MARKET- NICHER STRATEGIES
An alternative to being follower in a large market is to be a leader in a small market, or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. Here is an example.
Firms with low shares of the total market can be highly profitable through smart niching. A.T. Cross niched itself in the high-price writing instruments market with its famous gold and silver items. Family-run Tire Rack sells 2 million specialty tires a year through the Internet, telephone, and mail, from its South Bend, Indiana, location. Such companies tend to offer high value, charge a premium price, achieve lower manufacturing costs, and shape a strong corporate culture and vision. New Balance is a classic example of a small company that has successfully used market-nicher strategies to establish a strong market position.
In a study of hundreds of business units, the Strategic planning Institute found that the return on investment averaged 27% in smaller markets, but only 11% in the larger markets.
Why is niching so profitable? The main reason is that the market nicher ends up knowing the target customers so well that it meets their needs better than other firms selling to this niche casually. As a result the nicher can charge a substantial price over costs. The nicher achieves high margin, whereas the mass marketer achieves high volume.
Nichers have three tasks: creating niches, expanding niches, and protecting niches. Niching carries a major risk in that market niche might dry up or be attacked. The company is then stuck with highly specialized resources that may not have high-value alternative uses.
Because niches can weaken, the firm must continually create new ones. The firm should â€œstick to its nichingâ€? but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches, the company increases its chances for survival.
Firms entering a market should aim at a niche initially rather than the whole market.
The cell phone industry has experienced phenomenal growth but is now facing fierce competition as the number of new potential users dwindles. Through innovative marketing, Boost Mobile and Virgin have successfully tapped into one of the few remaining high-growth segments: generation Y customers entering the market.