Niche
Niche
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Tevfik Dalgic
University of Texas at Dallas
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What Is a Niche?
Webster’s Dictionary[5] describes a niche as:
a recessed space or hollow; specifically a recess in a wall for a statue or the like, any position
specifically adapted to its occupant.
Some marketers have long advocated the use of ecology or biological theory in
marketing in order to study markets. A relationship may be drawn between the
ecological niche and the market niche[7]. This refers to ecological niche and
market niche similarities. In both cases, organisms and organizations live in
their immediate physical environment and are able to continue their life forms
in a changing environment. An eco-system in biology may serve as an analogy
for the macro-environment of an organization which continues its life without
being threatened by the environmental forces. Another definition is given by
Keegan et al.[8]. They define a niche as “a small market that is not served by
competing products”. Hooley and Saunders[9] use the word “pocket” to define a
niche.
We consider a niche to be a small market consisting of an individual customer
or a small group of customers with similar characteristics or needs. In niche
marketing a company focuses on a market niche exhibiting the above
characteristics. In such marketing we can make a distinction between two
approaches:
(1) To see niche marketing as a creative process, as Chalasani and Shani[10] Niche
termed nichemanship, which is “a process of carving out a small part of Marketing
the market whose needs are not fulfilled. By specialization along market, Revisited
customer, product or marketing mix lines, a company can match the
unique needs”.
(2) To see niche marketing as the last stage of segmentation, taking place in
the following sequential stages: segmentation, targeting, positioning and
41
niching[8].
A more general definition of niche marketing is provided by Stanton et al.[11] as
a method to meet customer needs through tailoring goods and services for small markets.
Corporate
strategy Corporate strategy
build-up
Target
Specialization customer
build-up strategy
Figure 1.
From Niches to Riches:
A Bottom-up Approach
for Niche Marketing
European approach where the marketer starts from the needs of a few customers and
Journal gradually builds up a larger customer base”; this is in contrast to breaking up a
of Marketing market into smaller markets. In this respect niche marketing may be termed as
inverted or reversed segmentation. This view opposes the concept which
28,4 perceives niche marketing as the last or final stage of segmentation.
Other observed differences are that :
42 ● a niche is usually smaller in size compared with the size of a segment;
● a niche focuses on individuals – in a segment we focus on a so-called
homogeneous group;
● a niche fulfils a specific need in contrast to a segment where the
emphasis is on being a manageable part of the market.
Kotler[3] suggests that the key idea in niche marketing is specialization and he
provides the following ways in which to specialize:
● end-user specialization;
● vertical-level specialization;
● customer-size specialization;
● geographic specialization;
● product or product-line specialization;
● product-feature specialization;
● job-shop specialization;
● quality/price specialization;
● service specialization;
● channel specialization.
Kotler’s[3] idea of specialization leads us to the distinctive competences a firm
needs to possess to pursue niche markets. According to Pavitt[12].
innovating small firms are typically specialized in their technological strategies,
concentrating on product innovation in specific produced goods such as machine tools,
scientific instruments, specialized chemicals and software. Their key strengths are in their
ability to match technology with specific customer requirements.
Underlying Trends
Smaller companies do not have a monopoly on niches but they may be better
focused and equipped to serve these specific markets, in contrast to their big
brothers. There are smaller, nimbler companies, termed the “Third Force” by
Ferguson and Morris[21], which have gained ground from the bigger US and
Japanese computer giants, for example Dalgic[22] likens this competition with
niche marketers to guerilla warfare and labels it as “Guerillas against Gorillas”, Niche
gorillas being the giants. Larger companies like IBM and Philips may also make Marketing
use of niches but they, like most large companies, will have to change their ways Revisited
of doing business and adapt their organizations to enable them to take hold of
niches as a part of repositioning. IBM, in its quest for profit and IT leadership,
has announced further decentralization and the formation of strategic business
units to enable them to carry out this process. The former chief executive officer 45
(CEO) of IBM, Aaker[23] said: “we expect that more independent businesses
will make better investment decisions because they are more agile, faster and
closer to the markets they choose to serve”. Whether the proposed actions of
CEO Aaker will prove successful remains to be seen. However, we may conclude
that large mass marketing firms will need to adapt to this change from uniform
markets to individualized/fractured markets.
