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... their commercial effort onto an unexploited section of the market, which is looked over by the bigger companies. As practice shows, focusing attention on the narrow piece of total market can be very beneficial for the company, since it usually does not have to deal with a fierce competition. This allows it to charge premium price for its goods and services, thus making it possible to make a considerable profit. There are three commonly recognized attributes of Focused/Market Niche Strategy: commercial operations are only possible due to the unique geographical location, the product is designed according to specialized requirements, product features can only appeal to a limited number of customers, while others might not even find appealing at all. There are a few factors that contribute to making a market niche attractive for focusing.
It has to be big enough, with a tendency to become bigger. There are a few competitors in the same market that can represent a danger. Niche customers have specific needs that can only be effectively addressed by the company, which is fully committed to serving these people. The company Dutch Boy from Vancouver, B. C. is specialized in pickling herring.
Those who shop at big supermarkets regularly know that, even thought these stores provide variety of choices for every kind of food, finding a pickled herring can be quite difficult, because the personnel is often not even aware that their store carries such product. Apparently, pickled herring in jars is not very popular among the majority of people, yet selling it allows Dutch Boy to come up with 100 thousands dollars of profit annually. Also, there is no other brands of pickled herring are usually available in supermarkets. This points out to the fact that, even though the demand for Dutch Boy products is mainly restricted to the people of Scandinavian and East-European origins, it nevertheless creates a market niche, which is being successfully exploited by Dutch Boy. This example like no other corresponds to the classic description of how market niches are created, which can be found in Online Encyclopedia of Small Business: Descriptive bases for market segmentation include a variety of factors that describe the demographic and geographic situation of the customers in a market Some of the demographic variables that are used as descriptive bases in market segmentation might include age, gender, religion, income, and family size, while some of the geographic variables might include region of the country, climate, and population of the surrounding area (Market Segmentation). In its turn, the Focused/Market Niche Strategy can be divided on low-cost and differentiation variations.
The first one strives to win the segment competition by offering lower price on the product. Yet, many economists suggest that such approach is wrong in principle, since one of the main advantages that Focused/Market Niche Strategy offers is customers low bargaining power. A Differentiation Focused/Market Niche Strategy applies different market philosophy. It expects customers to be willing to pay high prices for the unique product. In my opinion, this is a proper attitude.
In many cases, the lower price cannot attract niche buyers, quite contrary it can drive them away, since they pay not as much for quality as for exclusiveness. This is especially the case with people who buy luxury items. Very often, it is only a high price alone, which creates a commercial appeal f the product. Just as in case with any other strategy, companies that are niche focused may experience commercial difficulties due to the various reasons. The most important of them is customers tastes shifting towards the mainstream.
This inevitably leads to such company loosing its market. There are also cases, when operating in particular segments of market becomes too profitable for other companies to ignore. When this happens, the market segment becomes overcrowded with proposition. Crafting the Strategy In my opinion, we cannot describe any of five strategies as deficient, just as we cannot say that any of them are truly supreme. Everything depends on economical circumstances, which will inevitably influence our choice. For example, the Low-Cost Strategy is best suited to be used in highly competitive market that has a low sensitivity towards the quality.
If we produce non-brand name clothing, we would be much better off sticking to Low-Cost strategy, as our potential buyers are going to be the people with low income. Nevertheless, they still have a great buying power, especially given their numbers, thats why we need to make our product attractive to them. But how? By offering a low price. How are we still going to be able to make profit, despite ridiculously low price we charge for our products? We move our production lines to China, where workers salary is a few dollars a day.
We are also going to cut the initial cost of production, by using the cheapest raw material and by ridding the final product of as many additional features as possible. It appears that this approach becomes more and more popular among many American manufacturers, as it is almost impossible to buy electronics that had not been manufactured in China. As a rule, they have a very attractive price but low quality. The main reason why Low-Cost strategy might become only the option for the companies to consider in the future is the fact that Western societies become marginalized at alarming rate.
