Cost focus and differentiation focus are two of the four Generic Strategies developed and introduced by Michael E. Porter in his 1985 strategic management book “Competitive Advantage: Creating and Sustaining Superior Performance.”
Note that Porter’s Generic Strategies collectively describes how businesses or firms pursue and achieve competitive advantages while also providing strategists and analysts with insights on how to maximize profit potentials in a particular industry or market.
Explaining the Difference Between Cost Focus and Differentiation Focus
There were three strategies identified originally. These are cost leadership, differentiation, and focus strategies. Porter expounded further on the focus strategy by dividing focus strategies into two: cost focus and differentiation focus strategies.
What exactly is the difference between cost focus and differentiation focus? Note that focus strategies generally represent all tactics, actions, or approaches aimed at narrowing the attention and competitive scope of a firm in a particular industry or market.
Focus strategies fundamentally center on directing attention toward a particular segment of the market or a niche market. The following are the specific definitions and differences between the two focus strategies identified by Porter:
• Cost focus should not be confused with cost leadership because it aims to lower the cost of operations to offer low-priced goods or services that are suitable to the needs of an identified market segment or niche market.
• A cost focus strategy fundamentally aims to maximize the profit or earning potential from a segment or niche by offering low-cost products, while achieving a first-to-market advantage and building strong brand loyalty.
• On the other hand, a differentiation focus is different from a differentiation strategy because it aims to create a differentiated product in consideration of the needs of a particular market segment or niche market.
• A differentiation focus aims to tap an existing segment of the market or create a new market demand or niche by developing and marketing innovative products that can address the needs of the identified needs of the target consumers.
• Note that the need to direction attention toward a particular segment of a market or a niche market represents the similarity between the two focus strategies. Both are fundamentally about narrowing the competitive scope of a firm.
• However, the differences between the two all boil down to choosing between offering low-cost products and highly differentiated products. Choosing between the two depends on the needs of the identified market segment or niche market.