Starting a Business? -Niche Market Strategy for Success
Starting a business? Most of us have dreams of our company becoming the next Amazon or Apple but fail to observe that those companies became big by starting small.
APPLE -When Apple launched Macintosh, it was not meant for everyone. A product for everybody is a product for nobody.
- Mcintosh initially targeted Graphic Artists/Designers in Fortune 500 companies.
- These designers used Macintoshes to give presentations to Marketing professionals/executives.
- The marketing and sales professionals were mesmerized by the GUI and the responsiveness of the computer. They began to use the Macintoshes for their own work and gave presentations to Outside Vendors, Publishers, and Clients using those ‘Apple’ computers— and the idea spread.
So, Macintosh began its business by targeting a Niche customer base(Graphic Artists/Designers) and went on to dominate the market.
EDMS -Documentum introduced the ‘Electronic Document Management System(EDMS)’ in 1993.
To start with, the company targeted a niche — The regulatory affairs department in Fortune 500 pharmaceutical companies(Where the User pain is high — They need to file a minimum of 250,000 to 500,000 documents).
- The regulatory department had to interact frequently with the ‘Research’ department as they were dependent on them.
- The ‘Research’ department personnel saw the benefits of the ‘EDMS’ and they began to use.
- The research team often exchanged information with the manufacturing department of the company. Soon, the manufacturing department adopted ‘EDMS’.
- The Document Management System then penetrated to plant construction & maintenance and from plant maintenance to external vendors/contractors and then to Regulated chemicals —then to non-regulated chemicals & Oil refineries and then to Oil exploration & production, then to the IT department, then to Real Estate division, then to Wallstreet, then to Swaps and finally, Derivative business.
Thus EDMS grew its market.
NICHE -THE SUCCESS MANTRA
So, the rule of thumb for business success is to “Start small. Find the target market with maximum pain. Focus on a particular need, work on it, make your product distinctive and dominate the niche market. Once you become a leader in the niche market, you could move to the larger markets”.
Smaller the customer segment, it is easier for the entire company to focus all their resources, energy, efforts in order to meet the customer needs, wants and desires of the niche segment. It further helps in developing and launching a meaningful product at a low cost. A better product means loyal customers.
Focusing on a small market also makes it easy to test and collect efficient customer feedback about our product or service which will help in further enhancing the product.
A niche market also helps a business to perfect its process through innovation.
NICHE - THE NEED FOR BRAND POSITIONING
There’s another reason why you need to start focusing on a niche while starting a business -The Brand Positioning.
If you want to build a long lasting successful business, you need to build a brand. To build a brand, the first and foremost factor is to position your brand in a consumer’s mind. The ways to enter the mind is by:
a) Becoming a leader in an existing product/service category(This would need huge investments in terms of money, effort & time and so not a practical option for every startup business)
or
b) Becoming the first entrant in any new product/service category. In other words, you need to create a new category.
New category means targeting a niche market where the user’s needs are unmet and where the competitive forces are weak.
FINDING A NICHE
NICHE -THE MISSED SEGMENT
Big brands tend to target wide customer bases. As a result, they ignore customers with more specific needs, as the initial target market will not guarantee sufficient volume to meet the present profit margins. But for a startup, it would be a perfect opportunity.
Therefore, there will always be some segments of the population whose needs for a particular product or services are unmet. Targeting this segment, a small business can penetrate the market.
In the early 1960s, discounting store concept was on the rise. Kmart, Woolsworth, Dayton-Hudson and other bigger retailers opened their stores in towns having a population above 50,000. Other medium-size brands like Gibson opened their stores in towns that had a population about 10,000.
Nobody was ready to open a discounting store and sell products at discounted prices to the people living in small towns where the population was less than 5000. But people in smaller towns were well aware of the ‘discounting stores’. They loved the concept.
Sam Walton saw an opportunity and opened discounting stores in those smaller towns. The ‘Wal-mart’ was born and within two decades, dominated the ‘discounting’ market.
When you are starting up, you need to understand that a larger business is not your competition. Ask what customers they have ignored. There lies your differentiation.
NICHE -THE CONSUMERS WITH UNRESOLVED PAIN
For choosing the Niche, rather than looking at the number of people, look at the magnitude of pain that could be solved.
In the early 1960s, the German giants Adidas and Puma ruled the shoe market but they failed to understand the pains and needs of athletes.
Bill Bowerman, Nike’s co-founder was himself an athlete and also a famous track field coach. He knew the needs of track athletes very well. He was looking for a lighter shoe so that an athlete could use to run faster and also a shoe that could last the race of long-distance running. Bowerman could not find shoes that would meet those needs. Moreover, none of the shoes was protecting athletes from various injuries. He wrote to shoe manufacturers about his requirements and he sent them prototypes of his design solutions. Nobody listened to him.
This forced Phil Knight and Bowerman to manufacture shoes based on their own design to meet the needs of athletes. ‘Nike’ brand was born.
Nike’s shoes were lighter — protected athletes from various injuries -gave enough cushion support -gripped well on multiple surfaces -lasted longer than any other competing brand. Nike went onto become a leading brand within a couple of decades.
NICHE -SAVING CONSUMER’S TIME
One major factor that has the potential to entice a customer to try a startup brand is -To save his or her valuable own time.
Amazon.com was started to save consumer’s time in purchasing of books. The company called it ‘Convenience’.
Many will argue that ‘saving time’ is part of the customer experience. But there are businesses that used ‘Saving time for consumers’ as their sole competitive differentiator to target a niche market in their initial days.
