Many businesses think that by focusing on specialty products they will become a "niche operator." and that there is something inherently profitable about a "niche business." Finding and creating a successful niche is a more difficult and dynamic challenge than most think. The guidelines which follow may help to further explain the what, why and hows of niching.
What is a Niche?
- It is a target market which has needs sufficiently different from a broader market that a firm employing a focused, specialized strategy can achieve a low-cost and/or a unique capability for servicing that market.
- Although often smaller in size than the general market, there is not necessarily a size constraint (e.g.: IBM in mainframes up until 1986) or a geographic limit (Rolls Royce has a global niche).
- It should not be likely to be absorbed into a broad line supply situation like PC's and laptop computers have been.
- It should be a lasting opportunity (supercomputers) and not a fad (wine coolers) with lower barriers to entry.
- Ultimately, it should be a game that you can win and be a dominant No. 1 or a strong No. 2; otherwise, re-define the boundaries to create a game you can win.
Why is niching possible and preferable?
As the free world-economy grows wealth, human beings identify more micro-needs (niches). As economic trade expands, it also becomes more competitive for the 80% (+) of all purchases which are mature commodities in the eyes of experienced repeat buyers. You can:
- Go after volume commodities as a low-cost, high-volume, acceptable service leader selling on price to large or thrifty customers. Competitors with the most capital or ego always think they can win; this is a tough game for firms that are private, profit-oriented or risk-adverse.
- Strive to be the best service supplier and risk not getting paid for it, because strip-n-shoppers are successful or service is desirable but just unaffordable.
- Or you can find a new niche with no competition and win that game.
How Do you Niche? Skills That Are Generally Necessary:
- Get good at marketing.
Look at the 4 C's (Customer, Cost, Channel, Competition) and the 3 P's (Product, Price, Promotions). Whether you start with a customer need or a product-solution looking for a need, analyze all of the other C's and P's to make sure they are included and consistent with one another.
- Value is a customer perception
You must identify your target customers and know them and their important needs. Meet the critical one(s) perfectly.
- Focus on market creation
- This means filling un-met (existing, articulated) needs instead of trying to win market share from entrenched, existing competitors.
- Each environmental change can cause new niche possibilities.
- Rapid industry growth creates general or sub-segmented niches.
- Lazy, un-focused, or volume-oriented firms abandon niches, unintentionally; exploit their carelessness.
- You must think, act, and move like an entrepreneur, not a shopkeeper or a try-harder traditionalist. Small firms are inherently faster and more flexible for doing this, but most won't change.
- Add service-value to commodities.
Even more training may be needed to be able to sell the added values. Keep focused on:
- The benefits of basic service value.
- Insuring great service encounters.
- Selling the benefits of supply systems that reduce total procurement cost.
- Sell Value to Value-needers and Buyers.
Structure and protect against aggressive strip-n-shop value buyers. Don't bother with the (5%-10%) pure price-buyers. Most ad copy is selling price on generic products instead of special benefits on specialty items for total purchasing or usage value.
- Constantly improve standards.
- Newer, better, faster, prettier, etc. - always sells to about a third of all buyers - the "what's-new crowd."
- Faster service - credit check; cash-em-out; delivery, etc., - seems at first unnecessary, but customers then begin to expect and "need" it.
- List every differentiable element you now have and rate it against competitors; improve the ones that matter to your target customers.
- Be forward-looking and listening. Know and change with the "living edge" of customer needs and expectations. Don't be preoccupied with selling volumes of yesterday's products and services. Be quality-and-profit-growth oriented.
How Do You Look for Niches Appropriate for You?
- Be realistic: You can't be good at everything in an exploding technology/changing world. Downsize, out-source all peripheral activities and focus, specialize, persist and excel at what you do best; enjoy most; and/or is the most critical value-added for controlling the target customers.
- Audit your strengths and rank them.
- Brainstorm on niches that flow from your strengths and from your best customers articulated, un-met needs. If you can't think of 10 or more, try some more. Keep looking - new niches open up every six months with every new environmental change and competitive shift.
- Narrow the list to the two or three niches that seem the most attractive and fit your strengths the best. Test them against all of the other guidelines listed here. Recycle through all of them regularly.
- Determine how to strengthen your competitive position for the best niche; get coach(es) to help. Simultaneously start to cut or harvest losing aspects of your business.
- Believe you can be a niche leader and go for being a No. 1 or a strong entrenched No. 2 at the target game. If you wait to imitate what everyone else is doing you are not niching.
Be Watchful of Pitfalls
- Don't fall short on achieving a sustainable advantage for the target segment, especially because the opportunity never existed, because it was based on a hunch and not good customer-based surveys.
- Don't under-invest and under-persist in selling your story to the target customer. It isn't different and valued until the customer is sold on it in his mind.
- Competitors will imitate your successful strategy and may out-hustle you even though they were second to the market.
- Competitors may out-focus you and split your target market even finer.
- Technology may eliminate your barriers to entry.
Some Thoughts on Marketing
- Be aware of a product's life-cycle. Win by the changing environment and then lose because of it. Constant listening and adaptation is key. Today's specialty is tomorrow's commodity; 2-7 year life-cycles.
- Don't be ahead of the leading customer. Fill existing not future needs which they don't yet see or understand. Keep in mind bell-shaped curve of adaptation.
- Don't offer wildly exaggerated differentiation at ridiculous prices unless you are in a wildly exaggerated neighborhood.
- Don't do extra services and neglect the basics.
- The future is not to those who "buy better" and cheapen the product and service, but rather to those who sharpen their marketing needs analysis and fulfillment. Customers want perfect, individualized options of flawless quality tangibles and perfect distinctive service at competitive prices for total best value for them in their minds.
Marketing has gone from "allocation" marketing, to mass marketing of black phones, white refrigerators; etc., to "segmented" marketing, to micro, niche, one-on-one database marketing. Example: "Dear Mr. Merrifield: As an active tennis player, we thought you might be interested in our sensational new type of (micro-niche tennis gear).."
Ó Merrifield Consulting Group, Inc., Article 4.1