UNIT: 3: GRAND STRATEGIES (20%)

§ EXPLAIN STABILITY STRATEGY. WHEN AND WHY TO PURSUE

STABILITY STRATEGY?

A stability strategy is a business approach where an organization focuses on

maintaining its current position rather than seeking rapid growth or expansion.
The goal is to ensure consistency and steady operations without major changes.
Companies using this strategy aim to consolidate their strengths and improve
efficiency within their existing framework.

Key Idea

The essence of the stability strategy is "stay the course" or "steady as it goes."
Companies stick to what they are doing well without taking significant risks or
making substantial investments.

When to Use Stability Strategy

1. Serving a Stable Market

If a company operates in a market where customer needs and the environment

remain constant, it can continue with its existing business operations.

Example: Amul focusing on its dairy products.

2. No Need for Major Investment

Organizations can pursue stability when they can meet their goals by
improving efficiency rather than expanding production.

Example: Renovating machinery for better performance without increasing

production capacity.

3. Incremental Improvements

If there’s room to improve within the current business, the company can refine
its operations without exploring new markets.

Example: Cricket bat companies tweaking product quality rather than

diversifying.

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4. Conservative Management

Older companies or risk-averse management may prefer stability over riskier

growth strategies.

5. Recovering After Change

If a company has undergone significant changes or growth, it may pause to

consolidate gains and ensure efficiency.

6. Defensive Needs

Stability may be adopted to protect existing strengths, such as patents or

market position.

Example: Ultratech Cement staying in the cement sector to maintain its

dominance.

Why Companies Pursue Stability

Satisfaction with Current Performance: If things are going well, managers may
prefer not to disturb the status quo.

Risk Aversion: Stability is less risky than aggressive growth strategies.

Resistance to Change: Some organizations naturally prefer minimal disruption.

Efficiency Post-Growth: After a growth phase, stability allows companies to

optimize operations.

Regulatory Restrictions: Government policies or industry rules may prevent

expansion.

Example: The liquor and cigarette industries in India face restrictions on capacity
expansion.

Though most of the organizations follow stability strategy for a period of time,
some organizations follow it for much longer than others. It has been observed
that as the companies get older, they become more conservative and more likely
to pursue a stability strategy.

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Types of Stability Strategies:

Incremental growth strategy

Profit strategy

Stability strategies

sustainable growth strategy

pause strategy

1. Incremental Growth Strategy

Small, steady improvements in operations without major changes.

Example: Adjusting production targets for inflation.

2. Profit Strategy (Harvesting)

Used when a product is in decline or not worth investing in further. The focus
is on maximizing short-term returns.

Example: Closing a non-performing unit to free up cash.

3. Sustainable Growth Strategy

Applied when growth is limited due to resource constraints like lack of funds,
labor, or market demand.

4. Pause Strategy

Companies with a history of rapid growth may temporarily stop to consolidate

operations before the next growth phase.

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Real-World Examples

• Steel Authority of India (SAIL): Faced with overcapacity in the steel sector,
SAIL focused on improving plant efficiency rather than expanding operations.
• Cement Industry: Many companies focused on operational improvements
rather than increasing capacity due to market conditions.
• Public Sector Companies: Due to reduced government support for
expansion, several public-sector companies adopted stability strategies.

In summary, a stability strategy is about maintaining the current course and

improving efficiency rather than pursuing aggressive changes or expansion. This
approach works well in stable markets, risk-averse organizations, or when growth
is temporarily not feasible.

§ EXPLAIN GROWTH STRATEGY. WHEN AND WHY TO PURSUE

GROWTH STRATEGY?

A growth strategy focuses on increasing an organization's objectives

significantly (such as higher sales, profits, market share, or assets) at a rate much
faster than its past performance. Growth is essential for survival, especially in a
competitive and dynamic environment, as it helps companies stay ahead of rivals,
achieve economies of scale, and improve their market reputation.

When and Why to Pursue a Growth Strategy

1. Survival in a Competitive Market: Growth is necessary to prevent being

outcompeted by new entrants or dynamic rivals.

