The Benefits of Niche Markets on Small Business Success

Small and large businesses use different approaches to successfully navigating their markets based upon the resources available to them. Large businesses reach for larger target segments while smaller businesses focus on attracting a smaller group of motivated customers. Niche markets offer an entry position for small business to start building their customer base before expanding into new niches.

Small Business Does Well in Underserved Markets

Small businesses are likely to succeed in markets currently not being served sufficiently by other businesses. They do so through creating brand recognition among those that desires their unique types of products and services.  Highly motivated customers will recognize the brand the next time they consider making a purchase.

For example, it would be extremely difficult for a small business to compete against a large retail outlet by selling disposable pens. However, through selling unique pens, customized pens, embroidered pens, and handmade pens they can offer products that larger stores wouldn’t find lucrative enough to carry in their national chains. 

Customers will remember the specialty store as the easiest and most convenience place to purchase their chose products. The customer weighs and balances all of their options and knows that such gifts are easier to obtain from the customized provider. There is little reason to drive from store to store trying to save a few dollars when a specialty store has what you want. 

Small Business Can Expand Revenue through Complementary Products and Services

Once a small business reaches a sustainable level within their niche product/ service market they can consider adding additional products and services to expand revenue streams. In the example of pens, the business might also consider complementary niches such as unique stationary and paper.  

Selling similar niche products provides opportunities for overlapping benefits (Bruggeman, et. al., 2012). Pens and stationary are categorically connected in consumer minds and if they are looking for high quality pen and paper they have a place to obtain these items. The two types of products regularly attract the same types of people. 

Niche business also allows for successful niche marketing that improves the success rate of the business (Rankin, 2007). Marketing efforts can be focused specifically toward those customers who are most likely to buy a particular product.  Such efforts cut down on waste and low investment returns in business expenses. 

Bruggeman, J. et. al. (2012). Market positioning: the shifting effects of niche overlap. Industrial & Corporate Change, 21 (6). 

Rankin, M. (2007). Niche marketing allows advisers to build habitat for business success. Employee Benefit Adviser, 5 (12).

The Process of Market Segmentation

As most companies cannot compete in an entire market, they usually break down it down into smaller markets. This process of market segmentation affords the opportunity to focus selling products in one, or a few, defined areas. It helps to create focus and effective use of marketing resources to maximize return on investment. Effectiveness is seen as dollars spent and dollars earned. 

As companies gain resources and knowledge, they begin to use market research to develop complex and effective marketing strategies. The process of evaluating a market segment helps in developing strategies that further create efficiency in target marketing (Kutkut, 2012). Target marketing is the chosen focal point of the products/services, advertisements, and related efforts.  As the skill level of managers rises, so does the success of reaching and influencing the target market. 

There are generally four levels of market segmentation that include (Finch, 2012):

Mass Marketing: The firm makes no effort to break up a market and instead puts energy into all of it. Only certain products that have wide appeal (i.e. cars) do well with this approach. 

Market Segmentation: The process of breaking down the market into segments. This works well with products that have specific appeal to certain groups (i.e. camping equipment). In many cases, these are larger market segments. 

Niche Marketing: Narrowly defined group that many large companies have a hard time marketing (i.e. hobby farm heirloom seeds). This includes the selling of products in smaller groups and in very specific venues. 

Customized Marketing: This is the smallest market segmentation whereby individual concerns are taken into account (i.e. yahts and houses). Generally, these are big-ticket items and focused on maximizing returns on individual products. 

A company can segment the market in many ways. This may include geography, psychological profiles, behavioral profiles, industry, previous spending habits, etc…  These segments rely on research and analysis that further helps the company find ways to reach those customers most motivated to purchase their products. As competition becomes fierce companies may offer sales, discounts and promotions to enhance customer motivation. 

Once researchers have determined the nature and scope of a segment they need to determine how profitable that segment will be and whether or not it will sustain the growth needs of the organizations. Companies that seek to maintain a competitive edge continually seek to develop new and exciting products/services that create “buzz” while seeding markets for the future.  It is a process of finding and exploiting opportunities.

As organizations become more global, the market segments can become large and complex. Companies that sell international products and services should take into account the cultural values of new target markets (Agarwal, 2010). Failure to consider the perspective of other cultures can lead to costly mistakes that can wipe away sunk costs and investments. These human elements and soft skills become mixed into the marketing strategy.

At its root, marketing is a process of communication while marketing strategy is the process the company uses to communicate the value of products and services. Market segmentation affords the opportunity to better match communication to customer needs. To do this well requires the ability to research and understand the characteristics of a company’s most profitable customers. It is a process that if done well can help an organization reach new heights or cause it to shrink into oblivion. 

 Agarawal, J. Malhortra, N. and Bolton, R. (2010). A cross-national and cross-cultural approach to global market segmentation: an application using consumers perceived service quality. Journal of International Marketing, 18 (3). 

Finch, J. (2012). Managerial marketing. San Diego, CA: Bridgepoint Education, Inc.

Kutkut, N. (2012). Formal and informal target market selection in new ventures: a factor analysis. Journal of Academic Business & Economics, 12 (1).