ILLUSTRATION Amazon's Path to Becoming the CAPSULE 5.1 Low-Cost Provider in E-commerce In 1996, shortly after founding Amazon.com, CEO Jeff Bezos told his employees, "When you are small, some- apt zones amazoncouk one else that is bigger can always come along and take away what you have." Since then, the company has relentlessly pursued growth, aiming to become the global cost leader in "customer-centric E-commerce" across nearly all consumer merchandise lines. Amazon. amazon.co.uk amaz com now offers over 230 million items for sale in America-approximately 30 times more than Walmart- and its annual sales are greater than the next five larg- est e-retailers combined. In scaling up, Amazon has achieved lower costs not only through economies of scale, but also by increasing its bargaining power over its supplies and distribution Soon Gol up/Gerry Images partners. With thousands of suppliers, Amazon.com is not reliant on any one relationship. Suppliers, however, Ship Amazon's crew picks up orders directly from sell- have few other alternative e-retailers that can match ers, eliminating the time and cost of sending goods to a Amazon's reach and popularity. This gives Amazon bar- warehouse and the need for more space. gaining power when negotiating revenue sharing and Amazon's size has also enabled it to spread the payment schedules. Amazon has even been able to fixed costs of its massive up-front investment in auto- negotiate for space inside suppliers warehouses, reduc- mation across many units. Amazon.com was a pioneer ing their own inventory costs. of algorithms generating customized recommenda- On the distribution side, Amazon has been develop- tions for customers. While developing these algo- ing its own capabilities to reduce reliance on third-party rithms was resource-intensive, the costs of employing delivery services. Unlike most mega retailers, Amazon's them are low. The more Amazon uses its automated distribution operation was designed to send small orders sales tools to drive revenue, the more the up-front to residential customers. Amazon.com attained proxim- development cost is spread thin across total revenue. ity to its customers by building a substantial network of As a result, the company has lower capital inten- warehousing facilities and processing capability-249 sity for each dollar of sales than other large retailers fulfillment and delivery stations globally. This wide foot- (like Walmart and Target). Other proprietary tools print decreases the marginal cost of quick delivery, as that increase the volume and speed of sales-without well as Amazon's reliance on cross-country delivery increasing variable costs-include Amazon.com's pat- services. In addition, Amazon has adopted innovative ented One Click Buy feature. All in all, these moves delivery services to further lower costs and extend its have been helping secure Amazon's position as the reach. In India and the UK, for example, through Easy low-cost provider in this industry. Note: Developed with Danielle G. Garver. Sources: Company websites, seekingalpha.com/article/2247493-amazons-competitive-advantage-quantified; Brad Stone, The Everything Store (New York Back Bay Books, 2013, www.reuters.com dUSKCNOT12PL20151112 (accessed Fabruary 16, 2016]. versus 45 minutes for rivals) allows its planes to fly more hours per day. This Success in achieving a low- translates into being able to schedule more flights per day with fewer aircraft, cost edge over rivals comes allowing Southwest to generate more revenue per plane on average than rivals. from out-managing rivals Southwest does not offer assigned seating, baggage transfer to connecting air- in finding ways to perform lines, or first-class seating and service, thereby eliminating all the cost-producing value chain activities faster. activities associated with these features. The company's fast and user-friendly more accurately, and more online reservation system facilitates e-ticketing and reduces staffing requirements cost-effectively. 127PART 1 Concepts and Techniques for Crafting and Executing Strategy at telephone reservation centers and airport counters. Its use of automated check-in equipment reduces staffing requirements for terminal check-in. The company's care- fully designed point-to-point route system minimizes connections, delays, and total trip time for passengers, allowing about 75 percent of Southwest passengers to fly nonstop to their destinations and at the same time reducing Southwest's costs for flight operations. The Keys to Being a Successful Low-Cost Provider While low-cost providers are champions of frugality, they seldom hesitate to spend aggressively on resources and capabilities that promise to drive costs our of the busi- ness. Indeed, having competitive assets of this type and ensuring that they remain competitively superior is essential for achieving competitive advantage as a low-cost provider. Walmart, for example, has been an early adopter of state-of-the-art technol- ogy throughout its operations; however, the company carefully estimates the cost sav- ings of new technologies before it rushes to invest in them. By continuously investing