Not every business has the resources to throw behind a global marketing campaign. Whether your business is large or small, resource-rich or on a budget, sometimes a focused approach is the best fit. 🎯
If it’s a niche competitive advantage you’re after, you’ll have to carve out a corner of the market and make it your own.
To do that, you need to understand your niche inside out: your target audience, their problems, and pain points, where they spend their time, and how you can make your brand messaging speak to them and reach them where they are.
We’re here to help. 👏
What is a niche market advantage?
A niche market advantage is a type of competitive advantage - one that stems from targeting and winning a small portion of a larger market. At its core, this is the direct opposite of a mass market, or “undifferentiated”, marketing strategy.
Rather than commoditizing your product, you’ll make it super high value for a small number of people, rather than low value for many.
In his (now classic) book, Competitive Advantage, Michael Porter lays out a number of what he calls “Generic Strategies” for obtaining a competitive advantage. These are:
- Cost leadership strategy.
- Differentiation strategy.
- Focus strategy.
This last one, the Focus strategy, is niche market strategy. With a Focus strategy, a business wins its competitive advantage by meeting the unique needs of a specific, small market segment. It aims to solve these needs better than any competitor (if any true competitors even exist in this unique space).
So, if your business has a niche competitive advantage, but you’ve no competitors, who can you be said to have an advantage over?
Even the most unique products serve a similar function to something that’s gone before. When you dig deep enough, new and disruptive businesses offer the same core, emotional creature comforts as their predecessors.
For all its innovation in delivery, Netflix offers entertainment. Quite different in form, but quite the same in function (at the emotional level) to a 19th-century storyteller in a Victorian public house.
What is a competitive niche?
A niche is a smaller market segment within a larger audience. This segment has specific needs, buying behavior, and lifestyle characteristics.
By investing in customer research, and learning all about these specific needs, behaviors, and characteristics, you can tailor your products to meet the particular wants and needs of your niche.
A ‘competitive’ niche is one that’s highly contested, so it has less profit potential than one with fewer competitors. Renée Mauborgne and W. Chan Kim’s “Blue Ocean Strategy” suggests targeting an uncontested portion of the market. It urges you to create your own sub-space in the market that competitors haven’t yet been innovative enough to discover or create for themselves.
Advantages of having a niche competitive advantage
So, of all the strategies for creating a more profitable business, why might you choose a niche competitive advantage?
Viable for small businesses
For starters, targeting a small niche is well within the capabilities of most businesses, no matter their size.
This is especially true when the founder is a member of the niche they’re targeting.
Rather than having to invest in detailed customer research, the founder, as a member of the niche themselves, intimately understands all their target audience’s pain points and problems.
This makes them uniquely qualified to create and sell a solution.
Second, setting its sights on a small niche allows a small business to focus its limited resources on winning in one area.
It’s often difficult for a small business to focus on larger sections of the market. That’s because marketing to larger audiences requires more capital and a more complex and costly marketing strategy. Two things that are beyond the financial reach of many small businesses.
Focusing on a small subset of the market, on the other hand, increases the chances of making a lasting impact on a significant enough number of people to turn a profit quickly.
Targeting a very specific niche eliminates much of the competition. Done right, there’ll be few, if any, competitors pouring resources into creating products to solve the same specific problems as you.
This is the heart of Renée Mauborgne and W. Chan Kim’s “Blue Ocean Strategy” we mentioned earlier. By positioning your brand to fill a space where there are no “sharks in the water”, you give yourself room to grow unimpeded.
What’s more, when prospects discover your brand, you’ll seem fresh and unique. There’ll be little on the market to compare your brand with because there aren’t any other businesses delivering a service quite like yours.
More focused marketing strategies ensure you’re relevant to your target audience. It’s crucial your brand messaging and storytelling makes it clear who your product is for and why it solves their problems better than any other product out there.
When you’re dialed in on one or two key problems, distractions are impossible. You’ll end up doing more of the few things that work, enabling you to iterate quickly and get to the right solution for your customers in record time.
Your marketing campaigns can’t help but appear fresh and striking to prospects, either, as they’re written by a team that understands prospects’ needs inside out. This leaves prospects feeling confident your product is right for them.
Even the simplicity of a small product line, too, can help break down buyer resistance, easing the sales process.
Businesses can set higher prices for specificity.
Think “business strategy consultant for solopreneurs in San Francisco”. How much do you think this person could get away with charging their clients?
Compare that figure with what you think they could charge for a generic “business strategy” call.
Due to greater specificity, customers trust that the vendor understands their specific needs and problems. They’re more willing to pay higher prices for this extra confidence.
There’s a lot of value to be found in reducing risk and uncertainty for prospects, and this specificity is one of the ways businesses can do just that.
Disadvantages of niche market strategies
Small margin for error
Going after a niche market is a double-edged sword. 🗡️
It’s the business equivalent of putting all your eggs in one basket and the opposite of “diversifying your portfolio”. As a result of doubling down on a few specifics, you’re exposed to a lot of risk with very little room for error.