Example: Reliance Industries has grown significantly to remain dominant in

the market.

2. Cost Advantages: Large-scale operations reduce per-unit costs as fixed costs

are distributed over more units.
3. Reputation and Employee Satisfaction: Growth increases the company’s
reputation and boosts employee morale.
4. Managerial Motivation: High-performing managers often push for
ambitious objectives, leading to the adoption of growth strategies.

Types of Growth Strategies:

Internal Growth Strategies

Internal growth happens when a company expands its operations or product lines
without acquiring other businesses.

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A. Expansion:

Existing New
Products Products
Existing Market Product
Markets Penetration Development
New Market Diversification
Markets Development

Ansoff's Growth Matrix Strategies:

1. Market Penetration

• Focus: Existing products in existing markets.

• Goal: Increase market share by attracting more customers or increasing
usage among current customers.
• Example: Offering discounts or launching aggressive marketing campaigns.

2. Market Development

• Focus: Existing products in new markets.

• Goal: Expand the customer base by targeting new geographical areas,
demographics, or customer segments.
• Example: A local company expanding its services internationally.

3. Product Development

• Focus: New products in existing markets.

• Goal: Cater to the existing customer base by developing and introducing
innovative products.
• Example: A car manufacturer introducing electric vehicles to its traditional
car market.

4. Diversification

• Focus: New products in new markets.

• Goal: Reduce risks by entering completely new markets with new products.
• Example: A tech company launching a clothing brand.

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B. Diversification:

Horizontal
Diversification

Vertical
Diversification
Diversification

1. Horizontal Diversification

• Definition: Adding products or services that are closely related to the

company's existing offerings.
• Example: A notebook manufacturer starts producing pencils.
• Purpose: To leverage existing customer relationships and brand equity.

2. Vertical Diversification (Integration)

• Definition: Expanding business operations in the supply chain either forward

(towards consumers) or backward (towards suppliers).
• Examples:

Forward Integration: Disney operates retail stores selling merchandise based

on its characters and movies, allowing the company to capture additional
profits.

Backward Integration: Ford created subsidiaries to produce key vehicle

components like rubber and glass, ensuring quality and cost control.

3. Concentric Diversification

• Definition: Entering businesses related to the current one in terms of

technology, marketing, or both.
• Types:

Marketing-Related: Introducing similar products using unrelated technology

(e.g., Eureka Forbes diversifying into electric irons and food processors).

Technology-Related: Adding new products using related technology (e.g.,

Maggi introducing tomato ketchup and sauces under its brand).

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Marketing & Technology-Related: Combining marketing and technology
for product expansion (e.g., Usha International introducing appliances like
juicers, mixers, and vacuum cleaners while leveraging its dealer network).

4. Conglomerate Diversification

• Definition: Expanding into entirely unrelated businesses, markets, or

technologies.
• Example: A pizza outlet owner opening a car showroom or building
residential houses.
• Purpose: To spread risk and explore new growth opportunities outside the
current industry.

External Growth Strategies

External growth occurs through mergers, acquisitions, or alliances.

A. Merger: The combining of two or more companies, generally by offering the

stockholders of one company securities in the acquiring company in exchange for
the surrender of their stock.Types of mergers include:

Merger

Horizontal Vertical Conglomerate Concentric Subsidiary

Merger Merger Merger Merger Merger

Forward
Merger

Reverse
Merger

1. Horizontal Merger

• Firms in the same industry combine to reduce competition or achieve

economies of scale.
• Example: HDFC Bank merging with Times Bank.

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2. Vertical Merger

• A firm acquires another company in its supply chain.

ü Backward: Tyre manufacturer acquiring a rubber supplier.
ü Forward: FMCG company acquiring a retail chain.

3. Conglomerate Merger

• Firms from unrelated industries combine.

• Example: A watch manufacturer acquiring a cement company.

4. Concentric Merger

• Firms related by customer groups, functions, or technology merge.

• Example: A computer manufacturer merging with a UPS producer.

5. Subsidiary Merger

• A parent company uses its subsidiary to acquire a target company.