in complex, cost-saving technologies that are hard for rivals to match, Walmart has sustained its low-cost advantage for over 30 years. Other companies noted for their successful use of low-cost provider strategies include Vizio in big-screen TVs, EasyJet and Ryanair in airlines, Huawei in network- ing and telecommunications equipment, Bic in ballpoint pens, Stride Rite in footwear, and Poulan in chain saws. When a Low-Cost Provider Strategy Works Best A low-cost provider strategy becomes increasingly appealing and competitively powerful when: 1. Price competition among rival sellers is vigorous. Low-cost providers are in the best position to compete offensively on the basis of price, to gain market share at the expense of rivals, to win the business of price-sensitive buyers, to remain profitable despite strong price competition, and to survive price wars. 2. The products of rival sellers are essentially identical and readily available from many eager sellers. Look-alike products and/or overabundant product supply set the stage for lively price competition; in such markets, it is the less efficient, higher-cost companies whose profits get squeezed the most. 3. It is difficult to achieve product differentiation in ways that have value to buyers. When the differences between product attributes or brands do not matter much to buyers, buyers are nearly always sensitive to price differences, and industry- leading companies tend to be those with the lowest-priced brands. 4. Most buyers use the product in the same ways. With common user requirements, a standardized product can satisfy the needs of buyers, in which case low price, not features or quality, becomes the dominant factor in causing buyers to choose one seller's product over another's. 5. Buyers incur low costs in switching their purchases from one seller to another. Low switching costs give buyers the flexibility to shift purchases to lower-priced sellers having equally good products or to attractively priced substitute products. A low-cost leader is well positioned to use low price to induce potential customers to switch to its brand.CHAPTER 5 The Five Generic Competitive Strategies 120 Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy Perhaps the biggest mistake a low-cost provider can make is getting carried away with overly aggressive price cutting. Higher unit sales and market shares do not automati- cally translate into higher profus. Reducing price results in earning a lower profit margin on each unit sold. Thus reducing price improves profitability only if the lower price increases unit sales enough to offset the loss in revenues due to the lower per unit profit margin. A simple numerical example tells the story: Suppose a firm selling 1,000 units at a price of $10, a cost of $9, and a profit margin of $1 opts to A low-cost provider is in cut price 5 percent to $9.50-which reduces the firm's profit margin to $0.50 per the best position to win the unit sold. If unit costs remain at $9, then it takes a 100 percent sales increase to business of price-sensitive 2,000 units just to offset the narrower profit margin and get back to total profits buyers, set the floor on of $1,000. Hence, whether a price cut will result in higher or lower profitability market price, and still earn depends on how big the resulting sales gains will be and how much, if any, unit a profit. costs will fall as sales volumes increase. A second pitfall is relying on cost reduction approaches that can be easily cop- ied by rivals. If rivals find it relatively easy or inexpensive to imitate the leader's Reducing price does not low-cost methods, then the leader's advantage will be too short-lived to yield a lead to higher total profits valuable edge in the marketplace. unless the added gains in unit sales are large A third pitfall is becoming too fixated on cost reduction. Low costs cannot be enough to offset the loss pursued so zealously that a firm's offering ends up being too feature-poor to gen- in revenues due to lower erate buyer appeal. Furthermore, a company driving hard to push down its costs margins per unit sold. has to guard against ignoring declining buyer sensitivity to price, increased buyer interest in added features or service, or new developments that alter how buyers use the product. Otherwise, it risks losing market ground if buyers start opting for A low-cost provider's more upscale or feature-rich products. product offering must Even if these mistakes are avoided, a low-cost provider strategy still entails always contain enough risk. An innovative rival may discover an even lower-cost value chain approach. attributes to be attractive Important cost-saving technological breakthroughs may suddenly emerge. And to prospective buyers-low if a low-cost provider has heavy investments in its present means of operating, price, by itself, is not always then it can prove costly to quickly shift to the new value chain approach or a new appealing to buyers. technology. BROAD DIFFERENTIATION STRATEGIES Differentiation strategies are attractive whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product offering. Successful product