation Strategy.

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 Focused cost leadership:
▪ A focused cost leadership strategy emphasizes on low overall costs
while serving the narrow market.

▪ A focused cost leader creates his own niche in the given market and
focuses on value creation for his customers.

▪ A firm that follows this strategy does not necessarily charge the lowest
prices in the industry. Instead, it charges low prices relative to other
firms that compete within the target market.

 Focused differentiation:
▪ A focussed differentiation strategy requires offering unique features
that fulfil the demands of a narrow market.
▪ Firms that compete based on uniqueness and target a narrow market
are following a focused differentiations strategy.

 Achieving Focused Strategy

(a) Selecting specific niches which are not covered by cost leaders and
differentiators.
(b) Creating superior skills for catering to such niche markets.
(c) Generating high efficiencies for serving such niche markets.
(d) Developing innovative ways in managing the value chain.

 Advantages of Focused Strategy

(a) Premium prices can be charged by the organisations for their focused
product / services.
(b) Due to the tremendous expertise about the goods and services that
organisations following focus strategy offer, rivals and new entrants
may find it difficult to compete.

 Disadvantages of Focused Strategy

(a) The firms lacking in distinctive competencies
may not be able to pursue focus strategy.
(b) Due to the limited demand of product/services,
costs are high which can cause problems.
(c) In long run, the niche could disappear or be
taken over by larger competitors

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 Best-Cost Provider Strategy
▪ The new model of best cost provider strategy is a further development
of above three generic strategies.
▪ It is directed towards giving customers more value for the money by
emphasizing both low cost and upscale differences.
▪ The objective is to keep costs and prices lower than those of other
sellers of comparable products.

 Best-cost provider strategy involves providing customers more value for the
money by emphasizing low cost and better quality
difference. It can be done:
(a) through offering products at lower price than what
is being offered by rivals for products with
comparable quality and features or
(b) charging similar price as by the rivals for products
with much higher quality and better features.

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