4.03 – Determining Niche Attractiveness
After choosing an attractive industry for your business model, it’s time to find an attractive niche. Your niche market is a subset of the overall market you participate in.
Know the Power of a Good Niche
Picking the right niche can be even more important than picking the right industry. For example, Vistaprint was founded in 1995 when the traditional printing business was struggling. Thousands of printers went out of business during the 1990s and early 2000s. During that time, Vistaprint grew into a billion-dollar business. How did Vistaprint thrive while others declined? They targeted micro and small businesses considered too small for traditional printers. By leveraging technology ingeniously, Vistaprint turned unprofitable small customers into one of the most profitable printing operations in the world.
Unlimited Niches Exist
Good news! You can find unlimited niches within any market. Many successful companies have created or refined a new niche as part of their strategy.
Here are some examples:
- Panera Bread: Healthier, higher-quality sandwiches aimed at the fast-food industry.
- Häagen-Dazs: High-end ice cream at triple the price of other ice creams in the frozen dessert industry.
- Starbucks: Not just a cup of coffee – an experience. Competing against both restaurants and convenience stores, Starbucks offers a unique coffee experience.
- McDonald’s: Fast, consistent food. This niche in the restaurant business was new and untapped when McDonald’s started, leading to dominance in the market.
- Coach: Everyday luxury. Coach bags are more stylish than department store brands but priced more reasonably than high-fashion brands, appealing to a wide range of customers.
- iPad: Positioned between a laptop, Gameboy, and smartphone, Apple created a niche for an easy-to-use, portable device.
Markets Have a Habit of Splitting
As markets mature, they tend to split into more niches. Niches that were once small can become significant over time. For example, fifty years ago, abrasive cleaners like Comet dominated the household cleaner market. In 1977, the Clorox Company introduced Soft Scrub, a niche cleaner for those wanting an alternative to hard abrasives. Over time, cream cleaners became the largest segment of the household cleaner market, with niche products like Cerama Bryte stove top cleaner emerging for specialty uses.
If you think of the overall market as a bell curve with the largest market in the centre, the best niches often exist on the fringes. The left fringe represents low-cost options, while the right edge represents high-cost options.
Your business model should generally avoid entering the fat portion of the bell curve, where established markets and strong players dominate. Instead, find a fringe to attack, as shown in Figure 4-2. Established players typically won’t leave their large markets to compete in your niche.
In Al Ries and Jack Trout’s classic marketing book, “The 22 Immutable Laws of Marketing,” they suggest that your goal as a marketer is to create a brand that becomes synonymous with the category, like Kleenex for tissues or Jell-O for gelatin. This is the gold standard of niche creation.
Niche Markets Aren't Always Logical
Creating a niche may be easier than you think. Take the iPad, for example. Despite many reasons why it shouldn’t have worked, Apple’s secret was niching the product differently from previously failed tablet computers. The iPad wasn’t a personal computer – it was a giant iPod. Apple saw the unmet demand for a device offering fast-boot Internet, easy email access, a readable screen, enough portability, and a cool factor, creating a brand-new niche.
Find Unserved or Underserved Markets
The best way to create a good niche is to find an unserved or underserved market. Blockbuster products achieve this by identifying needs that are not being met. For example, cellphones weren’t initially bought for what they were but for what they did – making people feel safer and more productive.
What does underserved mean? If the market was obviously underserved, an existing player would fill the void. Some guesswork is involved in predicting what underserved means, using business judgment and market testing.
Sometimes identifying an underserved market is easy. A fast-growing suburb needs gas stations, restaurants, and services. Exponential growth in smartphone use creates users faster than applications can serve them. However, obvious niches attract competition, so be willing to take chances on less obvious niches.
How can you find these elusive unserved or underserved markets?
- Personal Experience: Many great products come from an entrepreneur’s discontent with the status quo. For example, Fred Smith conceived FedEx when he wondered why letters couldn’t be delivered overnight.
- Friends and Relatives: Look to friends who are early adopters. What products and services are they buying and why? What problems do they wish they could solve?
- Research Trends: Catching a trend can enhance your niche because growth is built-in.
- Hired Experts: Professional business plan writers, consultants, futurists, and other gurus can help you find a niche.
- Luck: Angie’s List (now Angi) began as a monthly booklet of contractor reviews. When the Internet transformed the business model, it became a comprehensive website, dominating its niche.