LO 3 differentiation requires careful study to determine what attributes buyers will find The major avenues appealing, valuable, and worth paying for. Then the company must incorporate a o a competitive combination of these desirable features into its product or service that will be different advantage based enough to stand apart from the product or service offerings of rivals. A broad dif- on differentiating a ferentiation strategy achieves its aim when a wide range of buyers find the company's company's product or service offering from offering more appealing than that of rivals and worth a somewhat higher price. the offerings of rivals. Successful differentiation allows a firm to do one or more of the following: Command a premium price for its product. Increase unit sales (because additional buyers are won over by the differentiating features).PART 1 Concepts and Techniques for Crafting and Executing Strategy . Gain buyer loyalty to its brand (because buyers are strongly attracted to the differentiating features and bond with the company and its products). Differentiation enhances profitability whenever a company's product can com- mand a sufficiently higher price or generate sufficiently bigger unit sales to more than cover the added costs of achieving the differentiation. Company differentia- tion strategies fail when buyers don't place much value on the brand's uniqueness and/or when a company's differentiating features are easily matched by its rivals. Companies can pursue differentiation from many angles: a unique taste (Red Bull, Listerine); multiple features (Microsoft Office, Apple Watch); wide selection and one-stop shopping (Home Depot, Alibaba.com); superior service (Ritz-Carlton, Nordstrom); spare parts availability (John Deere; Morgan Motors); engineering design and performance (Mercedes, BMW), high fashion design (Prada, Gucci); product reliability (Whirlpool and Bosch in large home appliances); quality manufacture (Michelin); technological leadership (3M Corporation in bonding and coating prod- ucts); a full range of services (Charles Schwab in stock brokerage); and wide product selection (Campbell's soups). Managing the Value Chain to Create the Differentiating Attributes Differentiation is not something hatched in marketing and advertising departments, nor is it limited to the catchalls of quality and service. Differentiation opportuni- ties can exist in activities all along an industry's value chain. The most systematic approach that managers can take, however, involves focusing on the value drivers, a set of factors-analogous to cost drivers-that are particularly effective in creating differentiation. Figure 5.3 contains a list of important value drivers. Ways that manag- ers can enhance differentiation based on value drivers include the following: 1. Create product features and performance attributes that appeal to a wide range of buyers. The physical and functional features of a product have a big influence on differentiation, including features such as added user safety or enhanced envi- ronmental protection. Styling and appearance are big differentiating factors in the apparel and motor vehicle industries. Size and weight matter in binoculars and mobile devices. Most companies employing broad differentiation strategies make a point of incorporating innovative and novel features in their product or service offering, especially those that improve performance and functionality. 2. Improve customer service or add extra services. Better customer services, in areas such as delivery, returns, and repair, can be as important in creating differentiation as superior product features. Examples include superior technical assistance to buyers, higher-quality maintenance services, more and better product information provided to customers, more and better training materials for end users, better credit terms, quicker order processing, and greater customer convenience. 3. Invest in production-related R&D activities. Engaging in production R&D may permit custom-order manufacture at an efficient cost, provide wider product variety and selection through product "versioning," or improve product qual- ity. Many manufacturers have developed flexible manufacturing systems that allow different models and product versions to be made on the same assembly line. Being able to provide buyers with made-to-order products can be a potent differentiating capability.CHAPTER 5 The Five Generic Competitive Strategies 131 FIGURE 5.3 Value Drivers: The Keys to Creating a Differentiation Advantage Quality Product control features and Customer services processes performance Sales and VALUE Production marketing DRIVERS R&D Employee Technology skill, training. Input quality and experience innovation Source: Adapted from Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985). A. Strive for innovation and technological advances. Successful innovation is the route to more frequent first-on-the-market victories and is a powerful differ- entiator. If the innovation proves hard to replicate, through patent protection or other means, it can provide a company with a first-mover advantage that is sustainable. 