The more focused a business is, the more powerful that business and brand becomes in its respective category providing a very strong competitive advantage.
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This concentration effect helps businesses concentrate all of their resources on focusing on a single product category or a single market. Firms that have the strongest concentration effect within a specific market are often the market leaders within that market. Knowing that focus and concentration effect are important, just how focused and concentrated should your business be?
Looking at the food industry, we can see some wildly successful firms that became successful because of their ability to focus on a single product category that provided them with the greatest concentration effect in their respective categories. No other firms can displace these leading companies in their respective categories because of how strong their concentration effects are. Looking at some of the leading restaurants, we can see just how focused and how strong their concentration effects are;
1. Cinnabon – focuses on selling cinnamon rolls
2. Subway – focuses on selling only subs
3. Noodles & Co. – focuses on selling only noodle dishes in its restaurants
4. Jamba Juice – focuses on only selling fruit smoothies
5. Starbucks – focuses on selling premium coffees
6. Buffalo Wild Wings – focused on selling buffalo wings
The one common factor among these leading brands is their ability to focus on the food category in which they started. Backed by strong marketing initiatives and fast expansion, these food companies have built nearly unmovable competitive advantages in their respected categories. But what would happen if Cinnabon started selling hamburgers and was now competing with McDonalds, Burger King, and Wendy's or if Jamba Juice started trying to sell and promote ice cream in their stores? Not only do those products not fit with the companies overall food offerings, but more importantly those companies lose their concentration effect on the foods and products that make them successful today.
Firms need to expand and often times they take the path to least resistance by expanding their product offerings into new markets, however if those expansions do not fit with the current product offering, they dilute their concentration effect. One recent example of this expansion flaw is with Lululemon.
Lululemon is a rapidly growing women's yoga clothing retailer. In its latest investor presentation, Lululemon states that it was "founded to address a void in the women's athletic apparel market". Further, they state that Lululemon is an "Iconic brand representing health and women". It is clear to me based on my perception of Lululemon backed by the description of Lululemon by Lululemon that they are a women's clothing company. This is why I was shocked to see a men's section in the Lululemon store that I walked into the other day with my wife.
Even big firms go astray, but as an entrepreneur you cannot afford the cost of straying from your core value proposition. Stay true to your focus and build as strong a concentration effect as you can in a product or service category that is not currently being dominated by one of your competitors. The stronger you build that concentration effect in that category, the greater your competitive advantage will be and ultimately the greater your success.