When considering why ‘saving time’ has become a key differentiator for many brands, the answer lies right in us -We all have busy lives. We always have a list of things to be done. All of us would appreciate any help in completing some of those tasks in a quick time.
Amazon’s Niche -Saving Time
In 1994, Jeff Bezos, jolted by Internet’s 2300 percent annual growth rate, began thinking of building a true ‘everything store’ online -He wanted to save time and make life easier for the customers(The Convenience) using the internet.
But Bezos knew that building an ‘everything store’ would be impractical at least in the beginning. So, to position his service in people’s mind, he had to focus on a niche. How to choose a niche? He made a list of twenty possible categories — Computer software, office supplies, apparel, music, etc… One interesting option popped up— Books!.
Books was a $10 billion industry in the United States in the year 1994. A considerable percentage of people had already been buying books through mail order or postal services — So, there existed a potential customer base who were looking to save time -A need for convenience -The Niche.
Amazon went on to eliminate as many steps as possible from the time a consumer thinks about purchasing a book until he receives the product. A customer can purchase a book as a guest without logging in, with just a single click. Amazon revolutionised the purchasing process. Saving time was the ultimate goal.
Netflix’s Niche -Saving Time
Consumers are always looking to save time and reduce the number of tasks involved in performing a job.
Netflix’s co-founder Randolph saw consumers could save a lot of time in renting DVDs from offline stores -From the time a consumer thinks of purchasing a DVD, he had to plan the trip, travel to DVD rental store which might not be located near his home, finding a place to park the car, returning the old DVDs by standing in line, paying them with exact change, searching the DVDs, enquiring, choosing the DVDs -Sometimes customers could not find their first, second or even third choice movies, waiting to play the DVDs in a system to check the quality, placing an order, billing, and then returning back to home. Later, the customer had to return the DVDs even if he or she had no plans to rent a new DVD as the rental stores charged exorbitant late fees.
Most of the customers were unsatisfied with the store experience as some tasks consumed a lot of time.
Randolph realised that if he could significantly reduce the number of steps involved in renting DVDs from physical stores, thereby helping consumers to save time, he had a potential business opportunity.
Netflix’s first website was intuitive and easy to use. It was easy to search for movies by themes, actors, directors, genre, etc… It was easy to return the DVD by simply sealing it in the prepaid envelope provided by Netflix.
Save time and build loyalty.
NICHE -TARGET THE FEELING
Brands that target the feeling of a consumer have better chances to succeed in the long-term.
It is about making them feel better while using your product or while having your product. It is about helping your consumer to tell a wonderful story about himself or herself using your product. It’s about the impact your product has in their life.
The Identity -Let’s see the popularity of athletic wear or workout clothes. Here the brand’s success is no more about creating the right functional apparel but about creating an identity for a customer which he or she would like to advertise. Millennials, unconsciously love to show off their fitness attitude, healthy lifestyle to the outside world.
What did the brands do? The brands launched fashionable workout clothes that look so good that a person can wear them outside the gym. Those high-performance fabrics cost a lot and certain segment of people wear them to broadcast their fitness identity or healthy-lifestyle status identity.
The Experience -Imagine, you are a manufacturer of a lighting product -Lights for bedroom. How will you tap a consumer’s feelings? Lighting that can alter the room temperature, provide ambience to enhance the mood, reduce stress, inspire him to think creatively, soothe him with pleasant memories.
The Starbucks Experience
- Starbucks is not only about coffee but about the whole experience.
- The foremost experience the brand provides is through ‘Authentic Quality Coffee’ and the roasting process plays a major role.
- The Baristas greet everyone cheerfully and converse enthusiastically with every customer.
- The store is designed to enhance the quality of everything the customers see, touch, hear, smell and taste. Particular attention was given to ‘Aroma’ as it plays a vital role in the Store experience.
- The coffee place is designed to meet the needs of various types of customers who visit the store at different timings. In the morning, office-goers who would be always in a hurry, visit the store and they would be served as quick as possible. In the early afternoon, mothers with children and retired folks lingered around to enjoy and relax. In the evenings, the store is a neighbourhood’s gathering place.
The coffee place offers comfort, community and a sense of extended family to the customers. It is an extension of their home-A home away from home.
NICHE -LESS AFFLUENT PEOPLE
Clayton Christensen writes about choosing a niche:
01) Can the existing product or service be provided to less affluent people in a more convenient context, something that historically was available only to more skilled or more affluent people?
02) Is there a large population available?
Example -In the mobile phone category, Xiaomi India is a good example.
Aristide Boucicaut -In 1848, 32-year-old Aristide Boucicaut was at the crossroads of his retail career. The intense competition, increasing price wars, and shrinking profit margins had rendered his business unsustainable. He was looking for a solution to break-away from the competitive race.
Boucicaut’s Niche -Boucicaut saw a potential opportunity in the emerging middle class of that time, as they were getting wealthier from the Industrial Revolution. Before industrialisation, people had few things available in the market that could be owned. Mass production had enabled accessibility to exciting items. People could now own more things. Boucicaut felt that this class of people desired to belong to be a part of a higher class. They were a steadily growing group and got new aspirations.
To cater to their needs, Boucicaut provided a convenient context by opening a giant store called ‘Le Bon Marche’, the world’s first large departmental store, and it went on to revolutionise and disrupt the retail industry.
Note: The above content is part of the following book -
ALSO AVAILABLE ON AMAZON -
How Brands Built Its Sustainable Competitive Advantage? by Shah Mohammed M.