Introduction to Niche Market Strategy
Niche Market Strategy consists of a large number of potential buyers who are diversified, spread out geographically, differ in their income, social status and educational achievements. Naturally, many companies devise products or services that cater to a wide audience or intended to please a large group of people and such kind of activity is called mass marketing.
The advantage many see in targeting the mass market in any product category is that the market is huge, and they say even if three to five percent of the market share can be achieved, it would be sufficient to run the business profitably. However, considering the huge market size, there could be many players with their own strengths and weaknesses that it may not be easy to corner even a small share of it. A huge ad may be required to get noticed in a crowded market even if it is large and diversified.
It is therefore not surprising that many existing and new businesses enter into a more narrow market called niche market strategy. It is called niche marketing. The niche market strategy may be small in size compared to its larger counterpart, but competition could be lesser, marketing can be more focused and hence easier to develop business.
According to Linda Falkenstein, author of Nichecraft: Using your specialness to Focus Your Business, Corner Your Market and Make Customers Seek You Out quoted in Entrepreneur.com, a niche market strategy does not appear or develop on its own; it has to be skillfully created by an entrepreneur. There is niche markets in B2B (Business to Business) market as well as consumer (B2C) markets. Even big businesses focus on a niche market- for example, Walmart focuses on bargain-minded buyers while Rolex focuses on the upmarket profiles.
Experts point out that both established businesses, as well as new businesses, can find a niche market strategy to grow and prosper. Geoff Dillon, a marketing communications professional based in Toronto, had written a decade ago that a strong position in a niche market strategy is much better than a weak position in a large or mass market.
Defining Your Niche Market Strategy
Following are some niche market strategies:
1. Identifying the target audience (niche market benefits)
You have decided to target a specific audience, and it is not the mass market. From then on, the challenge is to identify the age group, geographical region, the needs the product will cater to, their social status and related parameters. Here we have to be very specific, according to Linda Falkenstein. And our statements should not be vague such as teenagers, young women, young men, kids or the American fast-food market, or rich businessmen looking for real estate investments.
In the case of B2B business, IT marketing firms, financial services industry, automotive industry all appear too generic and hence not capable of being classified as a niche market. Automobile car companies selling low-cost electric cars in China may be a good way to define niche market benefits. Likewise, girls in metro cities in India wearing premium jeans in the 13-16 age group with low waist features is a more accurate picture of the target market than teenage girls preferring western-style garments.
2. How to choose the focus area (niche market benefits)
Once the target audience has been identified, we now need to develop the focus area, and the description should not be too general. Many people do the mistake of identifying the most profitable or the high-growth industries. A pharmaceutical marketing professional with a decade of experience may not possibly do well in starting a pharma manufacturing unit or a pharma retailing unit. His skill set lies in marketing and hence would do well if he sources medicines from manufacturers and sells under his own brand name. Here again, if the attempt is to target all medical specialties, investment and risks are higher. If the focus is only on cardiac drugs or neuro-psychiatry drugs, the focus is narrowed and hence easier to develop the market. It all depends on the domain knowledge and experience of the entrepreneur.
Many people rush into domains not familiar to them, and the only reason for them to try it out is that it is showing high growth in revenues and return on investment. Trends could change fast and by the time the new company establishes itself the positive trend in the niche industry may have changed.
Moreover, a successful trader who suddenly jumps into IT or software bandwagon just because it’s hot may burn his fingers because of the lack of domain knowledge and expertise. Such a person would be fully dependent on someone else to run the business from start and hence more likely to be leaders in the wrong direction or likely to be cheated.
Falkenstein emphasizes the importance of entrepreneur’s to create a checklist of their core competencies before venturing into something new. They have to identify their skills, what work they do best, knowledge area, achievements, and important lessons learned in life. Interest, experience are key factors in the success of a new venture.
3. Identify the needs of the customer (niche market benefits)
There is a famous business paradigm for success- identify a need and fill it. Most of the success stories in business emerge from a keen sense to identify a problem and provide the solution. It applies to the software industry where anti-virus software emerged to fill a need to delete viruses or Trojans that corrupt files or hamper the working of a Personal Computer.
There are various ways to identify the needs of consumers- market surveys, informal talk with potential customers, and secondary data. There are research houses that publish market surveys on niche market strategy areas, and it could be a good starting point to identify your target audience. Sometimes the best method would be to talk directly to customers.
Initially, there were only photocopiers, then multi-function electronic devices that have the fax, copier, printer, and scanner rolled into one as businesses started looking for a single device that can do all office functions.
