1.04 – Defining Your Market Niche
Defining Your Market Niche
Markets are groups of customers within an industry. In conducting your feasibility analysis (covered earlier in this course), you work your way down from the broad industry to the narrower market niche.
Narrowing Your Market
Within each broad market are segments. For example, the broad market of people who buy books contains segments of customers for:
- Travel books (or any other broad category of books)
- Kids’ books
- Books appealing to seniors
- Audiobooks
Within a market segment, you can find niches – specific needs that perhaps aren’t being served – such as:
- Travel books geared toward people with disabilities
- Kids’ books that teach children a new language
- Books that teach seniors how to deal with technology
- Audiobooks that provide current journal articles to professionals
Market niches provide a place for new businesses to enter a market and gain a foothold before bigger companies take notice and begin to compete. Having a niche all to yourself gives you a quiet period during which you alone serve a customer need that otherwise is not being met. As a result, you get to set the standards for the niche. In short, you become the market leader.
As you zero in on your market, ensure that the niche you choose is large enough to sustain your business financially. The niche must have enough customers willing to buy your product, allowing you to cover your expenses and turn a profit.
Defining Your Target Market
Identifying your target market involves pinpointing the primary customers for your products or services – those most likely to purchase from you. Creating customer awareness of a new product or service is time-consuming and costly, requiring substantial marketing resources that few start-ups have. Instead of a broad approach, focusing on specific customers likely to purchase from you is far more effective. Going to the customer who’s easiest to sell to helps you quickly gain a foothold and build brand recognition, making it easier to sell to other potential customers.
Your initial definition of a target customer will likely be broad – an estimate. For example, you might start with “professional women.” As you conduct market research, you’ll refine this definition. For instance, you might discover your primary customer is “a woman in law, medicine, or business, between 35 and 55 years of age, married, with children.”
The basic questions to answer about your potential customers are:
- What are their demographics: Age, education, ethnicity, income level?
- What are their buying habits? What do they buy? When? How?
- How do customers hear about your products and services? Do they buy based on TV ads, magazines, social media, web advertising, word-of-mouth, referrals?
- How can your new business meet customers’ needs? What customer need is your product addressing?
Finding Answers
Your market research, including direct conversations with potential customers, will provide answers to these questions.
Not all customers are individuals; many are other businesses. The greatest dollar volume of transactions conducted online today is business-to-business. If a distributor, wholesaler, retail store, or manufacturer is paying you, your customer is a business, not an individual consumer. Businesses as customers can be described similarly to individuals, as they come in various sizes and revenue levels, and have buying cycles, tastes, and preferences.
Remember, if your customer is another business, they may not be the end user of your product or service. You must also consider the end user, the ultimate consumer. For example, here is a typical distribution channel:
Manufacturer > Distributor > Retailer > Consumer
If the distribution channel is filled with your products – like refrigerators – the distributor purchases the fridge to distribute to retailers. The retailer is the distributor’s customer, and the consumer who uses the fridge is the retailer’s customer and your end user. (To identify the customer, follow the money – who pays you?)
Developing a Niche Strategy
Defining and analysing a target market helps you find a way into the market so you have a chance to compete. Entering a market without a strategy sets you up for failure. You are the new kid on the block. If customers can’t distinguish you from your competitors, they’re less likely to buy from you. People generally prefer to deal with someone they know.
Niche strategy is the premier strategy for entrepreneurs because it offers the greatest control. Creating a niche that no one else is serving allows you to become the leader and set standards for those who follow. As the sole occupant of the niche, you can establish your business in a relatively safe environment before direct competitors emerge. Fending off competitors requires significant marketing dollars, and as a start-up, you have better uses for your limited resources.
Finding Your Niche
You find a niche by talking to customers. The target market from which your business opportunity arises also holds the keys to your entry strategy. Potential customers will tell you what’s missing in competitors’ products and services and what they need. Fulfilling that unmet need is your entry strategy.
