Question

What is a market niche? Discuss the strategies and risks associated with this competitive position. Give an example in your answer.

Answer 1

Definition:

Niche marketing is defined as channeling all marketing efforts towards one well-defined segment of the population. There is one important thing to understand that ‘niche’ does not exist, but is created by smart marketing techniques and identifying what the customer wants.

Niche marketing is a marketing tactic deployed to target a specific market segment which is unique. Niche market is often created by identifying what a customer wants and this can be done if the company knows what the customer needs and then tries to deliver a better solution to a problem which was not presented by other firms. A niche market does not mean a small market, but it involves specific target audience with a specialized offering. By doing so, the company becomes a market leader and it becomes possible for other firms to enter that particular segment. For example, there are various cinema halls across India, but there are few which have recliner seats to offer. Not everybody wants to watch a movie by paying 5x-6x times the cost of a normal ticket. Hence, the target audience is very different and the hall is also only open at places where the company feels that it would be able to tap into target audience especially in posh areas.

There are various advantages of niche marketing. One of the benefits of niche market is that there is no or little competition under that segment. The company is virtually the market leader and enjoys price monopoly. The another benefit is the strong relationship with the customers because of the fact that the company operates in a small segment, the relationship between the company and the brand becomes stronger which is also a key to customer loyalty. Niche businesses are often high margin business. Customers do not mind paying a little extra because, they are only able to get that service in that company or under its brand.

Example: Toyota, a large car manufacturer, often uses niche marketing strategies. Toyota launched Prius, which targeted environment friendly customers. It also targeted the media (environmental groups and their publications) that mainly targeted the people concerned about the environment.

Strategies:

A)The first strategy I want to discuss has to do with the offer itself. This strategy is all about differentiating the product or service so that it’s unique in some way.

Imagine you want to open up an aquarium shop for example. If you live in a small town, and the competition is low, you could probably get away with selling ‘regular fish’ and related products. Awesome.

But if you’re operating in a city full of competition, you could definitely apply a niche marketing strategy. In this case, you may identify that people are interested in ‘exotic salt water aquariums’ and target your business to suite this specific audience. The audience will obviously be smaller. But they are also willing to pay a higher price to get access to an ‘expert’ in exotic salt water aquariums. So your marketing is going to be a lot more relevant, and you are going to attract an audience who is willing to buy.

So in this example, it’s the offer itself that we are differentiating based on a need or want. And this is how we are able to successfully target a specific niche within a broader, more competitive niche.

B)This example is relatively simple. You price your products to suite a specific niche market.

Say the overall market is ‘home furniture’ for example. Using this niche marketing strategy you could open up a discount furniture store or a premium furniture store. The first approach will likely result in a higher volume of sales, while the latter will result in a higher profit per sale.

In this case, people looking for cheap furniture are on a budget and just need something suitable. People going to a premium furniture store however, are looking for extra comfort and status.

This is why you would always avoid using lower price points in the premium store. Because doing so can affect the consumer’s perception of the ‘premium brand’. Which is a big deal if you want to continue attracting the right people and continue getting top dollar.

So as you can see, price can be an effective strategy to target a niche audience.

C) This strategy involves targeting an audience based on things such as demographics, interests and lifestyle. This is where you really need to understand the buyers within a given market, so you can break it down into smaller segments.

Take the broader “inexpensive getaways” market for example. Using a niche marketing strategy allows you to break this niche down into much more relevant segments. You could offer a younger demographic a thrill seeking adventure getaway, target a romantic getaway at newly weds, or a relaxing and scenic tour for older folks.

Anyone, at any age, can enjoy these activities. Yes. But it goes without saying that different demographics will be naturally more interested in different activities.

So by targeting these groups specifically within your marketing strategy, you are going to attract that audience at a much higher rate. Doing so will also position you as the ‘authority’ in that space and can ultimately result in a much more profitable business.

Risks:

1. The niche marketing strategy may not be suitable for long-term marketing, as niches may not give adequate business.

2. The niche markets may be invaded by large companies, and small marketers may find it difficult to compete.

3. A firm’s survival chances may decrease if it depends solely on niche.