In India, the popular toothpaste of today was initially in powder format, but the identification of the need to have a convenient paste format in sealed tubes opened a new market which has now surpassed tooth powders and other forms of teeth cleaning solutions.
4. Look for ignored consumers (niche market benefits)
There could be some target markets that are not covered by existing
Mass marketers and they can be the focus area for niche marketing. For example, if no vendor or grocer is delivering fruits and vegetables or cooked food in a particular region, there is a good opportunity to provide such services if there is a genuine need felt by the people living there. If it is composed of elderly people living in high rise residential flats, the requirement for home delivery of daily use food and groceries may be higher. Similarly, most health and fitness centers cater to the young; if a particular locality has more elderly people looking for exercise and fitness, a wellness center focused on the elderly would gain business.
Many real estate players may ignore first-time buyers looking for affordable but cozy housing. And if there are no such service providers in a city, the focus could be on this small segment where the company can corner more than 80% of the market share although the larger real estate market catering to all categories may look more appealing.
5. Synthesize the attributes (niche market benefits)
Once the entrepreneur identifies the target audience, the attributes, and the need it fulfills for the customer, they still need to synthesize the qualities of the new product or business, according to Falkenstein.
It should conform to the long-term vision set by the entrepreneur, there is a genuine need for the product, the strategy has been carefully chalked out, the product or service is unique in the market, there is the possibility of developing new products around it even while retaining the core niche market strategy already identified to begin a business.
6. Evaluation (niche market benefits)
Once the blueprint for the product is ready, and the target audience is identified, the next step is to evaluate the synthesizing criteria listed above. Does it conform to the qualities listed, and if it fails in a few of them, it is better to scrap the product and try something new? The evaluation should enable the businesses to make the right decisions and not be driven by pure hearsay, intuition and popular perception about a market that may not be true.
7. Test marketing (niche market benefits)
Many large companies introduce a new product in select markets, gauge audience response and feedback from sellers before going ahead with the full production of the product or launch of a service. In test marketing, a select group of customers is getting an opportunity to buy and use the product. In many cases, big companies resort to giving samples free of cost or take part in trade fairs to gauge market response. Or they could hold mini-seminars to introduce a product and generate feedback from the selected users of the product. Once the feedback is received, it has to be evaluated and necessary changes made.
8. Implementing the idea in the market (niche market benefits)
The final stage in the niche market strategy entry process is the actual introduction of the product in the market. If it is a beauty product sold through pharma retail outlets, sufficient quantities have to be produced, orders collected from retailers, or work closely with distributors to introduce the product in the market. According to Falkenstein, this is the most crucial phase of niche marketing. He says if sufficient homework has been done, the launching of the product is only calculated risk.
Niche marketing has several advantages over mass marketing and especially for new businesses who are not awash in cash. The niche market player is more like a big fish in a small pond, while a corporate entity in a large market is more likely to be a small fish in a big pond If there are a large number of competitors.
Since the product focused on niche market strategy are tailored to the needs of the small group it is addressing, the product could make an impact on the market as there is a strong reason for people to buy. A strong position in the niche market helps a company to defend its position and enter a new niche market. On the other hand, the mass market will attract more players and competition intensifies giving a smaller pie for existing players.
Organic growth is possible in the niche market as consumers will spread by word of mouth the good qualities of the product and refer it to others.
According to marketing experts, a defined market position that targets niche market benefits is a sure formula for success that ensures short-term prospects, cash flow, and potential for long-term business maturation beyond the initial niche position.
The first-time entrepreneurs in niche markets need to be self-motivated, goal-setters who have the will and positivity to succeed against all odds in the market. Most often, there is no precedence for the product or service as it would be a new idea. Hence, the success of the business would depend on the homework, calculated risks taken.
A niche market benefits can be developed in any industry category, be it finance, tourism, information technology, beauty and fitness, health, agro-processing, food processing, manufacturing, electronics, electrical engineering and so on.
In recent years, eco-friendly resorts in tourism, organic products in agriculture, Enterprise Resource Planning (ERP) in IT, dance-based fitness programs in the wellness industry are all good examples of successful niche market benefits segments created.
The ultimate test of a niche market benefits product is how helpful it is for consumers. According to Dixie Gillaspie, writer and coach, the more the product helps your buyers, the more they consume, the more they refer, and the more likely they will be willing to pay more for it. Niche marketers now can increasingly use the web, social media, and other digital platforms to get their messages across to the audience. And compared to traditional media, the return on investment in such new media is better, marketing experts said.
This has been a guide to Niche Market Strategy. Here we discuss basic concepts some niche market strategies with a detailed explanation. You may also look at the following articles to learn more –