Types of Subsidiary Merger:

a). Forward Merger

A forward merger happens when a smaller company merges into a larger

company, and the larger company continues to exist as the surviving entity.

b). Reverse Merger

A reverse merger occurs when a smaller company acquires a larger or publicly

listed company. In this scenario, the acquiring (smaller) company’s shareholders
exchange their shares for a majority stake in the larger company.

Acquisition vs. Merger

Aspect Merger Acquisition

Definition Two entities combine to form a new One company takes over
entity. another.
Control Joint control is shared between The acquiring company
merging entities. takes full control.
Survival Both entities may dissolve into a The target entity ceases to
new entity. exist.
Example Fortis Healthcare India merging Amazon acquiring Whole
with its international arm. Foods.

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Types of Takeovers

1. Hostile Takeover

• A company is acquired without the target company's consent.

• Often involves purchasing a controlling stake in the company through
aggressive means like open market share buying.
• Example: Oracle's attempt to acquire PeopleSoft.

2. Friendly Takeover

• The acquisition is done with the consent of the target company’s management
and board.
• Example: Facebook acquiring WhatsApp.

Examples of Mergers & Acquisitions in India

1. Acquisition of Myntra by Flipkart (2014)Flipkart acquired the online

fashion retailer Myntra to strengthen its position in the Indian e-commerce
market.
2. Sun Pharmaceuticals Acquiring Ranbaxy LaboratoriesThis acquisition
created India’s largest pharmaceutical company and significantly increased its
global presence.
3. Merger of Fortis Healthcare India and Fortis Healthcare
InternationalThis merger streamlined operations and created a unified
healthcare leader in India.

Examples of Growth Strategies in India

1. Reliance Industries: Rapid growth through diversified investments in oil,

telecom, and retail.
2. Nirma Limited: Gained market share through innovation and cost-efficient
operations.
3. Tata Steel: Continuous growth in the steel sector since its inception in 1907.

In conclusion, growth strategies ensure long-term sustainability, market

competitiveness, and profitability for organizations. They can be pursued through
internal improvements, external acquisitions, or a mix of both, depending on a
company’s resources and market opportunities.

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§ EXPLAIN RETRENCHMENT STRATEGY. WHEN AND WHY TO
PURSUE RETRENCHMENT STRATEGY?

A retrenchment strategy is a back-step approach used by businesses to improve

their performance when they are unable to meet objectives or face unfavorable
conditions. This strategy focuses on cost reduction, reducing functions, or even
closing down parts of the business.

When and Why to Use a Retrenchment Strategy?

• When the company is underperforming and sees no scope for improvement in

the future.
• When other strategies like stability or growth have failed to meet objectives.
• It allows the organization to focus on areas where it has a competitive
advantage or better opportunities.
• Often seen as a last resort to improve performance.

Forms of Retrenchment Strategy:

Rentrenchment
Strategy

Turnaround Strategy Divestment Strategy Liqudation Strategy

1. Turnaround Strategy

• Definition: Reversing a negative trend to revive the company.

• Signs That a Turnaround is Needed:

Continuous losses.

Declining market share.

Poor facilities or equipment.

Overstaffing or low employee morale.

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Uncompetitive products.

Mismanagement.

• Approaches to a Turnaround:

Cost Reduction: Cutting expenses like salaries or unnecessary spending.

Asset Reduction: Selling off unused or underperforming assets.

Revenue Growth: Finding new ways to increase income, like launching

new products.

Financial Restructuring: Rearranging debts or seeking fresh investments.

Product/Market Redefinition: Entering new markets or changing products

to meet demand.

Cultural/Management Change: Shifting the work culture or bringing in

new leadership.

• Example:

Dell: In 2006, Dell faced losses due to its direct selling model. In 2007, it
shifted to retail sales and became one of the top computer retailers.

2. Divestment Strategy

• Definition: Selling or liquidating part of the business, often when turnaround

efforts fail.
• Reasons for Divestment:

If a division doesn’t have enough market share or growth potential.

If adapting to new technology requires more investment than the company

can afford.

If managing the business becomes too complicated due to unforeseen issues.

