Question

The risks of a focused strategy based on either low-cost or differentiation include the:

A. chance that niche customers will bargain more aggressively for good deals than customers in the overall marketplace.
B. potential for the preferences and needs of niche members to shift over time toward product attributes desired by buyers in the mainstream portion of the market.
C. potential for the segment to be highly vulnerable to economic cycles.
D. potential for segment growth to race beyond the production or service capabilities of incumbent firms.
E. potential for the segment to become too specialized for other multi-segmented rivals to enter.

Answer 1

The risks of pursuing a low-cost or differentiation focused strategy include outpaced segment growth beyond incumbent firms' capabilities, and over-specialization that deters multi-segment rivals from entering.

Step-by-step explanation:

The question explores the risks associated with employing a focused strategy based on low-cost or differentiation. One risk is the potential for segment growth to outpace the production or service capabilities of companies currently dominating the segment, potentially limiting their ability to capitalize on that growth. Another risk is the chance for the segment to become highly specialized, making it difficult for competitors that operate across multiple segments to enter and compete effectively.

Competition plays a crucial role in business dynamics. When firms introduce better or cheaper products, the profitability of existing businesses can decrease, potentially leading to their exit from the market. This competitive pressure could result in income loss or job loss for workers within those businesses.

The concept of core competency suggests that focusing on a few products offers a competitive advantage. However, this focus can become a liability if the market changes rapidly and the business cannot adapt quickly because of its narrow specialization.