Niche markets are “high risk, high reward” opportunities. Do things well, and the rewards are magnified. Put a foot wrong (especially if you don’t have the financial resources to absorb the costs of mistakes), and it’s the consequences that are magnified.
This is another reason it’s so beneficial when your founder is a member of the very audience you’re targeting. They’ll know which problems to solve first, how to prioritize, and where to advertise to get the word out to relevant audience members.
Churn has more impact
With such a small audience, your profit margins ride on a small number of high-value sales, rather than a high number of lower-value sales. From there, it’s all about retaining those customers and driving brand loyalty.
Since customer acquisition costs are high, small fluctuations in churn rate can make a massive impact on your bottom line. Each sale is hard-won, so when you lose a customer, you’re going to feel it. 🤕
You’ll also more keenly feel the disruption when (not if) competitors and imitators start to muscle in on your small market space.
Hard to apply economies of scale
Niche market strategies don’t lend themselves well to economies of scale because there aren’t many willing buyers (the relevant target market is small).
Take cars, for example. The first (and perhaps greatest) example of using economies of scale to turn a profit.
In the early 1900s, cars were still assembled by hand. This made them a luxury product, out of reach for the many. Henry Ford took something that, per unit, was horrendously expensive to make and for consumers to buy. He invested in manufacturing processes, multiplying efficiency, slashing costs, and ramping up production.
The result? The cost of his motorcars fell almost 70%. Production increased accordingly. With greater supply, and affordable products, cars became available for the masses to purchase.
Ford commoditized what was a luxury, but only for his cars. Competitors produced cars that were little better for many times the cost. With this strategy, Ford used economies of scale to create a Cost Leadership Advantage, as Michael Porter would put it.
This makes clear just how at odds it is to target a small section of the market and try to apply economies of scale. Economies of scale work wonders when you’re producing a commodity for the many. Especially when you’re taking a once-luxury product and making it affordable.
The crux here is that everyone benefits from transport. It’s a universal need. The specific problems you purposely set out to solve don’t have this scope, so selling on the scale necessary to make economies of scale viable becomes near impossible.
Niche advantage case studies
It’s not hard to spot a business with a niche competitive advantage.
They’ll be attentive to the specific needs of their specific target audience, and there’ll be tell-tale clues sprinkled through the brand messaging and storytelling. They’ll use language that aims to convince prospects their specific needs are about to be solved. All they need to do is buy.
British food company Quorn’s line of vegetarian and vegan meat substitutes aims to look and taste like the real thing.
This immediately tells you they’re a brand looking to solve specific problems for specific people. Vegetarians and vegans are already two subsets of the market, but not all vegetarians or vegans want a ‘substitute’. Many dislike the taste of meat, or the texture.
It does, however, position Quorn’s products as a happy compromise. This made Quorn products a hit with families where the resident cook had to please a family of mixed opinions when it came to whether meat was in or out.
Their existing brand messaging is devoted to sustainability and the health of the planet. This, too, is an attempt to target a niche audience, this time segmented by its environmentally-conscious values.
A service for businesses that are serious about making remote work work.
Rather than position itself as a platform for payroll, HR, and employee benefits for every business, Remote positions itself as the best solution for businesses with a distributed workforce.
Remote understands that, when your staff is spread across the globe, there are particular concerns around trust, security, and the ease of taking care of bulk tasks like payroll in myriad currencies.
As such, their brand messaging reflects ease and safety, with words like “safeguard” and “streamline” featured prominently on the homepage. The tagline “Grow your team the right way with Remote”, meanwhile, makes it clear this is a service for scale ups looking to hire the best talent - wherever it’s found.
Here’s an example of a niche product from a well-known company - only this time, the product didn’t pan out.
Google recently announced its plans to discontinue its Stadia gaming service and refund all purchases, but its stint in cloud gaming is an excellent example of an attempt to capture a niche portion of the market.
Brand messaging focuses on ease, with the tagline “skip signup and just play” still visible on the website.
Even non-gamers have heard of Playstation, XBox, and Nintendo. This trio of industry giants has been battling it out for market share for decades.
But what about those who can’t afford expensive consoles? Or those who can’t access them? What about those dreaming of a simpler gaming solution?
Google aimed to bring gaming to these individuals and solve a specific problem: how do you provide a high-quality gaming experience with little or no hardware?
With Google Stadia, all users needed was a decent enough WiFi connection, a compatible controller, and a Chromecast Ultra. This brought the price of entry for a 4K gaming experience down to around $100.
Sadly, the service didn’t take off as Google had hoped. Stability issues, a lackluster library of games, and a lack of consumer trust all forecast the service’s downfall. But by targeting a subsection of the gaming market, Google created a viable new cloud gaming service that it plans to license to third parties.
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