• Example:

TATA Group: The Tata Group sold businesses like TOMCO (soaps), Lakme
(cosmetics), and Tata Pharma because these were not their core strengths or
required too much investment to stay competitive.

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3. Liquidation Strategy

• Definition: Closing down the entire business and selling off its assets.
• When Used:

If the business has accumulated huge losses or is in irreparable condition.

When future prospects are uncertain, or a good buyout offer is received.

• Example:

Subhiksha: Started in 1997 as a discount store, but by 2008, it faced financial

crises, unpaid salaries, and empty shelves. In 2009, all its outlets were shut
down.

Conclusion

A retrenchment strategy is adopted to cut losses and refocus on better

opportunities. While it involves tough decisions like selling divisions or shutting
down operations, it helps companies survive and potentially thrive in the long
run.

§ EXPLAIN COMBINATION STRATEGY. WHEN AND WHY TO

PURSUE COMBINATION STRATEGY?

A Combination Strategy is when an organization simultaneously adopts two or

more strategies (e.g., stability, growth, and retrenchment) to address different
challenges or opportunities within the business. This approach allows the
company to handle diverse situations effectively and optimize its performance.

When and Why to Pursue a Combination Strategy?

1. Different Product Life Cycles:

• When a company manages multiple products that are in different stages of

their life cycles (introduction, growth, maturity, or decline).
• For example, the company may adopt a growth strategy for new products, a
stability strategy for mature products, and a retrenchment strategy for
declining ones.

2. Business Cycles:

• During economic recessions, companies may combine strategies to stabilize

certain areas while growing in others to withstand market fluctuations.

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3. Number of Businesses:

• When an organization has multiple business units, some may be profitable

while others underperform. A combination strategy helps allocate resources
efficiently.
• For instance, pruning underperforming units (retrenchment) while
maintaining stability or pursuing growth in promising areas.

Examples

1. General Electric (GE):

• GE may pursue growth in divisions with high potential, maintain stability in

mature divisions, and implement retrenchment in underperforming divisions.

2. TATA Group:

• The TATA Group uses a combination strategy by focusing on growth in core

sectors like technology and automobiles, maintaining stability in areas like
steel, and divesting from non-core businesses such as cosmetics and soaps.

Advantages of a Combination Strategy

• Flexibility: Allows a company to address varied situations across its business

units.
• Resource Optimization: Ensures that limited resources are allocated
judiciously.
• Risk Management: Reduces risks by diversifying the company’s strategic
focus.

In conclusion, a Combination Strategy is a dynamic and adaptive approach that

enables organizations to manage complex business environments and optimize
performance across diverse units or markets.

§ BUSINESS LEVEL STRATEGIES:

COST LEADERSHIP STRATEGY

A cost leadership strategy means a company designs its operations in a way that
allows it to sell products or services at a lower price than its competitors while
maintaining the same quality. The lower price is the unique feature that attracts
customers, and it works best in industries where competition is mostly about
price.

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Key Benefits of Cost Leadership

1. Higher Profit Margins: Since the cost of producing goods or services is low,
companies earn more profit even if they sell at the same price as competitors.
For instance, in the sugar industry, Balrampur Chini earns a 24% operating
profit margin compared to the industry average of 14.4%.
2. Market Share: Offering lower prices makes the company appealing to price-
sensitive customers, helping it capture a larger share of the market.
3. Surviving Tough Times: During a market downturn, cost-efficient
companies can survive longer because they can afford to sell at lower prices
compared to less efficient competitors.
4. Supplier and Buyer Negotiations: Cost leaders can handle demands from
suppliers for higher prices or from customers for discounts more effectively.
5. Entry Barrier for Competitors: New players in the market may find it
difficult to match the low prices of cost leaders, which discourages
competition.

How Companies Achieve Cost Leadership

1. Economies of Scale: Producing a large volume of goods reduces the average

cost per unit because fixed costs are spread across more products.
2. High Capacity Utilization: Fully utilizing production facilities minimizes
costs since producing extra units often involves only direct costs, with fixed
costs already covered.
3. Vertical Integration: Controlling more steps in the supply chain, such as
production and distribution, reduces costs.
4. Standardization: Offering standardized products and processes lowers
production costs.
5. Cost-Saving Technologies: Investing in efficient technologies reduces
overall expenses.

