What determines a successful niche strategy

Niche marketing is a very important marketing tool that is defined as “focusing on sub-segments or niches with distinctive traits that may seek a special combination of benefits (Kotler & Armstrong, 1997)

Niche strategy or sometimes-called focus strategy is a marketing segmentation strategy that concentrates or focuses on a few target markets. Users of this strategy hope that by focusing on a few (one or two) markets segments that are narrow, they would be in a better position to meet the needs of that market. Therefore the company strives to tailor make its marketing mix to suit these specialized markets that it has identified. By using the niche strategy the company easily stands to gain or have a competitive advantage by being effective rather than efficient. (Kotler & Armstrong, 1997)

Niche strategy in most cases is suitable for small firms although it is open to any company which would want to utilize it in selecting targets with lesser substitute vulnerability or where there is weak competition. (Kotler & Armstrong, 1997)

There are several factors that greatly enhance a successful niche strategy and include: –

1) Market –research
Before developing any niche market it is very important to conduct a comprehensive market research of the desired market before embarking on any marketing program. Towards this end, a SWOT analysis that highlights the strength and weaknesses of the company vis-à-vis the market it desires to segment is very necessary. (Chisnall, P.M.1997)

The market research will enable the company determine the market characteristics that will enable it serve this particular segment in a better way. Such characteristics would include, customer preferences, desirable price ranges level of competition, product differentiation, distribution channels, the marketing mix and various other important marketing variables.  (Chisnall, P.M.1997)

When these characteristics have been established and defined the company on its part designs a marketing model that should suit the target market and be a profitable venture for the company. The market research in itself will enable the company not only identify a market but will give it more information on the demographic history of the market as well. (Chisnall, P.M.1997)

2) Create customer loyalty.

One major threat to establishing and growing any niche is competition. Competition may eat up a share of the company’s market, reducing the profitability or worse still drive out the company from the market. Towards this end it is very important for the company to make it its priority to listen to the customers. When the company makes it its goal to carefully listen to the customers, it will have the ability to create products or services that will not only meet customer expectations but will meet their needs as well.

Listening to the customer will enable the company differentiate its product range to suit the needs of the niche. This will in turn create loyalty that will enable the company weather any form of competition, in fact when customers are loyal it will be very difficult for them to seek other alternatives or switch to the competitors. (Peter, J.P. and Olson, J.J., 1996)

3) Develop two or more niches

By developing two or more niches it will prove quite advantageous to the company in several ways. The experiences and lessons gained in other niches will give the company the ability to tackle the challenges that would likely to occur in a different niche. (Baker, M. 2000)

Two or more niches on the other hand may work towards supporting each other especially in the advent of any form of competition; for example when one niche is faced with competition other niches can be of great support especially if price competition would be necessary.

Two or more niches supporting each other gives the company a leverage that would enable it sustain any form of marketing campaign to maintain high market penetration. By maintaining two or more niches, the company lowers the risk of closing shop just in case one of the niches collapses or is faced with competition and there’s a reduction in profitability levels.  By developing more than two niches the chances of success are increased tremendously as well. (Baker, M. 2000)

4) Focus on a particular region

To achieve successful specialization, it is important for the company to address those geographic markets that other competitors ignore. By focusing on a particular region, it is easier for the organization to design a distribution channel that will not only be effective in terms of logistics but will ensure timeliness in the distribution of goods or services. By focusing on a particular area, it enables the company to create or design an effective marketing strategy to promote and create awareness of its goods and services.

The company also stands a better chance of interacting with the customers more deeply and freely to which case it would be easier to predict the buying trends and the customer preferences. (Linneman, R.E. and Stanton, J.L. 1991)

Gamma Plc
Gamma PLC produces very high quality motors for garden mowers and this fact gives it an edge over its competitors in this particular niche. However the company can not sit back and sit on its laurels, It is imperative for company to work extra hard to ensure it commands these niche especially with the competition of such established organizations like Yamaha and Honda.  To guard itself from this onslaught there are certain challenges that the company will face which might force it out.

