2. How To Develop A Market Niche

 

Most small businesses cannot afford to compete with mass production, therefore specific and highly defined market niches are necessary to achieve success.

What is a market niche? A product or company with a highly crafted personality which differentiates its product or service from other competitors. Differentiation may come through added service, different atmosphere, better price, cheapest price, highest price, unique customer experiences, or a method of delivery that no one else can match. Market niches must be planned, executed with extreme consistency, and refined constantly.

A market niche is cultivated and developed through constant contact with the customer. Listening, questioning, and observing customer buying behavior can say a lot. Responding accordingly can further expand the market niche.

Is there room to build a market niche? A competitive analysis can help answer this question. Look at the entire range of products or services in a potential market, from the customer's perspective, and identify "holes" in the marketplace. Good niches may lay where no business has ventured before, although this is also where risks lay. Investigate risks by conducting market research with potential customers before committing resources.

To define a niche, a recycled content processor or product manufacturer, must know what image it wants for the company and the product. Questions to address include:

  • What image does the competition have?
  • What level of value can the company creatively elevate the product to by adding custom design? Faster delivery times? Special blends?
  • What level of service and quality isn't represented on the scale in their market segment? Would customers want a product at that level of quality and service?
  • Is the target market price-sensitive? Location-sensitive?
  • Is the product offering brand new?

Competitive Analysis to Identify an Empty Market Niche

A competitive analysis charts all the players and their offerings, like a benchmarking scorecard. It shows who the competitive players are, what they have to offer in each price range, levels and degree of customer service, the volume of product sold, and what additional value-added or enhanced services are available.

Commodity priced products aim at achieving cash flow through high volumes, low prices and minimal service. This is almost impossible to achieve if the company is small and a new business with few distribution channels or operating capital.

To develop the scorecard, a subjective rating of each aspect of the products and operations provided by each competitor must be developed. One way to develop the scorecard rating scale is to create a familiar benchmark system.

For example, in the retailing industry, the market niches in which each retailer operates is obvious.

  In the "everything stores", merchandise has basic quality, and few sales people are available to help customers. The typical customer is after good prices and selection, top quality is not the goal. This market niche is a commodity-priced product offering of high selection, medium quality items, with low service. The major thing such a retailer needs to know is where to purchase a huge assortment of low- to medium-quality goods at high volumes to achieve very low prices.

Slightly higher-end stores offer more service, a little better quality, a little higher status, fewer line-ups, and a nicer shopping environment.

Fancy department stores have higher-level service, better and trendier selections, a more aesthetic shopping environment, and items not typically found at lower-end shops. The prices are affordable to high, and usually sales people are available to provide immediate service. In higher quality department stores, the customer expects to be treated royally and does not mind paying for this kind of special treatment.

Finally, for customers that want very unique items, only a boutique or custom design shop will do. The goal is high status, devoted service, personal care, and quality. Price isn't an issue.

Start the competitive analysis process by evaluating findings from the primary and secondary market research efforts. Develop and weight the important scoring criteria. If necessary, go back to the competitor companies to find out more information. Also, ask questions of the competition's customers. Seek out any additional competitors and find out the same information from them.

A typical scorecard may include (but is not limited to):

Competitive players 1 2 3 4 5 6
Product offerings (Products pertinent to analysis only)            
Service offerings            
Price ranges for products and services            
Quality of customer service, customer service policies?            
Volume of product sold            
Distribution system            
Testing procedures and quality control programs            
Product demo?            

 

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