A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub-segments. For example Progressive, a Cleveland auto insurer, sells â€œnonstandardâ€? auto insurance to risky drivers with a record of auto accidents, charges a high price for coverage and makes a lot of money in the process.
An attractive niche is characterized as follows:
The customers in the niche have a distinct set of needs; they will pay a premium to the firm that best satisfies their needs; the niche is not likely to attract other competitors; the niche gains certain economies through specialization; and the niche has size, profit, and growth potential.
Whereas segments are fairly large and normally attract several competitors, niches are fairly small and normally attract only one or two. Larger companies, such as IBM, have lost pieces of their market to nichers.
This confrontation has been labeled â€œguerrillas against gorillas.â€? Some large companies have even turned to niche marketing. Hallmark commands a 55% share of the $7.8 billion global greeting card market by rigorously segmenting its greeting card business.
In addition to popular sub-branded card lines like the humorous Shoebox Greetings, Hallmark has introduced lines targeting specific market segments. Fresh Ink target 18 to 39-yer-old women Hallmark En Espanol targets Hispanic card givers, and Out of the Blue targets those who want inexpensive cards that can be sent for no reasons.
Niche marketers presumably understand their customersâ€™ needs so well that the customers willingly pay a premium. Tomâ€™s of Maine all-natural personal care products sometimes commands a 30% premium on its toothpaste because its unique, environmentally friendly products and charitable donation program appeal to consumers who have been turned off by big businesses.
As marketing efficiency increases, niches that were seemingly too small may become more profitable.
In the world of pharmaceuticals, biotech company Genentech stands out for developing drugs that target tiny niche markets instead of going after blockbusters like Pfizerâ€™s Lipitor or Merckâ€™s Zocor, cholesterol medications that rack up billions of dollars in sales.
San-Francisco based Genentech pursues â€œtargeted therapiesâ€?, drugs aimed at relatively small subsets of patients. The drugs produce the same kind of dramatic benefit doctors get when they identify the specific type of bacteria causing an infection and slam it with the right antibiotic. A few years ago, the company launched the first highly targeted therapyâ€”Herceptin, a breast-cancer drug that is prescribed only to the 25% or so of patients whose tumors harbor a particular genetic quirkâ€”and it hasnâ€™t looked back. Genentechâ€™s targeted therapies make economic sense because the company is small, doesnâ€™t need to sell billions of dollars of drugs each year to support an army of sales reps or marketing executives, and can charge premium process because its anti-cancer drugs really work. Genentechâ€™s revenues were $3.3 billion in 2003, up 24% from 2001.
Globalization has facilitated niche marketing. For example, the German economy has more than 300,000 small and midsize companies (known as the Mittelstand). Many enjoy over 50% market share in well-defined global niches. Hermann Simon dubbed these global niche leaders â€œhidden champions.â€? Here are some examples:
* Tetra Food supplies 80% of the food for feeding pet tropical fish.
* Hohner has 85% of the world harmonica market.
* Becher has 50% of the worldâ€™s oversized umbrella market.
* Steiner Optical has 80% of the worldâ€™s military field glasses market.
These hidden champions tend to be found in stable markets, re typically family owned or closely held, and are long lived. They are dedicated to their customers and offer superior performance, responsive service, and punctual delivery (rather than low price) as well as customer intimacy. Senior management emphasizes continuous innovation and stays in direct and regular contact with top customers.