Where Cost Leadership Works Best

Cost leadership is effective in markets where:

1. Price is the main deciding factor for customers (e.g., commodity industries
like sugar or tea).
2. Products or services are not significantly different across competitors, making
it hard for customers to notice a difference.
3. Buyers have strong negotiating power and push for lower prices.
4. Customer loyalty is low, and switching to a competitor is easy.

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Real-World Examples

• IKEA: IKEA keeps its prices low by sourcing furniture from low-wage
countries and offering minimal customer service while maintaining style and
quality.
• Walmart: Walmart’s strategy of “everyday low prices” relies on its efficient
supply chain and large-scale operations. By sourcing products cheaply,
Walmart can sell at thin margins but make profits due to high sales volume.

Risks of Cost Leadership

1. Sustainability Challenge: Competitors may find ways to lower their costs

too, reducing the cost leader’s advantage.
2. Technological Changes: New technologies or innovations can quickly
disrupt the cost structure, making it harder to stay ahead.
3. Customer Neglect: Focusing too much on cost-cutting might harm customer
satisfaction or reduce product value.
4. Market Stagnation: If competitors leave due to low profitability, the market
may stop evolving, which can limit opportunities for the cost leader itself.

Conclusion

Cost leadership can be a powerful strategy to dominate a market, but it requires

consistent effort, innovation, and a careful balance between cutting costs and
maintaining customer satisfaction.

DIFFERENTIATION STRATEGY

A differentiation strategy is when a company sets itself apart from competitors

by offering unique products or services that are valued by customers. This
uniqueness can come from features, quality, design, customer service, brand
image, or technology. The goal is to create something distinctive enough that
customers are willing to pay a premium price for it.

Unlike cost leadership, differentiation focuses on providing better value rather

than the lowest price.

How Differentiation Strategy Works

1. Understanding Customer Needs: The Company identifies what customers

value most in a product or service—be it innovation, reliability, convenience,
or prestige.
2. Offering Unique Features: The Company enhances its product or service
with features competitors don’t have or can't easily replicate.

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3. Charging a Premium Price: Since the product/service stands out, customers
are often willing to pay more for it.

Sources of Differentiation

1. Innovative Products: Offering new features, cutting-edge technology, or

creative designs. Example: Apple's iPhones with sleek designs and exclusive
ecosystems.
2. Exceptional Quality: Products or services that are durable, reliable, or
superior in performance. Example: Mercedes-Benz for luxury and durability
in cars.
3. Superior Customer Service: Providing personalized or extraordinary
service. Example: Ritz-Carlton hotels focus on exceptional guest experiences.
4. Brand Reputation: Building a strong brand identity and trust. Example:
Nike’s association with quality athletic gear and inspiring campaigns.
5. Customization: Offering tailored solutions to meet specific customer needs.
Example: Build-your-own computers offered by Dell.
6. Convenience: Simplifying the customer experience or delivery process.
Example: Amazon’s fast and efficient delivery services.

Benefits of Differentiation Strategy

1. Customer Loyalty: Unique products and experiences create strong bonds

with customers, making them less likely to switch to competitors.
2. Higher Profit Margins: Premium pricing leads to better profit margins as
customers perceive greater value in the offerings.
3. Reduced Price Competition: Differentiation shifts focus away from price
wars and allows businesses to compete on quality or features instead.
4. Market Leadership: Being unique often positions a company as an innovator
or leader in its industry.

Examples of Differentiation Strategy

1. Apple: Apple's differentiation comes from its focus on innovative design,

user-friendly interfaces, and a seamless ecosystem of devices and services.
2. Tesla: Tesla stands out with its electric vehicles, cutting-edge technology, and
emphasis on sustainability.
3. Starbucks: Starbucks differentiates itself with its premium coffee blends,
cozy store ambiance, and focus on customer experience.
4. Louis Vuitton: The brand’s exclusivity, craftsmanship, and luxury image
justify its high price tags.