5. Pursue continuous quality improvement. Quality control processes reduce product defects, prevent premature product failure, extend product life, make it economi- cal to offer longer warranty coverage, improve economy of use, result in more end-user convenience, or enhance product appearance. Companies whose qual- ity management systems meet certification standards, such as the ISO 9001 stan- dards, can enhance their reputation for quality with customers. 6. Increase marketing and brand-building activities. Marketing and advertising can have a tremendous effect on the value perceived by buyers and therefore their will- ingness to pay more for the company's offerings. They can create differentiation even when little tangible differentiation exists otherwise. For example, blind taste tests show that even the most loyal Pepsi or Coke drinkers have trouble telling one cola drink from another.* Brands create customer loyalty, which increases the perceived "cost" of switching to another product. 7. Seek out high-quality inputs. Input quality can ultimately spill over to affect the performance or quality of the company's end product. Starbucks, for example, gets high ratings on its coffees partly because it has very strict specifications on the coffee beans purchased from suppliers.PART 1 Concepts and Techniques for Crafting and Executing Strategy 8. Emphasize human resource management activities that improve the skills, exper- rise, and knowledge of company personnel. A company with high-caliber intel- lectual capital often has the capacity to generate the kinds of ideas that drive product innovation, technological advances, better product design and product performance, improved production techniques, and higher product quality. Well- designed incentive compensation systems can often unleash the efforts of talented personnel to develop and implement new and effective differentiating attributes. Revamping the Value Chain System to Increase Differentiation Just as pursuing a cost advantage can involve the entire value chain system, the same is true for a differentiation advantage. Activities performed upstream by suppliers or downstream by distributors and retailers can have a meaningful effect on customers' perceptions of a company's offerings and its value proposition. Approaches to enhanc ing differentiation through changes in the value chain system include: . Coordinating with channel allies to enhance customer value. Coordinating with downstream partners such as distributors, dealers, brokers, and retailers can con- tribute to differentiation in a variety of ways. Methods that companies use to influ- ence the value chain activities of their channel allies include setting standards for downstream partners to follow, providing them with templates to standardize the selling environment or practices, training channel personnel, or cosponsoring pro- motions and advertising campaigns. Coordinating with retailers is important for enhancing the buying experience and building a company's image. Coordinating with distributors or shippers can mean quicker delivery to customers, more accu- rate order filling, and/or lower shipping costs. The Coca-Cola Company considers coordination with its bottler-distributors so important that it has at times taken over a troubled bottler to improve its management and upgrade its plant and equip- ment before releasing it again." . Coordinating with suppliers to better address customer needs. Collaborating with suppliers can also be a powerful route to a more effective differentiation strategy. Coordinating and collaborating with suppliers can improve many dimensions affect- ing product features and quality. This is particularly true for companies that engage only in assembly operations, such as Dell in PCs and Ducati in motorcycles. Close coordination with suppliers can also enhance differentiation by speeding up new product development cycles or speeding delivery to end customers. Strong relation- ships with suppliers can also mean that the company's supply requirements are pri- oritized when industry supply is insufficient to meet overall demand. Delivering Superior Value via a Broad Differentiation Strategy Differentiation strategies depend on meeting customer needs in unique ways or creat- ing new needs through activities such as innovation or persuasive advertising. The objective is to offer customers something that rivals can't-at least in terms of the level of satisfaction. There are four basic routes to achieving this aim. The first route is to incorporate product attributes and user features that lower the buyer's overall costs of using the company's product. This is the least obvious and most overlooked route to a differentiation advantage. It is a differentiating factor since it can help business buyers be more competitive in their markets and more profitable. Producers of materials and components often win orders for their products by reducingCHAPTER 5 The Five Generic Competitive Strategies 133 a buyer's raw-material waste (providing cut-to-size components), reducing a buyer's inventory requirements (providing just-in-time deliveries), using