Market Nicher Strategies

Almost every industry includes firms that specialize in serving market niches. Instead of pursuing the whole market, or even large segments, these firms target subsegments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms also may pursue niching strategies. Firms with low shares of the total market can be highly successful and profitable through smart niching.

Why is niching profitable? The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. As a result, the nicher can charge a substantial markup over costs because of the added value. Whereas the mass-marketer achieves high volume, the nicher achieves high margins.

Nichers try to find one or more market niches that are safe and profitable. An ideal market niche is big enough to be profitable and has growth potential. It is one that the firm can serve effectively. Perhaps most importantly, the niche is of little interest to major

Market challenger strategies: Virgin Drinks mounted a full frontal attack on Coca-Cola and PepsiCo but couldn't break the leaders' viselike grip on U.S. shelf space.

competitors. And the firm can build the skills and customer goodwill to defend itself against a major competitor as the niche grows and becomes more attractive. For example, computer mouse and interface device maker Logitech is only a fraction the size of giant Microsoft. Yet, through skillful niching, it dominates the PC mouse market, with Microsoft as its runner-up (see Real Marketing 18.2). A Here's another example of a profitable nicher:

R.A.B. Food Group is no Kraft. Then again, it doesn't aspire to be. Giant Kraft, with sales of more than $37 billion, makes foods for all occasions, targeting broadly. In contrast, R.A.B. Food Group, with sales of little more the $100 million, targets a narrow segment of consumers who want to cook kosher. R.A.B. is the America's leading marketer of kosher foods, fielding brands such as Manischewitz, Horiwitz Margareten,

Goodman's, and Rokeach. Kosher is a very attractive niche, and a profitable one. During the past five years, whereas Kraft has struggled for single-digit growth, R.A.B. Food Group's sales have grown nearly 50 percent. And the future looks bright for this profitable nicher. Fueled by the boom in ethnic foods and an intensified interest in nutrition and food ingredient quality, kosher foods are now going mainstream. Research shows that consumers perceive kosher foods, made in accordance with centuries-old dietary laws, to be cleaner, purer, and higher in quality. Today, only one in five buyers of kosher foods is the traditional Jewish customer. In an effort to push its brands out of the smaller kosher sections of stores and into more heavily trafficked aisles, R.A.B. Food Group recently launched a Simply Manischewitz ad campaign (the Manischewitz brand accounts for some 54 percent of sales). Says the company's chief executive, "[Although] kosher foods are clearly our heritage and our anchor, we're reasserting our kosher credentials and positioning ourselves for broader growth."18

The key idea in niching is specialization. A market nicher can specialize along any of several market, customer, product, or marketing mix lines. For example, it can specialize in serving one type of end user, as when a law firm specializes in the criminal, civil, or business law markets. The nicher can specialize in serving a given customer-size group. Many nichers specialize in serving small and midsize customers who are neglected by the majors.

Some nichers focus on one or a few specific customers, selling their entire output to a single company, such as Tesco or Toyota. Still other nichers specialize by geographic market, selling only in a certain locality, region, or area of the world. Quality-price nichers operate at the low or high end of the market. For example, HP specializes in the high-quality, high-price end of the hand-calculator market. Finally, service nichers offer services not available from other firms. For example, LendingTree provides online lending and realty services, connecting home buyers and sellers with networks of mortgage lenders and realtors who compete for the customer's business. "When lenders compete," it proclaims, "you win."

Niching carries some major risks. For example, the market niche may dry up, or it might grow to the point that it attracts larger competitors. That is why many companies practice multiple niching. By developing two or more niches, a company increases its chances for survival. Even some large firms prefer a multiple niche strategy to serving the total market. For example, Alberto-Culver is a $1.5 billion company that has used a multiple niching strategy to grow profitably without incurring the wrath of a market leader. The company, known mainly for its Alberto V05 hair products, has focused its marketing muscle on acquiring a stable of smaller niche brands. It niches in hair, skin,

Profitable niching: R.A.B. Food Group—with its Manischewitz and other brands—is the America's leading marketer of kosher foods. Although small, the company is growing faster and more profitably than Kraft and the other food giants.
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Crushing Your Goals and Achieving Success

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