The Power and Importance of Niche Markets – How do you connect with potential customers?
One option is to spend half a year and thousands of dollars mapping out a target audience, identifying pain points, and building a comprehensive marketing strategy.
Or you could just sell left-handed scissors.
That’s what the founders of Lefty’s did. They realized that a specific group of Americans have trouble finding a wide range of everyday goods, including office supplies, kitchen utensils, and tools. Because only about 10% of people are left-handed, it isn’t cost-effective for big companies to invest in designing for their needs or marketing to them. But Lefty’s realized that by only stocking and selling left-handed products, they could instantly create a loyal customer base with automatic buy-in and a real interest in seeing the company succeed, because its very existence was such a significant quality of life increase for them.
That’s the power of niche marketing: low marketing costs, strong network effects, reduced competition, high consumer trust and brand loyalty, greater pricing control, and more.
Here’s how it works.
What is a Niche Market?
This question isn’t as straightforward as it appears. The simplest answer is that a niche market is a group of potential customers with something in common. That something can be location, demographics, habits/behaviors, commercial needs, or mental traits and preferences. One recent study collected definitions from more than 20 years of research, and isolated a few other key characteristics. In addition to having something in common, consumers in a target market are:
- Underserved or overlooked by mainstream product/service providers
- Willing to pay extra for products/services tailored to their needs
- A comparatively small or limited group, usually united by social connections
Most commonly, the way niche markets work is that a shared characteristic (like being left-handed) gives a group of people a shared lifestyle need (like looking for left-handed products), and that lifestyle gives them a purchasing behavior in common (buying left-handed scissors). That turns them into a ready-made market.
There are endless examples: owners of parakeets with a habit of escaping their cages; people with long, curly hair; people with swampy, mosquito-prone back yards; homeowners with leaky plumbing in a particular small town. High-profile examples include Square, makers of a smart phone plugin for processing credit card payments, and American Journal Experts, who provide specialist editors for researchers who are not native English speakers.
Here’s the key feature that makes these niche markets so useful and profitable. Under normal circumstances, members of niche markets don’t have their needs met. Without Square, street vendors were stuck using cash. Without American Journal Experts, millions of scientists had to rely on friends and family to publish in the world’s top journals. By designing products and services just for members of niche markets, companies immediately make them feel special.
The Benefits of Niche Markets
The most obvious is brand loyalty. If someone has severe allergies, they’re likely to patronize a restaurant that goes out of its way to be allergen-free, even if there are a dozen other exceptional eateries just around the corner.
And brand loyalty is one of the simplest consequences of the biggest advantage that comes from working with niche markets, which are network effects. Essentially, businesses that successfully target niche markets become part of a pre-existing community—a group of people whose interests are aligned. That makes it easier to earn loyal customers, but it also makes it easier to build trust, become an established expert, identify new trends and opportunities, and expand into new service areas.
There are three other major benefits:
First, operating in a niche market gives companies far more control over pricing. Because customers feel that they are being given a special, just-for-them product or service, and because the product or service tends to be something they already wanted before the company offered it, they’re typically willing to pay far more than would be expected in a mainstream market environment.
Second, there is less competition. Most large firms will lack the knowledge or agility to target niche markets, as their focus has to be on finding and keeping the largest possible audience. This gives startups and small businesses room to establish themselves.
Third, marketing is cheaper and more effective. By targeting a niche market, firms can immediately be confident that their audience is receptive to their messages, the content that appeals to one person will appeal equally to others, and that market-related content will be consistently popular. Pay per click advertising is much easier to scale in niche markets, SEO is simpler and more reliable, and blog or article writing with more consistency generate traffic and activity. At the same time, word-of-mouth promotion will take place automatically and drive sales far more effectively than it does otherwise, and all forms of advertising will have higher conversion rates.
Of course, there are some downsides to serious niching. For one thing, it can be hard to expand: you can’t outgrow your niche without fundamentally changing your business model. For example, you depend on the niche for survival: if your community dissolves, so does your revenue stream. And finally, the small- and medium-sized businesses that usually populate niches are vulnerable to being outcompeted if a larger firm takes an interest.
But those risks are usually worth it, especially for new, local, or small businesses. The advantages in terms of marketing spend and customer loyalty alone make niching an obvious choice for most. The question isn’t whether you should seek out a niche market, it’s how to get involved and become part of the community. My advice? Start local, and take your first steps by building individual connections. Get to know the concerns and challenges faced by your audience, and build from there.
Akbar, F., Omar, A., & Wadood, F. (2017). The Niche Marketing Strategy Constructs (Elements) and its Characteristics-A Review of the Relevant Literature. Galore International Journal of Applied Sciences & Humanities, 1(1), 73-80.
Feng, Y., & Hu, M. (2017). Blockbuster or niche? competitive strategy under network effects. Competitive Strategy Under Network Effects (September 1, 2017). .NET Institute Working Paper, (17-13).
Fonner, R., & Sylvia, G. (2015). Willingness to pay for multiple seafood labels in a niche market. Marine Resource Economics, 30(1), 51-70.
McCormick, K. (2016, 22 July). 7 benefits of niche marketing. ThriveHive. https://thrivehive.com/niche-marketing-small-business/
Speiser, M. (2020, 21 January). Niche market: Definition, examples, and how to find one for your business. https://www.fundera.com/blog/niche-market
Thilmany, D. (2012). What are Niche Markets? What Advantages do They Offer?. Assessment and Strategy Development for Agriculture.
Toften, K., & Hammervoll, T. (2009). Niche firms and marketing strategy. European Journal of Marketing, 43(11-12), 1378-1391.
 McCormick (2016); Speiser (2020); Thilmany (2012).
 Speiser (2020).
 Akbar, Omar, Wadood, & Tasmin (2017).
 Fonner & Sylvia (2015); Thilmany (2012).
 Akbar, Omar, Wadood, & Tasmin (2017); Toften & Hammervoll (2009).
 Feng & Hu (2017).
 Fonner & Sylvia (2015); McCormick (2016).
 Speiser (2020); Thilmany (2012).
 Feng & Hu (2017); McCormick (2016); Toften & Hammervoll (2009).