Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 4: Business-Level Strategy 129

allows a firm to deal successfully with the five competitive forces parallels those of the

two broad strategies. The only difference is in the firm’s competitive scope; the firm

focuses on a narrow industry segment. Thus, Figures 4.2 and 4.3 and the text describing

the five competitive forces also explain the relationship between each of the two focus

strategies and competitive advantage. However, the competitive forces in a given industry

often favor either a cost leadership or a differentiation strategy.^96

Competitive Risks of Focus Strategies
With either focus strategy, the firm faces the same general risks as does the company using
the cost leadership or the differentiation strategy on an industry-wide basis. However,
focus strategies have three additional risks.
First, a competitor may be able to focus on a more narrowly defined competitive segment
and thereby “out-focus” the focuser. This would happen to IKEA if another firm found a way
to offer IKEA’s customers (young buyers interested in stylish furniture at a low cost) addi-
tional sources of differentiation while charging the same price or to provide the same service
with the same sources of differentiation at a lower price. Second, a company competing
on an industry-wide basis may decide that the market segment served by the firm using a
focus strategy is attractive and worthy of competitive pursuit.^97 For example, as noted in the
Opening Case, Krogers, Safeway, and Walmart are seeking to compete with focused organic
grocers Whole Foods and Trader Joe’s. As a result, Whole Food’s has lowered its prices on
many items, increased its advertising, introduced more private brands, and is testing a loy-
alty program in order to compete more effectively. Co-CEO and founder, John Mackey, said,
“Whole Foods Market is a very competitive company, and when we are challenged, when
competition rears its head, we respond.”^98 Its strategy has resulted in more customers coming
to its stores, although in earlier stages of its response, it profit margins were eroding.
The third risk involved with a focus strategy is that the needs of customers within a
narrow competitive segment may become more similar to those of industry-wide custom-
ers as a whole over time. As a result, the advantages of a focus strategy are either reduced
or eliminated. As illustrated in the example in the Strategic Focus, the unique demand of
do-it-yourself electronic dabblers that RadioShack traditionally focused on dissipated
over time. RadioShack executives struggled over many years to find the right focus
and made too many strategic changes over time, which ultimately lead to bankruptcy.

4-3d Integrated Cost Leadership/Differentiation Strategy

Most consumers have high expectations when purchasing goods or services. In general, it

seems that most consumers want to pay a low price for products with somewhat highly

differentiated features. Because of these customer expectations, a number of firms engage

in primary value-chain activities and support functions that allow them to simultane-

ously pursue low cost and differentiation.^99 Firms seeking to do this use the integrated

cost leadership/differentiation strategy which involves engaging in primary value-chain

activities and support functions that allow a firm to simultaneously pursue low cost and

differentiation. The objective of using this strategy is to efficiently produce products with

some differentiated features. Efficient production is the source of maintaining low costs,

while differentiation is the source of creating unique value. Firms that successfully use the

integrated cost leadership/differentiation strategy usually adapt quickly to new technolo-

gies and rapid changes in their external environments. Simultaneously concentrating on

developing two sources of competitive advantage (cost and differentiation) increases the

number of primary value-chain activities and support functions in which the firm must

become competent. Such firms often have strong networks with external parties that per-

form some of the value-chain activities and/or support functions.^100 In turn, having skills

in a larger number of activities and functions makes a firm more flexible.

The integrated cost

leadership/differentiation

strategy involves engaging

in primary value-chain

activities and support

functions that allow a firm to

simultaneously pursue low

cost and differentiation.