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techniques for estimating benefits falls within the domain of demand estimation in economics and marketing research. Some of the most important techniques are discussed in the Appendix to this chapter.

STRATEGIC POSITIONING: BROAD COVERAGE

VERSUS FOCUS STRATEGIES

The pursuit of cost leadership or benefit leadership relates to the broad issue of how the firm will create economic value. A second key positioning issue is where the firm will seek to create value. In particular, will a firm seek to create value across a broad scope of market segments, or will it focus on a narrow set of segments?

Segmenting an Industry

Nearly every industry can be broken down into smaller pieces known as segments. Figure 9.11 illustrates what Michael Porter terms an industry segmentation matrix. The industry segmentation matrix shows that any industry can be characterized by two

FIGURE 9.11

Industry Segmentation Matrix

Industry segment:

Differences among segments arise due to differences in buyer economics, supply conditions, and segment size.

Customer Groups

Product Varieties

An industry segmentation matrix characterizes the industry along two dimensions: the variety of products that industry participants offer for sale and the different types of buyers that purchase those products.

Source: This figure is adapted from Hall, W. K., “Survival Strategies in a Hostile Environment.” Harvard Business Review, September–October 1980, pp. 75–85.

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in the steel fabrication industry, the fabrication of structural steel members (the cutting and welding of girders, beams, and so forth for use in construction projects) is a relatively unattractive segment since barriers to entry are relatively low. By contrast, the fabrication of metal plate products (e.g., the cutting and bending of steel pieces that are used to construct vats and tanks) has traditionally been more attractive because engineering know-how and product quality are important differentiators of firm success.

Broad Coverage Strategies

A broad coverage strategy seeks to serve all customer groups in the market by offering a full line of related products. For example, Gillette offers a full line of shaving products, including razors, shaving cream, and after-shave lotions. Frito-Lay also follows a broad coverage strategy, offering a full line of high-calorie and “light” snacks as well as condiments. Mexican retailer Controladora Comercial Mexicana (CCM) pursues a different kind of broad coverage strategy, with stores ranging in size from small bodegas (similar to American 7-11 stores) to hypermarts that rival the largest Wal-Mart stores. The economic logic behind a broad coverage strategy is the existence of economies of scope across product classes. These economies of scope might come from common production facilities or components, shared distribution channels, or marketing.

Focus Strategies

A firm with a focus strategy either offers a narrow set of product varieties or serves a narrow set of customers, or does both. Figure 9.13 uses industry segmentation matrices to illustrate a number of common focus strategies.

This figure illustrates three common focus strategies: customer specialization, product specialization, and geographic specialization. Under customer specialization, the firm offers an array of related products to a limited class of customers. Under product specialization, the firm produces a limited set of product varieties for a potentially wide class of customers. Under geographic specialization, the firm offers a variety of related products within a narrowly defined geographic market.

A firm that practices customer specialization offers an array of related products to a limited class of customers. An example would be a firm that produces and sells industrial process control systems and related devices, such as valves, flowmeters, and recording instruments, to a particular class of buyers such as petroleum refiners. The ability of a customer-specialized focuser to create extra economic value relative to a broad-coverage competitor rests on the extent to which broad-coverage competitors underserve or overserve the focuser’s target customer group. For example, Microsoft’s word processing software (Word) underserves the needs of authors who prepare technical manuscripts that include lots of mathematical symbols and expressions. These underserved customers created an opportunity for a focused software competitor, TCI Software Research, to offer a word processing product (Scientific Word) that is tailored to the needs of academic researchers who write technical manuscripts. In contrast, airlines such as United and American overserve leisure travelers who do not highly value frequent-flier programs, airport lounges, and other perks offered to business travelers. These perks drive up costs, allowing carriers like Southwest and JetBlue to target leisure travelers.