Niche Marketing Best Practices: Achieving Targeted Profitability
1. Introduction: Maintaining a Narrow Focus
For entrepreneurs and small business owners, the ability to wear many hats is standard practice. And some companies in search of accelerated growth extend that principle to the expansion of their product lines, service offerings, and client rosters. The risk is that they spread their resources too thin, strain to compete on more fields than they can manage, and lose the brand identity that drew customers to them in the first place.
It’s possible that your company’s growth trajectory would benefit from narrowing, rather than expanding, your business focus. When managed strategically, niche marketing can empower you to unlock increased profitability by targeting the market segments that are best aligned with your company’s core strengths, corporate culture, and long-term objectives. By adopting best practices in niche marketing, you optimize your company’s capacity to sustain peak performance in the areas most likely to attract and sustain profitable client relationships.
2. Get the Big Picture on “Niche” Parameters
To get started, make sure your perspective on niche markets is on target and up to date. A niche can be a small or highly specialized segment, but it can have much broader parameters.
Think of the biggest “niche” market of our age: the baby boomers who, at their peak, numbered 77 million, and who throughout their lives, have seen services developed or tailored to their evolving needs. More recently, we’ve seen a surge in awareness of the size and buying power of the U.S. Latino “niche” market, which the Pew Research Center reports grew by 50 percent from 2000 to 2012, when the population surpassed 53 million. Another emerging niche is the “value” segment, which gained ground during the recession and continues to generate marketing opportunities.
When you consider those numbers, it becomes clear that narrowing your focus need not mean limiting your growth potential. Quite the opposite, in fact: it can mean identifying the segments that offer you the greatest opportunities for market penetration. As a December 2013 McKinsey & Company article notes, “These and other ‘niche’ opportunities in developed markets can hold as much growth potential as entire countries.”
3. Identify Your Marketing Sweet Spot
Where are your company’s best niche marketing opportunities within that context? To get an accurate answer, begin by analyzing your numbers and identifying the most profitable (not just the highest volume) areas of your current business.
Connie Baher, president of U.S. Business Communications, consults with companies on marketing, business planning, and competitive strategy. She recommends plotting who is buying from your company and what your margins are. Then, she says, eliminate the customers who are difficult or undisciplined, such as those with a history of changing their minds about orders or being unreliable in their commitments to your company.
“They’re going to be the unsuccessful customers. You’re going to spend a lot of time with them and not make much money,” she says. “If you eliminated those customers, what would your margins look like for the whole business? How can you, for growth, focus more on your high-profit customers? What else do they need?”
To get the answers to those questions, engage your best customers in conversation. Look for ways to hit your performance targets by supporting their objectives. Make sure that the path for growth that emerges from those conversations aligns well with your business plan--or that you can revise that plan while remaining true to the company’s core identity and mission. Once you have those elements clearly defined, you can identify the niche market opportunities and prospective clients that are the best fit for your company, its capabilities, and its long-term ambitions.
4. Test Your Assumptions
Next, you’ll need to assess the competitive landscape and your initial place in it. “We want to look at, from an opportunity perspective, how much more business there is going to be,” Baher says. “We probably could rate our customers by their growth potential.”
Considerations include where you’ll find customers within your new niche and how that may alter the way you need to market. For example, you may have been working at the local or regional level but want to target a niche in which customers are located nationwide or even worldwide. Do you have a strategy in place for making that shift? Are you up to speed on the competitors you’ll encounter in new geographic locations or market segments? Can you articulate what your company offers that your competitors cannot?
Projected customer turnover is another critical issue, as is over-reliance on a few customers for a large percentage of your revenue. Can you achieve the right mix of first- and second-tier clients to ensure that your business remains viable? Do you have a strategy in place for handling shifts and cycles in demand? Baher encourages her clients to devote a day each year to thinking about what could put them out of business and what they can do to prevent that scenario from playing out.
5. Prepare for the Shift
Once you’re confident that you’ve identified the right opportunity, you need to assess the resources you’ll have to add, upgrade, or adjust to market successfully to your target niche.
Which skills can you and your staff acquire through training and business development? Can you get up to competitive speed fast enough to keep pace with emerging opportunities? Think about which of your current team members’ skills are transferable, for example, how well will the person responsible for project management be able to transition to managing a different kind of project? Make sure, too, that your employees understand the transition and the way their roles have evolved. Their participation and support are essential to your success, and you need to instill in them a sense of ownership so that it becomes their success, too.
Perhaps you’ll need to consider recruiting additional employees. Will the local market be able to deliver the talent you need, and are your recruiting practices and compensation standards adequate to attract and retain the top candidates? Or would it be smarter to consider outsourcing certain aspects of your business or forming a strategic partnership with a company whose capabilities complement your own?
Put your own expertise and commitments under a microscope, too. As you launch your new focus, you’ll face competing demands on your time as both marketing and leading the team in its new endeavors require your attention. Can you handle both roles successfully? Which will you give higher priority? Do you have the confidence to delegate some of your existing responsibilities to a trusted colleague or partner? Each of these internal, organizational factors will play a role in determining your ability to move productively and profitably into your niche market.
6. Play to Your Strengths
As a small business owner, you have certain competitive strengths that align well with the demands of niche marketing. You’re accustomed to fostering close client relationships and engaging in direct communication with the customers you serve. This creates a key advantage in anticipating and remaining responsive to changes in their requirements and priorities. By positioning your team as a resource to your customers and a partner in their continued success, you can leverage the power of niche marketing to unlock your company’s potential to achieve long-term sales growth.
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