Understanding a niche strategy
A niche strategy – also called a focused strategy – is where a firm narrows down its target market to a specific group of customers. These customers may have specific needs, and a focused firm is better placed to identify and serve these needs than a broader firm.
Advantages of a niche strategy
The key advantage of a niche strategy is that a firm may be much better placed to meet the needs of a smaller group of customers than a company targeting a broader group of customers is able to achieve. A broad firm may make compromises that may allow the company to reach the broad market, but make the products or services less well suited to specific segments. A firm pursuing a niche strategy on the other hand is able to better align the products to the specific needs of the narrower audience.
Different types of niche strategy
There are two different types of niche strategies – those geared towards a cost-leadership position, and those with a differentiator position.
Cost-leadership niche strategy
The cost leadership niche strategy is when a firm is able to develop a product that within the narrower niche has an advantage over broader cost-leaders. There may for example be additional features, that while needed for the mass market, can be scrapped from the focused segment. Or conversely, there may be something that is required for the niche, that most cost-leaders are not providing, and a focused strategy can include, offering the lowest cost offering for that niche.
Differentiator niche strategy
The differentiator approach is when a firm is able to increase a customer’s willingness to pay with unique features and services. With a niche strategy, the firm may be able to add features that specifically appeal to the niche. There may for example be elements that most customers may not be willing to pay a premium for, but customers in the specific niche may be willing to pay for.
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