Competition

As it is, already the company is facing competition from such world acclaimed names like Yamaha and Honda. For such names to be attracted to such a market, then it follows that the market is very lucrative.

Gamma PLC is not quite renown, apart maybe for this particular market segment, unlike the competitors who are well established and with renowned brands. The big players if they would decide to flex their muscle, this might drive out Gamma from this niche. (Linneman, R.E. and Stanton, J.L. 1991)

They can do this in various ways including powerfully utilizing the 4ps (Price, promotion, product and place) of marketing. The kind of marketing or promotion blitz they would likely conduct, would obviously be superior compared to Gamma’s with a lesser budget. Besides, these companies’ would likely introduce price wars that would have adverse effect on Gamma Plc, whose budget would likely be comparatively small. The latter’s prices cannot compete with those ones of the more established firms.

This kind of competition would prove to be a nightmare for Gamma whose niche is under threat. After all, the bigger companies’ bottom line would not be affected in any way because their presence is worldwide and are more experienced and advanced especially with the marketing capabilities. (Linneman, R.E. and Stanton, J.L. 1991)

The competitors may also decide to adopt or even copy how Gamma Plc is producing its high quality motors, thereby claiming some of the market share.

Competition may also come in terms of remuneration and staff training where the other organizations may be attractive to employees in Gamma.

The niche strategy may be limiting
By adopting and relying on this particular niche the company would be faced with another challenge of future growth. Because it might expend all its energies trying to defend this niche from Yamaha and Honda it might lack the resources to venture in other markets thereby limiting its own growth. This is always foreseen especially if the market is relatively small. As time goes by Gamma’s market share might shrink which might eventually affect its continued production of highly quality motors. (Linneman, R.E. and Stanton, J.L. 1991)

Is the market defensible?

This should be the question that should be ringing in the minds of Gamma Plc’s management. It would not be worthwhile to cling to one niche especially if it is not defensible. Most small companies like Gamma will find it challenging to judge this especially bearing in mind that this is the market that supports the organization. The company may lack the resources to get out if the competition becomes unbearable and establish another niche elsewhere. (Linneman, R.E. and Stanton, J.L. 1991).

The market would be defensible if the customers within the niche have shown the willingness to support the company regardless of who comes to compete, which is to mean they are strictly loyal to Gamma. It would also mean that the market would be big enough to warrant any fight over it. However if the market is small and shrinking there’s not need to waste the resources to defend it.

Substitute Products
Gamma Plc manufactures quality products and as stated before this might be the edge it might be having over the competition. However, it is worth noting that quality in most cases comes at a higher price. Thus consumers would likely to be charged more compared to similar products from other companies. Yamaha and Honda may take advantage of this by providing cheaper alternatives that the customers can select from. This means that not all consumers use quality as the driving purchasing factor. Most consumers will go for cheaper products provided the offer similar functions. This would force Gamma either to lower quality so that the product becomes cheaper or seek for more efficient ways of production. (Linneman, R.E. and Stanton, J.L. 1991).

Gamma Plc most probably specializes in the production of motors for garden mowers, which in essence means that they lack any other product line, unlike Yamaha and Honda who have a very wide product range, that ranges from generators to motorbikes. The range could be a very crucial marketing entry point for consumers who might not necessarily want motors for garden mowers yet they possess them. (Linneman, R.E. and Stanton, J.L. 1991).

REFERENCES

Baker, M. (2000) Marketing Management and Strategy, 3rd edition, Macmillan Business.

Chisnall, P.M. (1997) Marketing Research, Fifth Edition, London: McGraw-Hill

Kotler, P. and Armstrong, G. (1997) Marketing An Introduction. Fourth Edition. New   Jersey. Prentince Hall International

Linneman, R.E. and Stanton, J.L. (1991) Making Niche Marketing Work, New York:     McGraw Hill

Peter, J.P. and Olson, J.J. (1996) Consumer Behaviour and Marketing Strategy, USA:    Irwin