128 Part 2: Strategic Actions: Strategy Formulation
Although the breadth of a target is clearly a matter of degree, the essence of the
focus strategy “is the exploitation of a narrow target’s differences from the balance of
the industry.”^92 Firms using the focus strategy intend to serve a particular segment of an
industry more effectively than can industry-wide competitors. In fact, entrepreneurial
firms commonly serve a specific market niche or segment, partly because they do not
have the knowledge or resources to serve the broader market. In fact, they generally
prefer to operate “below the radar” of larger and more resource rich firms that serve the
broader market. They succeed when they effectively serve a segment whose unique needs
are so specialized that broad-based competitors choose not to serve that segment or when
they satisfy the needs of a segment being served poorly by industry-wide competitors.
Firms can create value for customers in specific and unique market segments by using
the focused cost leadership strategy or the focused differentiation strategy.Focused Cost Leadership Strategy
Based in Sweden, IKEA, a global furniture retailer with locations in 35 countries and
territories and sales revenue of 28.7 billion euros in 2014, uses the focused cost leadership
strategy. Young buyers desiring style at a low cost are IKEA’s target customers.^93 For these
customers, the firm offers home furnishings that combine good design, function, and
acceptable quality with low prices. According to the firm, it seeks “to offer a wide range of
well-designed, functional home furnishing products at prices so low that as many people
as possible will be able to afford them.”^94
IKEA emphasizes several activities to keep its costs low. For example, instead of rely-
ing primarily on third-party manufacturers, the firm’s engineers design low-cost, modu-
lar furniture ready for assembly by customers. To eliminate the need for sales associates or
decorators, IKEA positions the products in its stores so that customers can view different
living combinations (complete with sofas, chairs, tables, etc.) in a single room-like setting,
which helps the customer imagine how furniture will look in their home. A third practice
that helps keep IKEA’s costs low traditionally has been to require customers to transport
their own purchases rather than providing delivery service. However, for competitive
reason, they have recently started to offer a low cost delivery service as an option.
Although it is a cost leader, IKEA also offers some differentiated features that appeal
to its target customers, including its unique furniture designs, in-store playrooms for
children, wheelchairs for customer use, and extended hours. Thus, IKEA’s focused cost
leadership strategy also includes some differentiated features with its low-cost products.Focused Differentiation Strategy
Other firms implement the focused differentiation strategy. As noted earlier, there are
many dimensions on which firms can differentiate their goods or services. For example,
the new generation of food trucks populating cities such as Los Angeles use the focused
differentiation strategy. They serve organic food crafted by highly trained chefs and well-
known restaurateurs who own and operate many of these trucks. In fact, the Green Truck,
headquartered in Los Angeles, demonstrates these characteristics. Moreover, the owners
of these trucks often use Twitter and Facebook to inform customers of their locations as
they move from point to point in their focal city.^95
With a focus strategy, firms must be able to complete various primary value-chain
activities and support functions in a competitively superior manner to develop and sus-
tain a competitive advantage and earn above-average returns. The activities required to
use the focused cost leadership strategy are virtually identical to those of the industry-
wide cost leadership strategy (see Figure 4.2), and activities required to use the focused
differentiation strategy are largely identical to those of the industry-wide differentiation
strategy (see Figure 4.3). Similarly, the manner in which each of the two focus strategies