online systems to reduce a buyer's procurement and order processing costs, and providing free techni- cal support. This route to differentiation can also appeal to individual consumers who are looking to economize on their overall costs of consumption. Making a company's product more economical for a buyer to use can be done by incorporating energy- efficient features (energy-saving appliances and lightbulbs help cut buyers' utility bills; fuel-efficient vehicles cut buyer costs for gasoline) and/or by increasing maintenance intervals and product reliability to lower buyer costs for maintenance and repairs. A second route is to incorporate tangible features that increase customer satisfac tion with the product, such as product specifications, functions, and styling. This can be accomplished by including attributes that add functionality; enhance the design; save time for the user, are more reliable; or make the product cleaner, safer, quieter, simpler to use, more portable, more convenient, or longer-lasting than rival brands. Smartphone manufacturers are in a race to introduce next-generation devices capable of being used for more purposes and having simpler menu functionality. A third route to a differentiation-based competitive advantage is to incorporate intangible features that enhance buyer satisfaction in noneconomic ways. Toyota's Differentiation can be Prius appeals to environmentally conscious motorists not only because these driv- based on tangible or ers want to help reduce global carbon dioxide emissions but also because they intangible attributes. identify with the image conveyed. Bentley, Ralph Lauren, Louis Vuitton, Burberry, Cartier, and Coach have differentiation-based competitive advantages linked to buyer desires for status, image, prestige, upscale fashion, superior craftsmanship, and the finer things in life. Intangibles that contribute to differentiation can extend beyond product attributes to the reputation of the company and to customer relations or trust. The fourth route is to signal the value of the company's product offering to buyers. Typical signals of value include a high price (in instances where high price implies high quality and performance), more appealing or fancier packaging than competing products, ad content that emphasizes a product's standout attributes, the quality of brochures and sales presentations, and the luxuriousness and ambience of a seller's facilities (important for high-end retailers and for offices or other facilities frequented by customers). They make potential buyers aware of the professionalism, appearance, and personalities of the seller's employees and/or make potential buyers realize that a company has prestigious customers. Signaling value is particularly important (1) when the nature of differentiation is based on intangible features and is therefore subjective or hard to quantify, (2) when buyers are making a first-time purchase and are unsure what their experience with the product will be, (3) when repurchase is infrequent, and (4) when buyers are unsophisticated. Regardless of the approach taken, achieving a successful differentiation strategy requires, first, that the company have capabilities in areas such as customer service, marketing, brand management, and technology that can create and support differen- tiation. That is, the resources, competencies, and value chain activities of the com- pany must be well matched to the requirements of the strategy. For the strategy to result in competitive advantage, the company's competencies must also be sufficiently unique in delivering value to buyers that they help set its product offering apart from those of rivals. They must be competitively superior. There are numerous examples of companies that have differentiated themselves on the basis of distinctive capabilities. Health care facilities like M.D. Anderson, Mayo Clinic, and Cleveland Clinic have specialized expertise and equipment for treating certain diseases that most hospitals and health care providers cannot afford to emulate. When a major news event occurs,PART 1 Concepts and Techniques for Crafting and Executing Strategy many people turn to Fox News and CNN because they have the capabilities to get reporters on the scene quickly, break away from their regular programming (without suffering a loss of advertising revenues associated with regular programming), and devote extensive air time to newsworthy stories. The most successful approaches to differentiation are those that are difficult for rivals to duplicate. Indeed, this is the route to a sustainable differentiation advan- tage. While resourceful competitors can, in time, clone almost any tangible product attribute, socially complex intangible attributes such as company reputation, long-standing relationships with buyers, and image are much harder to imitate. Differentiation that creates switching costs that lock in buyers also provides a route to sustainable advantage. For example, if a buyer makes a substantial investment in learning to use one type of system, that buyer is less likely to switch to a competi- tor's system. (This has kept many users