What is a focus strategy and what risks does it entail?

• A. Market shrinkage, segment erosion, and imitation by competitors.
• B. Global expansion, broad market targeting, and price wars.
• C. Diversification across unrelated products.
• D. Rapid technological change in all segments.

Answer: (C)

A focus strategy concentrates on serving a narrow market segment with a tailored approach, either by focusing on a niche in cost efficiency or on differentiating offerings to meet the specific needs of that group. The key risk is that the chosen niche is vulnerable: if the overall market shrinks, if the segment erodes due to shifting preferences or increased competition, or if competitors imitate the unique value you’re delivering, your tight targeting leaves you less room to maneuver and sustain profitability. For example, a boutique brand that serves only luxury eco-conscious travelers gains depth in understanding that audience, but economic downturns, or a larger player copying the sustainability appeal and undercutting on price, can undermine the advantage. Diversification across unrelated products represents a different strategic approach that broadens scope rather than concentrates it, and it comes with its own sets of challenges, such as spreading resources too thin or losing market-specific expertise.