Niche Marketing

A niche is a more narrowly defined group, typically a small market whose needs are not being well served. Marketers usually identify niches by dividing a segment into subseg-

ments or by defining a group seeking a distinctive mix of benefits. For example, a tobacco company might identify two subsegments of heavy smokers: those who are trying to stop smoking, and those who don't care.

In an attractive niche, customers have a distinct set of needs; they will pay a premium to the firm that best satisfies their needs; the niche is not likely to attract other competitors; the nicher gains certain economies through specialization; and the niche has size, profit, and growth potential. Whereas segments are fairly large and normally attract several competitors, niches are fairly small and may attract only one or two rivals. Still, giants such as IBM can and do lose pieces of their market to nichers: Dalgic labeled this confrontation "guerrillas against gorillas."3

Some larger firms have therefore turned to niche marketing. Ramada Franchises Enterprises, for example, offers lodgings in several niches: Ramada Limited for economy travelers; Ramada Inn as a mid-price, full-service hotel; Ramada Plaza for the upper-mid-price niche; Ramada Hotels for good quality, three-star service; and Ramada Renaissance hotels, offering excellent, four-star service. Many German midsize companies are also profiting through smart niching: Tetra Food supplies 80 percent of the food for tropical fish; Hohner holds 85 percent of the world harmonica market; and Becher has 50 percent of the world's oversized umbrella market. These firms are succeeding in their chosen niches because they are dedicated to their customers, offer superior service, and innovate continuously.4

Now the low cost of marketing on the Internet is making it more profitable for firms—including small businesses—to serve even seemingly minuscule niches. In fact, 15 percent of all commercial Web sites with fewer than 10 employees take in more than $100,000, and 2 percent ring up more than $1 million. The recipe for Internet niching success: Choose a hard-to-find product that customers don't need to see and touch. Consider Steve Warrington's successful on-line venture selling ostriches and every product derived from them ( Launched for next to nothing on the Web, Warrington's business generates annual sales of $4 million-plus. Visitors to the site can buy ostrich meat, feathers, leatherjackets, videos, eggshells, and skin-care products derived from ostrich body oil.5

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