Niche Marketing

What It Means

Marketing refers to all of the activities that a company engages in to attract and build relationships with customers. “Niche marketing” is marketing that is focused entirely on one small segment of the population.

Imagine that you are intent on starting a women’s clothing store in your midsize town. At first you think you will try and appeal to all women between 22 and 60 by offering a sampling of national mainstream brands in a wide variety of styles. But you realize that this might put you into direct competition with several existing stores, and you are afraid that to attract customers you would have to price your clothes lower than the competition. Customers would be ready to buy clothes at any of your competitors’ stores the moment you raise your prices.

You decide to change tactics after reflecting on a trend you have noticed: because of good home prices and the vibrant arts scene in your town, a large number of people in their twenties and early thirties have been moving in from big cities recently. You decide, accordingly, to focus your store strictly on women in their late-twenties and thirties who have left the city to live in your town. To attract this specific group of customers you enter into contracts with a handful of small, up-and-coming designers whose work is not generally carried by stores outside of New York City, and you advertise in the arts section of the local alternative weekly newspaper. Your store develops a distinct image that makes it stand out from all others, and your customers are extremely loyal to you.

This is an example of niche marketing. Often, business success is dependent not on targeting the largest number of customers but on accurately targeting the right group and satisfying their desires.

When Did It Begin

A range of different marketing strategies, including niche marketing, has no doubt existed for as long as entrepreneurs and businesses have existed, and niche marketing comes naturally to small businesses, owing to the difficulty of reaching all portions of the population on a limited budget. The early twenty-first century, however, saw an overall rise in niche marketing across all segments of the U.S. economy. Technologies such as the Internet made it possible for companies to satisfy the desires of small subgroups of people scattered across a nation or the globe in much the same way that a clothing store could satisfy a small subgroup of a local population. This greatly expanded the possibilities for niche marketing. For example, whereas a physical clothing store for ex-urbanites might be able to survive if 2000 out of the town’s 30,000 women fit into the target niche, an online women’s-clothing business might be able to survive by appealing to one out of every 30,000 women, since it could draw customers from across the globe until they collectively amounted to a sizeable customer base. Likewise, an ever-expanding U.S. economy and an increasingly unified global economy meant that consumers had more choice than ever before when it came to choosing what to buy. To stand out in this environment, it was more important than ever that a business, no matter its geographical range, have a distinct image of its customer base and of how to satisfy that group’s desires.

More Detailed Information

Many entrepreneurs mistakenly assume that a business that appeals to the widest possible audience offers the best chance of generating high levels of profit and that any marketing efforts that appeal too specifically to one group in society will alienate potential customers that do not belong to that group. In fact, businesses that offer a wide range of products to a wide range of customers are generally more expensive to operate and less profitable than businesses that market to a specific niche.

Likewise, in today’s crowded business environment, appealing to a wide range of the population means competing with many existing businesses. If your products are similar to those of your competitors, you will likely have to attract customers by pricing your products lower than the competition. It is difficult to stand out and create loyal customers in this way. Through successful niche marketing—zeroing in on one small group of consumers who are currently being underserved by the competition and fulfilling their needs—a company can avoid many of these problems, building customer loyalty and a distinct brand image in the process.

To isolate a fruitful market niche, an entrepreneur should be aware of some basic guidelines. First, the members of the selected niche must have identifiable needs in common that make them stand apart from the mass market. For example, if you are starting an online T-shirt business, targeting fans of 1970s rock music may not be fruitful; this group is so large that their needs may not be similar or very different from the needs of the average rock music listener. On the other hand, fans of 1970s German psychedelic rock bands might have more similar tastes and identifiable needs when it comes to T-shirts.

A group with identifiable and unique needs is not enough, though. There must be enough members of a market niche to support a business. This may never be true of the fans of 1970s German psychedelic rock, even if you add up all of them around the world. In the example of the clothing store, on the other hand, whereas in 1990 your town may not have supported such a store, the migration patterns of young people in the late twentieth century and the early twenty-first century may have changed this situation.

Your product should also be unique in its ability to meet the niche market’s needs. If other competitors offer products similarly capable of satisfying the niche, then you may not have discovered a fruitful niche. The clothing store for ex-urbanites would satisfy this condition, since there is no other store in town able to meet the needs of its niche market. But it is not strictly necessary for the uniqueness to be a feature of the products themselves. For example, if a large department store tried to compete with the smaller store by stocking the same clothes at comparable prices, the smaller store could distinguish itself through superior customer service or other attributes.

Even given unique products and a sizable, well-defined niche market, though, the business owner must be able to locate and communicate with that group in a way that is economically feasible. Possibilities for the clothing store might include advertising in a local newspaper, direct mailings using subscription lists of urban-themed magazines (these lists can often be purchased from magazines), and simple word-of-mouth.

Recent Trends

In the early twenty-first century Internet commerce was changing the ground rules according to which many industries and companies had long done business. Perhaps no industry was more affected than the entertainment industry, which was being reshaped by companies such as Amazon.com (an online bookseller), Netflix (an online DVD-rental company), and Apple’s iTunes (an online music store). The technology writer Chris Anderson described the changing nature of the digital entertainment marketplace in his 2006 book The Long Tail.

Prior to the Internet age bookstores, video stores, and music stores had to allot their limited shelf space to the books, videos, and compact discs most likely to sell or rent in the greatest numbers. The limited physical capacity to sell these products encouraged the publishing, movie, and music industries to devote most of their money to marketing blockbuster entertainment products that would appeal to the largest possible number of Americans. If a store could only sell or rent a limited number of books, videos, or CDs, then it made sense for the companies behind those products to try to build up as much consumer demand as possible for those relatively few offerings.

By contrast, Amazon, Netflix, and iTunes could stock an unlimited number of books, videos, and albums (or songs) without increasing their operating costs substantially. As consumers’ choices in entertainment stopped being limited by the scarcity of physical space, the sales of lesser-known books, videos, and songs became as important, if not more important, than sales of big hits.

Imagine an obscure novel that is of interest to only one reader in a town of 50,000 people. It makes no sense for local bookstores to carry this book, since that one reader’s desires are not going to produce much of a profit. But one person out of every 50,000 in the United States amounts to a sizeable niche market (and sizeable profits) for Amazon. Additionally, there are far more books that appeal to only a few people than there are books that appeal to millions. Therefore, most of Amazon’s book profits come from these books that appeal only to a niche market. Whereas the largest of the physical, bricks-and-mortar chain bookstores (such as Barnes & Noble) carry around 130,000 book titles, most of Amazon’s profits come from books that do not place among its top 130,000 sellers. The company’s profits can be thought of as stemming from a core group of bestsellers, combined with a “long tail” of books that sell only a few copies a piece.

In the digital economy, Anderson predicted, profitability would not longer be driven by “hits”; instead, the “misses” that appealed to only a handful of people would be more important to a business’s success. The future, he argued, belonged not to the mass market but to a dizzying array of niche markets.