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Risks of Differentiation Strategy

1. High Costs: Creating unique products and maintaining quality can be

expensive, reducing profit margins if not managed well.
2. Imitation by Competitors: If competitors copy the unique features,
differentiation becomes less effective.
3. Changing Customer Preferences: What is considered "unique" today might
not appeal to customers tomorrow.
4. Overpricing: If the premium price exceeds what customers are willing to pay,
demand may drop.

When Differentiation Works Best

1. Diverse Customer Needs: Customers are looking for unique solutions and
are willing to pay more for features they value.
2. Less Price Sensitivity: Buyers care more about quality, service, or brand
image than cost.
3. Innovation-Driven Industries: Markets where technology and design are
constantly evolving, like electronics or fashion.

Conclusion

A differentiation strategy can provide businesses with a strong competitive edge,

customer loyalty, and higher profitability. However, it requires constant
innovation, understanding of customer preferences, and the ability to
communicate the value of uniqueness effectively.

FOCUS STRATEGY

A focus strategy involves targeting a specific segment of the market rather than
addressing the broader market. Companies using this strategy concentrate on
serving the unique needs of a niche market, either by offering the lowest cost
(cost focus) or by providing differentiated products/services (differentiation
focus).

The goal is to excel in a narrow market segment where the company can either
outprice competitors or provide a unique value proposition.

How Focus Strategy Works

1. Identify a Specific Market Segment: The company chooses a well-defined

group of customers based on geography, demographics, or product
preferences.

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2. Specialize in Serving the Segment: The company tailors its products,
services, or business operations to suit the unique demands of this market.
3. Build a Competitive Advantage: Through deep understanding and
specialization, the company delivers better value than competitors who serve
the broader market.

Types of Focus Strategy

5. Cost Focus: The company competes by offering the lowest cost in the chosen
segment.

Example: Dollar Tree, which targets price-conscious customers with low-cost

products.

6. Differentiation Focus: The company offers specialized or premium

products/services in the chosen segment.

Example: Rolls-Royce targets the luxury car market with bespoke vehicles
and exclusive features.

Benefits of Focus Strategy

1. Better Understanding of Customer Needs: Specialization allows the

company to develop products and services tailored to a specific audience.
2. Less Competition: Operating in a niche market often means facing fewer
competitors.
3. Customer Loyalty: By meeting unique demands, the company builds strong
relationships with its target customers.
4. Efficient Resource Allocation: Focusing on a specific segment allows the
company to concentrate its resources effectively.

Examples of Focus Strategy

1. Ferrari: Focuses on the luxury sports car market, offering high-performance

vehicles to affluent customers.
2. Whole Foods: Targets health-conscious consumers by offering organic and
natural food products.
3. Lululemon: Specializes in premium activewear for yoga and fitness
enthusiasts.
4. Tesla Solar: Focuses on eco-conscious homeowners with solar panels and
energy solutions.

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Risks of Focus Strategy

1. Over-Dependence on a Niche: If the niche market declines or customer

preferences change, the company may struggle to adapt.
2. Competition from Broad Market Players: Larger competitors may target
the niche segment, leveraging their broader resources.
3. Limited Growth Potential: The size of the target market may limit the
company’s scalability.
4. Cost Challenges: Serving a small market may lead to higher costs per unit
due to lack of economies of scale.

When Focus Strategy Works Best

1. Niche Markets with Unique Needs: The target segment has distinct
requirements that broader competitors don’t adequately address.
2. Low Competition in the Segment: The niche market is underserved or
overlooked by larger players.
3. Strong Brand Positioning: The company has a reputation for specializing in
a particular segment.
4. Resources are Limited: Companies with fewer resources can compete
effectively by narrowing their focus.

Conclusion

A focus strategy enables companies to dominate a specific niche by either

offering the lowest cost or a unique product/service. While it can provide strong
competitive advantages, it also requires a deep understanding of the niche market
and a willingness to adapt to changing customer needs.

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