Focused cost leadership

Focused cost leadership

1. A focused cost leadership strategy requires competing based on price to target a narrow market

   • Firms that compete based on price and target a narrow market are following a focused cost leadership strategy.

2. 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.

   • Redbox, for example, uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1. Among firms that rent actual DVDs, Redbox offers unparalleled levels of low price and high convenience.

3. 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

4. In other cases, the target market is defined by the sales channel used to reach customers.

   • Most pizza shops offer sit-down service, delivery, or both. In contrast, Papa Murphy’s sells pizzas that customers cook at home. This allows Papa Murphy’s to attract customers that might not otherwise be able to afford a prepared pizza.