from switching away from Microsoft Office products, despite the fact that there are other applications with superior features.) As a rule, differentiation yields a longer-lasting and more profitable competitive edge when it is based on a well-established brand image, patent-protected product innovation, complex technical superiority, a reputation for superior product quality and reliability. relationship-based customer service, and unique competitive capabilities. When a Differentiation Strategy Works Best Differentiation strategies tend to work best in market circumstances where: . Buyer needs and uses of the product are diverse. Diverse buyer preferences allow industry rivals to set themselves apart with product attributes that appeal to par- ticular buyers. For instance, the diversity of consumer preferences for menu selec- tion, ambience, pricing, and customer service gives restaurants exceptionally wide latitude in creating a differentiated product offering. Other industries with diverse buyer needs include magazine publishing, automobile manufacturing, footwear, and kitchen appliances. There are many ways to differentiate the product or service that have value to buy- ers. Industries in which competitors have opportunities to add features to products and services are well suited to differentiation strategies. For example, hotel chains can differentiate on such features as location, size of room, range of guest ser- vices, in-hotel dining, and the quality and luxuriousness of bedding and furnish- ings. Similarly, cosmetics producers are able to differentiate based on prestige and image, formulations that fight the signs of aging, UV light protection, exclusivity of retail locations, the inclusion of antioxidants and natural ingredients, or pro- hibitions against animal testing. Basic commodities, such as chemicals, mineral deposits, and agricultural products, provide few opportunities for differentiation. . Few rival firms are following a similar differentiation approach. The best differ- entiation approaches involve trying to appeal to buyers on the basis of attributes that rivals are not emphasizing. A differentiator encounters less head-to-head rivalry when it goes its own separate way in creating value and does not try to out-differentiate rivals on the very same attributes. When many rivals base their differentiation efforts on the same attributes, the most likely result is weak brand differentiation and "strategy overcrowding"-competitors end up chasing much the same buyers with much the same product offerings. . Technological change is fast-paced and competition revolves around rapidly evolving product features. Rapid product innovation and frequent introductions of next-version products heighten buyer interest and provide space for companiesCHAPTER 5 The Five Generic Competitive Strategies 135 to pursue distinct differentiating paths. In smartphones and wearable Internet devices, drones for hobbyists and commercial use, automobile lane detection sensors, and battery-powered cars, rivals are locked into an ongoing battle to set themselves apart by introducing the best next-generation products. Companies that fail to come up with new and improved products and distinctive performance features quickly lose out in the marketplace. Pitfalls to Avoid in Pursuing a Differentiation Strategy Differentiation strategies can fail for any of several reasons. A differentiation strat- Any differentiating feature egy keyed to product or service attributes that are easily and quickly copied is that works well is a magnet always suspect. Rapid imitation means that no rival achieves differentiation, since for imitators. whenever one firm introduces some value-creating aspect that strikes the fancy of buyers, fast-following copycats quickly reestablish parity. This is why a firm must seek out sources of value creation that are time-consuming or burdensome for rivals to match if it hopes to use differentiation to win a sustainable competitive edge. Differentiation strategies can also falter when buyers see linle value in the unique attributes of a company's product. Thus, even if a company succeeds in setting its product apart from those of rivals, its strategy can result in disappointing sales and profits if the product does not deliver adequate value to buyers. Anytime many poten- tial buyers look at a company's differentiated product offering with indifference, the company's differentiation strategy is in deep trouble. The third big pitfall is overspending on efforts to differentiate the company's prod- uci offering, thus eroding profitability. Company efforts to achieve differentiation nearly always raise costs-often substantially, since marketing and R&D are expen- sive undertakings. The key to profitable differentiation is either to keep the unit cost of achieving differentiation below the price premium that the differentiating attributes can command (thus increasing the profit margin per unit sold) or to offset thinner profit margins per unit by selling enough additional units to increase total profits. If a company goes overboard in pursuing costly differentiation, it could be saddled