What is a niche strategy?
A niche strategy is one that targets a smaller segment of the market. Rather than going after all customers – as firms with a broad target do – a niche strategy focuses on a smaller segment of the market. Niche strategies may for example target a specific set of customers, or customers who value specific features, typically overlooked by larger firms.
How niche strategies can compete against larger firms
Better targetted products
The first advantage that niche strategies have is that firms can better target their products at their defined niche. Rather than trying to develop a product that targets a large customer segment – where it is important to cater to a wide range of customer needs – firms specifically targetting a niche are able to specifically adapt their product to meet the more specific needs of the narrower audience.
Serving an overlooked market
Connected to the ability to better target the product, is the fact that the company may be concentrating on a segment that has traditionally been overlooked. The segment may not be sufficiently big to attract the attention of the larger firm, and so the existing products may be quite different from what customers in that niche would desire. The greater the discrepancy between the needs of the niche and those of the larger market and the more overlooked those needs have traditionally been, the greater the ability of a niche strategy to specifically target this segment.
Ability to make decisions that are inconsistent with the strategies of larger firms
A final way that niche strategies can compete with larger firms is by pursuing areas that are incompatible with the decisions that the larger firms are making. Potentially there may be a segment of the market that wants the exact opposite of what the dominant firms are known for, and something that the larger firms are unlikely to change.
Final thoughts: Consider if large firms are likely to enter your niche
While there are often underserved markets that niche strategies are able to target, it is also important to consider whether the existing larger firms are likely to respond. Sometimes companies identify a niche, only for the larger firm to launch an additional product that expands into that area. The size of the opportunity, and whether it is compatible with the larger firm’s approach, both influence the likelihood of whether larger companies will enter the niche or not.