Question

Firms may choose which market segments to serve. It can be either broad or focus. Why do we care about “focused” or niche markets? (Hint: you may think either from competition or from resources perspectives or both). Some examples?

Answer 1

Focused or Niche Markets

Niche market is a market segmentation in which marketer caters to the needs of a very narrow piece of total market. The niche market is characterized by having a special need or geographic uniqueness, a special product attribute that appeal only to the Niche market. For example, Community Coffee which is a largest specialty coffee retailer in US has a geographic Niche market. It serves Louisiana only but it has most of the market share of that area beating Companies like Starbucks in competition in that area. This is an example of Geographic Niche market. Some examples of Niche products that cater to the need of a Niche market are TV channel such as Animal Planet ( shows only animals), Porsche (Slorts Car), etc.

I am thinking from the competition Perspective. We care about Niche markets because they have the potential of high profits if the product is designed properly. You must see first whether the Niche Market is big enough to provide profits to a company. You can design and price the product for a specific part of the market and if you are able to understand their needs properly and designed a product that meet their needs then you can gain competitive advantage over your Rivals. Company can earn good profits and market share in the market by operating in a niche market.

Competition Perspective

• A focused low cost strategy: It is a strategy by which company aims to achieve competitive advantage serving the product at a lower cost than its Rivals in a target Niche market. This strategy is attractive when a company can lower its cost significantly by serving only to a well defined niche market. These companies can save costs by directly delivering products to Retailers. They save cost in marketing, advertising, and in research as well. Some Companies imitate the design of large company and produce the same product at a lower cost and supply to Niche market.
• A focused Differentiation Strategy: Company produce product with a unique or special attribute that appeals only to Niche market. It is not broad Differentiation but a specialised differentiation designed specially to meet the need of a well defined market. Products like Gucci, Rolls Royce, etc have world class attribute which are designed for a well defined market of Rich People.