There are many socio-political factors that contribute to this, but it is a fact that the middle class buying capability is being continuously undermined by inflation. That is why we can assume that in the future, the low price alone will remain as something that customers are going to be looking for. As it being said earlier, we need to consider a social dynamics, while crafting a business strategy. In my opinion, the way business operates is a reflection of general well-being of every society. Since the gap between the poor and the rich is continuing to widen, we can assume that it is not going to be too long before the large portion of middle class customers will find themselves reduced to lower social status. This automatically means that the Differentiation strategy is going become less and less appealing for the companies to deploy, since it put emphasis on quality and the premium prices.
It is more likely that the only two business strategies, namely Low-Cost and Focused/Market Niche, are going to remain as valuable commercial philosophies. Robert Heller in his article Better Business: Survival of the Fittest agrees with the suggestion that Focused/Market Niche Strategy is going to be used by more and more companies: Established retailers, by under-investing in marketing, became vulnerable to brand-building midgets like Benetton. Store chains leave too many tempting gaps - witness the success of, well, The Gap. Large retailers have mostly been less skilful than their suppliers at extending existing brands or spinning off new growth businesses (Heller). Yet, he explains it by the fact that the customers become choosier, as a whole. I think, this is not quite correct.
The growing demand for specialized items is a fact but it is just a side effect of more and more customers preferring to buy cheap products, even if they appear to be differentiated on the surface. What also contributes to such trend gaining a momentum is the fact that buyers increasingly confuse the perceived value of the product with its actual value. This, of course, has always been known to the makers of advertisement. Nevertheless, the recent ethnographical shifts in American society resulted in situation when many buyers associate quality with not just a brand name, but with a brand name likeness, even though that the cheap price unmistakably points out to the lack of quality. For example, many producers of soft drinks do not just imitate the taste of original Coca-Cola or Pepsi, but also their name. They apply a few alterations, so that they cannot be charged with copyright infringement.
The can of Bubba-Cola costs 20 cents at Stop and Shop, comparing to 99 cents for the can of original Coca-Cola. Nevertheless, the sales of this drink continue to rise, while less people buy brand name drinks. This does not imply that the implementation of Differentiation strategy by the companies in the future is going to be very rare. But it is a fact that only the companies that produce truly unique products in large numbers might be able to continue using this strategy. This applies mostly to the producers of computer software.
We need to keep in mind that the five generic business strategies do not have clearly defined characteristics that would enable us to be certain about what strategy is being used in every particular case. We would much rather think of them as set of comparatively loose practical approaches to making profit. But the absence of clearly defined boundaries between these approaches, allows any company to vary them, while crafting its original commercial strategy. The modern economists make a mistake, when they suggest there can be other goals of economical activity than making a profit.
A various affirmative action and diversity policies, forced upon commercial institutions, divert managers attention from their foremost task. But the worst thing about it is that managers adopt dogmatic views and it does not allow them to expand their mind, when it comes to adopting a business strategy for their companies. Thats why it is important to stay focused on making profit, while being able to adjust business strategy at any time, when it is required by economic circumstances. Bibliography: Heller, R. Better Business: Survival of the Fittest. (2004). Thinking Managers.
Com. Retrieved November 15, 2005 from web Gopinath, G. Hyundai's Strategy Fits Alabama's Needs. (May 6, 2002). The Hindu Business Line.
Retrieved November 15, 2005 from web Lowe, S. Beauty is Only Skin Deep: Does Your Firm Truly Embrace Differentiation. (2004). Management Consulting News. Retrieved November 15, 2005 from http: // 72. 14. 203. 104 /search?
q = cache: 8 a 0 TEtWiIzMJ: web Mitchell, R. Strategy Formulation. (2000). Economy and People. Retrieved November 15, 2005 from http: // 64. 233. 167. 104 /search?
q = cache: ihEEDTpDAm 4 J: web Market Segmentation. (2002). Encyclopedia of Small Business. Retrieved November 15, 2005 from web
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