There is a huge list of different marketing strategies to increase business profits. Despite this, one of the most popular is a niche or focused strategy. It has its disadvantages and advantages, however, small, medium and large businesses use it to increase their profits.
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Niche strategies are appropriate:
- in the presence of a sufficiently large segment that ensures the required profitability and growth prospects;
- if there is no interest in the segment on the part of industry leaders, which reduces the likelihood of competition with them;
- if there is a sufficient number of segments in the industry to select the most attractive of them, corresponding to the potential of the organization;
- if the entity wishing to service the segment has the appropriate experience and resources.
Even a small organization, using a niche strategy, can achieve a competitive advantage if its products are attractive to the segment and it has a successful competitive position.
The disadvantages of niche strategies include:
- The likelihood of the entity being pushed out of a narrow target segment by competitors (by offering a product that better meets customer needs or by obtaining resources that exceed the company’s resources);
- The likelihood of erasing differences in customer needs between the target segment and the rest of the market, which will open the way for competitors;
- The likelihood that the segment will be highly attractive to a large number of competitors, which may significantly reduce its profitability.
Examples of companies that have chosen various niche strategies
eBay (electronic auctions); Porsche (sports cars); Cannondale (elite models of mountain bikes); Horizon, Comair and Atlantic Southeast (passenger airlines with low traffic at a range of 50-250 miles); Jiffy Lube International (refueling and lubrication of cars, minor repairs); Enterprise Rent-a-Car (rent of cars instead of repaired); Bandog (restoration of tires; the company actively offers the services on hundreds of parking places of trucks); Motel 6 and Ritz-Carlton.
Niche strategies in the hotel business MOTEL 6 and RITZ CARLTON compete in different segments of the hotel services market. MOTEL 6’s focused strategy is focused on low costs, while RITZ-CARLTON has focused on differentiation.
MOTEL 6 is focused on the poor travelers who need a room for one night. MOTEL 6 offers them clean, comfortable rooms without any excesses. In order to reduce costs, the company chooses inexpensive sites for the construction of buildings near highways with heavy traffic; builds hotels without bars and restaurants (but sometimes with swimming pools); uses standard designs, cheap materials; in the rooms only the most necessary furniture.
All this reduces the cost of both construction and maintenance. Since there are no bars, restaurants and additional services in the hotels, the company manages only the registration staff, technical services, and cleaners. In order to attract travelers who need a modest but comfortable accommodation, the company uses radio advertising, which involves well-known radio commentators. Advertising highlights the advantages of MOTEL 6 cleanliness, comfort, quiet atmosphere, low prices.
The RITZ CARLTON is aimed at travelers and customers who are willing to pay for excellent service and personalized service. RITZ CARLTON hotels are distinguished by their excellent location and magnificent room views, architectural style with national flavor, great restaurants, fine cuisine, luxurious lobbies, swimming pools, gyms, technical perfection of rooms, various hotel services, large and well-trained staff.
Both companies focus on fairly narrow market segments. The competitive advantage of MOTEL 6 is its low cost and limited range of services for unpretentious travelers. The advantage of RITZ CARLTON is in a wide range of services for sophisticated customers. Both strategies are successful, albeit different. This is explained by the heterogeneity of the hotel services market, which has different segments with different needs and financial capabilities of consumers.
A niche low-cost strategy is widely used in business. Manufacturers reduce marketing, distribution and advertising costs by moving to direct sales in retail stores and store chains, delivering standard branded products at discounted prices. The combination of cost advantage and narrow market niche service gives good results if the company finds ways to reduce costs and limits the target audience to a particular market segment.
At the other end of the market spectrum are such companies as Chanel, Rolls-Royce, Haagen-Dazs, and W.L.Gore, which have created niche differentiation strategies focused on elite market segments that require first-class products and services. In any market, there are segments where customers are willing to pay more for additional product features, allowing companies to implement focused differentiation strategies that serve an elite customer base.
Another example of a successful niche differentiation strategy is the elite chain of Trader Joe’s 150 outlets, a combination of a delicatessen store and a food wholesale base. Trader Joe’s customers buy expensive exotic products along with a standard set of common groceries, so the store’s stock contains exquisite products such as salmon sandwiches and jasmine fried rice, and at the same time standard products that can be found in any supermarket. Trader Joe’s difference from its peers is not only the combination of exotic and conventional products and competitively low food prices, but also the opportunity to turn a regular grocery shopping trip into an exciting, entertaining experience.
Blue Mountain Agent has a strategy of differentiation in the production of greeting cards and differs from its competitors – Hallmark and American Greetings – not only by the distinctive design and content of its cards but also by the presence of electronic greeting cards.
While selecting a particular niche as the primary focus of attention makes it much easier to find and attract clients, it is essential that there are enough clients in that niche to make it an advantage. An animal shop, targeting a wide range of pet owners, will have far more potential customers than a shop specializing in pet ferrets or poodles only. These niches may be too small for the local market.
Veterinarians specializing in the treatment of cats or horses stand out against the background of general practice veterinarians and can position themselves as experts in this niche. This will already be an advantage of niche marketing – people often prefer to deal with narrow specialists who focus on one narrow niche.
Applying a niche strategy always gives good results, especially in startups, the clearer the distancing and dissimilarity to competitors for a certain category of clients, the greater the chance that the project will “take off”. If you’re a startup, fast business loans can help you a lot. Most entrepreneurs experience a sudden need for extra cash at some point during their careers, especially startups.