Carving Out a Successful Niche – Part 1
By Brian Hazelgren
Do you know precisely who your customers are? You may know many of them by name, but do you really know what type of people or businesses they are? For example, if you sell to consumers, do you have demographic information (i.e., what are their average income ranges, education, typical occupations, geographic location, family makeup, etc.) that identifies your target buyer?
What about lifestyle information (i.e., hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.) on your target buyer?
This type of information can help you in two very important ways. It can help you make changes to your product or service itself, in order to better match with what your customers are likely to want. It can also tell you how to reach your customers through advertising, promotions, etc.
For an obvious example, a company that sells athletic shoes may know that its typical customer is also a sports fan. Thus, if that company can build shoes good enough to be worn by professional athletes; it will have a convincing story about quality to tell. It can also benefit by using well-known athletes as spokespersons in its advertising, and by placing advertisements in sports magazines where its customers are likely to see them.
How can you refine your understanding of your own customer base? I suggest you look at the issue from two angles:
Niche marketing— identifying the heavy users of your product so you can direct your marketing efforts more precisely to those users
Segmenting the market— dividing the existing market up into sections or segments that may become new niches for your business
Most marketers know that “20 percent of buyers consume 80 percent of product volume.” If you could identify that key 20 percent and find others like them, you could sell much more product with much less effort.
The “heavy users” of your product can be thought of as a market “niche” that you should attempt to dominate. Niche marketing today means targeting, communicating with, selling to, and obtaining feedback from the heaviest users of your business’s products or services.
Picking the right segment of the market is important to achieving sufficiently large sales volume and profitability to survive and prosper as a company. Picking the right market segment means that it is:
- Made up of consumers who will buy from you
- Measurable in quantitative terms
- Substantial enough to generate planned sales volume
- Accessible to your company’s distribution methods
- Sensitive to planned/affordable marketing spending events
In identifying your niche and the segment of the market you will target, it is also important to examine other factors that could affect your company’s success. You will want to consider:
- Strength of competitors to attract your niche buyers away from your products
- Similarity of competitive products in the buyers’ minds
- Rate of new product introductions by competitors
- Ease of entry/protectability in the market for your niche
Perhaps the driving force behind “niche” marketing or “segmentation” is the need to satisfy and keep those consumers who really love your products or services. Consumers become increasingly more sophisticated and demanding. And product choices continue to expand with prosperity and global competition.
Even large companies have embraced niche marketing, continuing to refine and target their product offerings to different buyer groups. As an example, Nike restaged a multi-billion dollar company that had plateaued by pursuing a segmentation strategy. Nike designed and marketed athletic shoes for each different sport, often further segmenting with specialized models within each sport (i.e., “Air Jordan” basketball shoes, additional basketball models called “Force,” represented by Charles Barkley and David Robinson, and “Flight,” represented by Scottie Pippin).
In addition to the considerations listed above, it also is important to be able to identify and estimate the size of your target market, particularly if you’re thinking about a new venture, so that you can tell if the customer base is large enough to support your business or new product idea. Remember that it’s not enough that people like your business concept. There must be enough target buyers on a frequent-enough basis to sustain your company sales, spending, and profits from year to year.
For example, selling a product or service that people may need only once in a lifetime (i.e., an indestructible pair of shoes) may not be a sustainable business, unless a large number of people need it at any given time, or everyone needs it eventually (i.e., funeral services), or your profit margins generate a substantial income.
How to Segment Your Market
If the universe of all potential buyers is your “market,” then the market can be divided up into sections or “segments” based on any number of factors. For example, you might divide up your customers by age group and find that you sell most of your products to people aged 18 to 34. You might divide them up by family size and find that you sell most of your products to married couples with young children. You might divide them up by economic status and find that you sell most products to people with an annual income of about $50,000 to $75,000. You may even divide them up by geographic location and find that you sell most of your products to people living within two specific ZIP codes.
Many small businesses stop there, thinking they have enough information to be able to identify and communicate with their most likely customers. However, larger companies will attempt to push on further and find out even more information about their customers’ lifestyles, values, life stage, and so forth.
Let’s define some terms:
Demographics refers to age, sex, income, education, race, martial status, size of household, geographic location, size of city, and profession.
Psychographics refers to personality and emotionally based behavior linked to purchase choices; for example, whether customers are risk-takers or risk-avoiders, impulsive buyers, etc.
Lifestyle refers to the collective choice of hobbies, recreational pursuits, entertainment, vacations, and other non-work time pursuits
Belief and value systems include religious, political, nationalistic, and cultural beliefs and values.
Life stage refers to chronological benchmarking of people’s lives at different ages (i.e., pre-teens, teenagers, empty-nesters, etc.).
How can you find out more about your customers? Through market research, of course.
Larger companies segment their markets by conducting extensive market research projects, consisting of several rounds of exploratory research.
Customer and product data collection: Researchers gather data from users of similar products regarding:
- Consumable products, and how often they are consumed
- Number and timing of brand purchases
- Reasons for purchases
- Consumers’ attitudes about various product attributes
- Importance of the product to the lifestyle of consumer
- Category user information (demographics, psychographics, media habits, etc.)
- Seasonal uses, and seasonal colors
Factor and cluster analysis: Researchers analyze the data collected in ways to find correlations between product purchases and other factors, as a basis for identifying actionable consumer target “clusters.” Clusters are defined as “niche markets,” where there are identifiable numbers of buyers or users who share the same characteristics and who thus can be reached by adept advertising and promotion.
Cluster identification and importance ranking: Researchers then determine whether clusters are large and viable enough to spend marketing funds on them whether potential marketing niche clusters fit strategic company objectives; i.e., does marketing to this group fit your existing image and long-term goals?
What can smaller companies do to segment their markets?
Smaller companies can research secondary data sources and conduct individual interviews with key trade buyers and consumers or end users of their products and services (qualitative research). Often qualitative research can be accomplished for free or little expense.
Smaller companies also can conduct informal factor and cluster analysis by:
- Watching key competitors’ marketing efforts and copying them
- Talking to key trade buyers about new product introductions
- Conducting needs analyses from qualitative research with individuals and groups
In many cases, smaller companies have access to the same databases as large companies for estimating the sizes of market segment clusters and their importance. Some low-cost sources of external secondary data include:
- Trade and association publications and experts
- Basic research publications
- External measurement services (large market research firms include ACNielsen, Burke, and Information Resources, Inc. (IRI)
- Government publications
Smaller companies can segment markets by geography, distribution, price, packaging, sizes, product life, and other tangible factors in addition to demographics and lifestyle and psychographic clustering.
Service businesses will want to go as far as developing a cluster of clients based on a radius within a certain geographical area. For example, an interior designer may want to focus on a 50-mile radius, and a math tutor may look at a 20-mile radius for servicing customer needs. Some service businesses like dry cleaners will even tighten down the radius to about 3 to 5 miles.
You decide how large the radius around your business should be, but put some type of limits to where you are physically capable of servicing your customer’s needs.