What is Market Niche Strategy?
A niche is a small market whose needs are not being well-served by the existing products. A niche may be identified by dividing a segment into sub-segments or defining a group with a different set of characteristics, which may look for a special combination of benefits of attributes in the product.
Some firms find it profitable to identify and serve the special unmet needs of small market segments (niche). Thus, they can avoid confrontation with the market leader by focusing on the leader’s areas not targeted. Using the niche strategy, one assumes that people or organizations within a product market will vary in their responsiveness to any marketing program.
The objective is to identify two or more subgroups within the product market. The people or organizations comprising each subgroup will receive responses similar to a marketing offer designed to meet their particular needs.
The following steps are involved in selecting a niche are :
- Step-1: Decide how to form niches in the product market.
- Step-2: Describe the people/organizations in each niche.
- Step-3: Evaluate target market alternatives.
- Step-4: Select a target market strategy.
A niche strategy can be implemented by going after a single niche or designing a separate marketing program for two or more niches.
Thus, it would be possible for a firm to go after all people or organizations in a product market by designing a completely different marketing program for each niche or by differentiating the programs aimed at each niche.
Companies often appeal to only a portion of the people or organizations in a product market. Management may identify one or more specific niches for the company to serve.
Alternatively, although no specific niche strategy has been formulated, the company’s marketing program will position it in a product market in a way that the firm appeals to a particular subgroup within the total market. Finding a niche by chance does not provide management with the opportunity to evaluate different niches in terms of the revenue and cost implications associated with each.
When a niche strategy is launched, it should be by design, and the underlying analysis should lead to the selection of at least a promising target opportunity. A niche strategy may be appropriate if buyers’ needs and wants in a particular product market are quite different.
Following a niche strategy, a firm may decide to serve more than one niche. A few niches may be selected, or a company may move toward more intensive coverage of the product market. The idea would be to aim a specific marketing effort at each niche that management may choose to serve.
Finding and Describing Product Market Niches
By using a niche strategy, a company may gain worthwhile advantages over a mass approach. Advantages include higher profitability and strength over the competition through more effective use of the firm’s capabilities and limited resources.
By selecting niches, management can gain greater customer responsiveness from effort expended than if the firm directs the same marketing effort to all people or organizations in the market.
Management must somehow identify possible niches and then, for each niche of interest, determine which marketing program will obtain the most favorable profit contribution net of marketing costs.
Since there are many ways to divide a market and several marketing program combinations that might be used for each niche, finding the optimal target market and marketing program strategy is probably impossible.
Criteria Used to Identify Market Niches
Since there are many ways to form market niches, how does the manager makes a choice?
We need a basis for evaluating the worth of a particular scheme. Five criteria are useful for this purpose. The first concerns the responsiveness of people in the market to marketing program efforts.
Suppose that we have somehow divided the people in a product market into four groups, each a potential segment. If little or no variation exists between the four groups, then the way they respond (e.g., amount, frequency of purchase) to any given marketing program strategy will be the same.
If four (or any) segments actually exist in this illustration, a different marketing program strategy will work best for each group.
Management may feel, based on experience and judgment, that response differences exist and that the basis used for dividing the market “( e.g., age, income, etc.) will separate people or organizations into similar response categories. To substantiate the existence of real niches requires supporting evidence of actual response differences.
After meeting the first condition, the other requirements come into play.
Second, it must be feasible to identify two or more different customer groups.
Third, a firm must aim for an appropriate marketing program strategy at each target segment.
Fourth, in terms of revenues generated and costs incurred, segmentation must be worth doing.
Finally, the segments must exhibit adequate stability over time so that the firm’s efforts via segmentation will have enough time to reach desired performance levels.
If you fail to meet the five requirements mentioned above, the use of a niche strategy is questionable.
For example, if a niche scheme does not identify groups, each exhibiting similar responsiveness within and variation between groups, then dividing the market is of doubtful value. The ultimate criterion, of course, is performance. If a niche scheme leads to improved performance in a market, then it is worthwhile.
In deciding how to form niches, there are two important issues to be considered, which are as follows:
- Should niches be formed by aggregating individuals or organizations using a grouping approach, or should this be done by breaking apart a product market?
- What factor(s) should be used to define niches.
Regarding the first issue, either approach can be used, although following a disaggregating procedure requires an established product market structure.
Turning to the second issue, many possible factors can divide a product market into niches, although the factors fall into three categories. You can see the factors in the following figure.
Depending upon the situation, a single factor or a combination may be used to identify niches. The important question is deciding upon the appropriate factor to use in establishing subgroups within a product market.
To be successful in a niche, a firm should be guided by the concept of specialization. There are quite a few specialist roles, one of which may be played by a firm to succeed in a niche business.
The specialist roles are discussed below:
End-User Specialist Role
The market today is highly competitive in all aspects. Therefore, it is difficult for a firm to serve all parts of the market better and competitively.
Therefore, some firms go for identifying the specific needs of the ultimate or end-users and developing their product and marketing programs that best suit this customer group. Thus, a professional training firm may specialize in providing sales training, customer care training, promotional planning, and so on.
Vertical-Level Specialist Role
Vertical-level specialization calls for specializing on one or more vertical levels of production or distribution. The company may only decide to sell retail, thus planning a vertical specialist role in distribution.
Customer-Size Specialist Role
By customer-size specialist means concentrating on a particular customer size group. A firm may decide to sell to small, medium, or large size clients. It is a common practice in niche marketing to concentrate on small customer groups. The reason is that large firms usually neglect small customers. Thus, a firm taking care of this group can reap its benefit and develop a strong brand loyal customer group.
Specific-Customer Specialist Role
A firm playing a specific-customer specialist role sells to only one or a few customers the entire output. This guarantees the selling of a firm’s product, and it can comfortably schedule its production and marketing activities.
Geographic Specialist Role
A firm may also decide to sell its product in a particular locality, territory, district, or division. In the context of Bangladesh, you will find many firms playing a geographic specialist role. Some of the cigarette manufacturing companies in this country are found to specialize geographically.
Product or Product-Line Specialist Role
Here the firm decides to produce only one product or a particular line of product. A food product manufacturing company may decide to produce only mango pickle (product) or a whole range of pickles (product-line).
Product-Feature Specialist Role
Here, the firm concentrates on a particular feature (s) of a product and want to take the lead on it—a toiletries product manufacturer for specializing in producing antidandruff shampoo.
Job-Shop Specialist Role
This is practiced mostly in the computer software business. The firm deciding to play a job-shop specialist role may develop and sell customized software, meeting its particular needs.
Quality / Price Specialist Role
Here the firm either decides to produce and sell high quality-high price product or low quality-low price product. Both of the options can yield satisfactory revenue to the firm since both of them attract customers.
Service Specialist Role
Every marketer of tangible products now adds services to their product to make them lucrative to buyers. A firm deciding to specialize in service may find one not provided by the competing firms and add that to its product.
After an acceptable niche specialist role is adopted, the people in each niche are described, and evaluating each niche of interest to the firm should follow.
A firm following a niche strategy should know that a particular niche may become sour on time. Therefore, it should look at another niche to serve, and this should be a continuous process. It is also advisable to pursue multiple niching strategies instead of single niching.