Niche marketing for larger firms, among others, could mean:
● new opportunities for healthy profits in smaller markets;
● a new approach to the market from uniform to fractured;
● smaller profits per market, but more markets;
● an easier defence against potential competitors, by creating safe havens;
● structural internal organizational adaptation which due to inherent
cultural changes, could be a lengthy process[4,8,11].
An example of a large company pursuing and organized for a niche strategy is
Johnson & Johnson, the health-care company. It consists of 170 affiliates
(business units), most of which pursue niche markets. In a 75 per cent response
survey conducted by Linneman and Stanton[20], among all Fortune 1,000 firms,
the results showed that almost all these firms have, in some way, started to
serve smaller segments. This indicates that most of these companies are
abandoning traditional mass-marketing techniques and are steadily switching
over towards niche marketing. Niche marketing, from the viewpoint of larger
firms, may be seen as selling big by selling small, meaning selling to as many
niches as possible, where each niche is a small market aggregating into a large
one. As Kotler[24] observed, companies usually have niche markets at the initial
stages of their product life cycles as in the case of The Body Shop. This
company has leapt from being a local niche marketer to an international niche
player. It has found a niche market in cosmetics; as reported by Dibb and
Simkin[25] “based on a clear understanding of certain customers’ needs and a
very distinctive positioning strategy, The Body Shop is one of the world’s
fastest growing and most successful niche retailers”.
Customer focus helps companies to respond faster to the dynamic changes in
customer demand but it takes more than customer focus to become a successful
niche marketer as McKenna[4] points out: “an essential requirement for
approaching markets however is for the company to focus on the fragmented,
ever evolving customer base as if it were part of the own organisation”.
According to Piercy[26]: “being market-led is simply about putting the
European customer at the top of the management agenda and list of priorities. It is about
Journal focus on the customer, specialising on the customers’ unique needs, finding
of Marketing better ways of doing what the customer values, educating and informing the
customer, commitment and care. This is the only thing we have that genuinely
28,4 makes sense of our business operations”. (See “Practical Guidelines”, Step 2).
In order to create a better positioning for your product in the marketplace you
46 have to differentiate your product from your competitor. Your product should
not be just a “thing” but should include added values like service, good
customer perception, quality, word-of-mouth references, company image, etc. In
niche marketing you do not only market your product, you also market your
business.
In niche marketing you focus on the customer and you provide the customer
with the products they need, now and in the future. If you can involve your
customer in the design of your product you are half-way there. Some IT
companies such as Apple have done this. They worked with the customer to
create new applications and as a result found new niche markets, like desktop
publishing. (See “Practical Guidelines”, Step 5).
Practical Guidelines
Here, we would like to elucidate some practical guidelines for using a niche
marketing strategy. There are many pitfalls to niche marketing, and to avoid
them; Linneman and Stanton[19] have provided us with some essential
guidelines to develop and successfully implement a generic niche marketing
strategy. We have used these guidelines and some others, together with the
experience of real-life examples, to create a step-by-step approach. They by no
means represent the ultimate and only method to make a niche marketing
strategy work. However, they provide a general checklist to prevent potential
marketing mistakes.
European Step 1: Know Yourself
Journal Know your company’s strengths and weaknesses, its uniqueness, competitive
of Marketing advantages, distinctive competences, regional and traditional characteristics.
28,4 Step 2: Know Your Customer
To be able to focus on specific niches or customer groups you need exact
52 information on these customers. Unlike mass marketing techniques we cannot
make assumptions about specific customer groups. You have to know your
market and you have to know it better than your competitor. The key to getting
to know your customers is through talking and listening to them. This can be
the key to success because it will provide the necessary information on which to
focus. Proposed actions include:
● gain economies of knowledge in contrast to economies of scale;
● know your customers and their business; become a specialist in the
business of your customers;
● know your competitor;
● know your environment;
● customize your product to suit the customer’s business: do not suit it to
suit your own business;
● focus on the customer, be market driven.
Further Reading
Porter, M.E., Competitive Advantage: Creating and Sustaining Superior Performance, Free Press,
New York, NY, 1980.