with unacceptable low profits or even losses. Other common mistakes in crafting a differentiation strategy include: . Offering only trivial improvements in quality, service, or performance features vis-a-vis rivals' products. Trivial differences between rivals' product offerings Over-differentiating and may not be visible or important to buyers. If a company wants to generate the overcharging are fatal fiercely loyal customer following needed to earn superior profits and open up a differentiation strategy mistakes. differentiation-based competitive advantage over rivals, then its strategy must A low-cost provider strategy result in strong rather than weak product differentiation. In markets where dif- can defeat a differentiation ferentiators do no better than achieve weak product differentiation, customer strategy when buyers loyalty is weak, the costs of brand switching are low, and no one company has are satisfied with a basic enough of a differentiation edge to command a price premium over rival brands. product and don't think Over-differentiating so that product quality, features, or service levels exceed "extra" attributes are worth the needs of most buyers. A dazzling array of features and options not only a higher price drives up product price but also runs the risk that many buyers will conclude that a less deluxe and lower-priced brand is a better value since they have little occasion to use the deluxe attributes. Charging too high a price premium. While buyers may be intrigued by a product's deluxe features, they may nonetheless see it as being overpriced relative to the value delivered by the differentiating attributes. A company must guard against136 PART 1 Concepts and Techniques for Crafting and Executing Strategy turning off would-be buyers with what is perceived as "price gouging." Normally, the bigger the price premium for the differentiating extras, the harder it is to keep buyers from switching to the lower-priced offerings of competitors. FOCUSED (OR MARKET NICHE) STRATEGIES What sets focused strategies apart from low-cost provider and broad differentia- tion strategies is concentrated attention on a narrow piece of the total market. The target segment, or niche, can be in the form of a geographic segment (such as New England), or a customer segment (such as urban hipsters), or a product segment (such as a class of models or some version of the overall product type). Community Coffee, the largest family-owned specialty coffee retailer in the United States, has a geo- graphic focus on the state of Louisiana and communities across the Gulf of Mexico. Community holds only a small share of the national coffee market but has recorded sales in excess of $100 million and has won a strong following in the 20-state region where its coffee is distributed. Examples of firms that concentrate on a well-defined market niche keyed to a particular product or buyer segment include Zipcar (car rental in urban areas), Airbnb and VRBO (by-owner lodging rental), Comedy Cen- tral (cable TV), Blue Nile (online jewelry), Tesla Motors (electric cars), and CGA, Inc. (a specialist in providing insurance to cover the cost of lucrative hole-in-one prizes at golf tournaments). Microbreweries, local bakeries, bed-and-breakfast inns, and retail boutiques have also scaled their operations to serve narrow or local cus- tomer segments. A Focused Low-Cost Strategy A focused low-cost strategy aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those of rival competitors. This strategy has considerable attraction when a firm can lower costs sig- nificantly by limiting its customer base to a well-defined buyer segment. The avenues to achieving a cost advantage over rivals also serving the target market niche are the same as those for low-cost leadership-use the cost drivers to perform value chain activities more efficiently than rivals and search for innovative ways to bypass non- essential value chain activities. The only real difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group to which a company is appealing-the former involves a product offering that appeals broadly to almost all buyer groups and market segments, whereas the latter aims at just meeting the needs of buyers in a narrow market segment. Focused low-cost strategies are fairly common. Producers of private-label goods are able to achieve low costs in product development, marketing, distribution, and advertising by concentrating on making generic items imitative of name-brand mer- chandise and selling directly to retail chains wanting a low-priced store brand. The Perrigo Company has become a leading manufacturer of over-the-counter health care products, with 2014 sales of over $4 billion, by focusing on producing private-label brands for retailers such as Walmart, CVS, Walgreens, Rite Aid, and Safeway. Budget motel chains, like Motel 6, Sleep Inn, and Super 8, cater to price-conscious travelers who just want to pay for a clean, no-frills place to spend the night. Illustration Capsule 5.2 describes how Clinicas del Azucar's focus on lowering the costs of diabetes care is allowing it to address a major health issue in Mexico