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Focused cost leadership

Focused cost leadership[2] is the first of two focus strategies. A focused cost leadership strategy requires competing based on price to target a narrow market (Figure 5.12 “Focused Cost Leadership”). 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. For example, you might be able to buy milk cheaper by driving to a big-box grocery store in your local community or town, but the local corner store is the cheapest within walking distance. Redbox, a major DVD rental company, uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1. There are ways to view movies even cheaper, such as through the flat-fee streaming video subscriptions offered by Netflix. But among firms that rent actual DVDs, Redbox offers unparalleled levels of low price and high convenience.

Figure 5-12: Focused Cost Leadership
Figure 5.12 Focused Cost Leadership

Another important point is that the nature of the narrow target market varies across firms that use a focused cost leadership strategy. In some cases, the target market is defined by demographics. Claire’s, for example, seeks to appeal to young women by selling inexpensive jewelry, accessories, and ear piercings. Claire’s use of a focused cost leadership strategy has been very successful; the firm has about 50 locations in Canada, located in shopping malls.

Redbox DVD Rentals
Figure 5.13: Redbox machines are available at several locations in southern Ontario.