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The historical development of the strategic management concept

Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. In the case of focus differentiation, one advantage is that very high prices can be charged. Indeed, these firms often price their wares far above what is charged by firms following a differentiation strategy (Figure 5.16 “Executing a Focus Strategy”). REI (Recreational Equipment Inc.), for example, commands a hefty premium for its outdoor sporting goods and clothes that feature name brands, such as The North Face and Marmot. Nat Nast’s focus differentiation strategy centers on selling men’s silk camp shirts with a 1950s retro flair. These shirts retail for more than $100. Focused cost leaders such as Checkers Drive In do not charge high prices like REI and Nat Nast do, but their low-cost structures enable them to enjoy healthy profit margins. A second advantage of using a focus strategy is that firms often develop tremendous expertise about the goods and services that they offer. Consumers seek out not only the product itself, but are willing to pay a price premium for very knowledgeable sales staff to advise on which specialized product best suits their needs, such as higher-end cameras. In markets such as camping equipment where product comparison knowledge is important, rivals and new entrants may find it difficult to compete with firms following a focus strategy.

Figure 5-16: Executing a Focus Strategy
Figure 5.16 Executing a Focus Strategy

In terms of disadvantages, the limited demand available within a niche can cause problems. First, a firm could find its growth ambitions stymied. Once its target market is being well served, expansion to other markets might be the only way to expand, and this often requires developing a new set of skills. Also, the niche could disappear or be taken over by larger competitors. Many gun stores have struggled and even gone out of business since the U.S. Walmart and sporting goods stores such as Wholesale Sports and Canadian Tire have started carrying an impressive array of firearms.