Most of the foregoing conclusions about product design, presented in the separate contexts of cost-leadership and quality-leadership strategies, apply here in the context of focused strategies of each type. Fundamental to a focus strategy is the clear and deliberate identification of the firm’s target market, whereas a firm following a more broadly based cost-leadership or differentiation strategy may know less about its consumers and yet make above-average profit. The cost-focus strategist will design a product such that the costs of serving its target market are kept to a minimum, whereas the quality-focus strategist will add features to its product or service whenever it believes these features will allow price to be augmented by more than costs would be. We would expect search products to be better suited to the cost-focus firm, whereas
experience and credence products are more likely optimal for the firm adopting a quality-focus strategy.
A focus strategy seems particularly appropriate for a firm attempting to enter a market for the first time. In order to gain a foothold and to avoid the direct competition of major firms, the new entrant might seriously consider focusing on a smaller, more specialized segment of the market that is relatively neglected at the present time. If successful in the chosen market segment, the new firm might later broaden its base, both to diversify its risk exposure and to allow it to expand beyond the confines of its initial clientele.
Pricing strategies for a cost-focus firm will be similar to those for the broadly based cost leader discussed previously. Price leadership (in the niche) to maximize short-run profit is possible, given the firm’s lower costs, but it is appropriate only if the firm’s planning period is short, if there are insurmountable barriers to entry, or if the EPV-maximizing strategy is to allow entry of some new firms at first and later restrict further entry. Pricing to maximize sales subject to a minimum profit constraint may be more appropriate if the firm expects a significant amount of repeat business and complementary sales in future periods and faces strong competition in the market niche. Limit pricing is indicated if the EPV of profits is best served by restricting the entry of new firms. Promotional pricing is indicated if the product is a search product.
Pricing strategy for the quality-focus firm will include product-line pricing, bundle pricing, and whatever short-run pricing rule best serves the firm’s objective, taking into account the possibility of new entry, repeat and complementary sales, and so on.
Advertising strategy will tend to be informative if the product is a search product and to stress price if the firm follows a cost-focus strategy. In these cases, advertising expenditures will tend to be a relatively small proportion of sales revenue, following the elasticities rule. On the other hand, if the products are experience or credence goods and the firm follows a quality-focus strategy, advertising will tend to be optimal if it is mostly persuasive and if advertising expenditures are a relatively large proportion of sales revenue.