“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”
Niccolo Machiavelli (1469-1527) Italian writer and statesman
The entrepreneur who finds a customer segment that has been underserved or overlooked can earn extraordinary rewards. Niche marketing requires that you focus on customers who cannot get what they want or need from their existing providers. For various reasons, mainstream firms will often innocently overlook or deliberately pass over customers with special needs; instead, they will choose to market to the larger, more homogeneous customer groups. These underserved or overlooked segments can be very fertile ground for the entrepreneur to exploit, since they need a provider who truly understands their requirements.
By focusing on these customer segments the entrepreneur can differentiate their offerings from that of the competition while creating loyal customers which will be a source of referrals. Additionally, the entrepreneur may be rewarded with higher margins and longer product life cycles. Every entrepreneur needs to know that to be successful in niche marketing you need to be first, best, or different.
Being first can be enough in some markets to capture a great reward. A business can differentiate itself by being the first to solve the customers’ needs; these customers and their unique needs may have been passed over by other firms. Unfortunately, it is hard to defend that position long term, presuming the market is big enough for more than one competitor. Sometimes being first creates a loud “buzz”, a public relations euphoria associated with the new solution. You may have witnessed this buzz in the software industry when innovative products hit the market. The product is the “new thing” and everybody seems to want it, at least until something faster or better comes along. When a second player enters the market with a better product, and this is often the case, the buzz for the first product goes silent, making the first firm a “one-hit wonder”. Thus, being first is seldom sustainable in the long term.
Being the best may be the optimum state for the entrepreneur. This implies that the solution provides exactly what the customers need today; most often this fit is derived from an intimate understanding of the customers’ wants and needs while offering a perfect or best solution. The customers value the solution above all others and may tolerate paying a higher price. Because of their loyalty, they may even be a source of referrals for your firm which helps create market-share dominance. The challenge in this case is how to stay on top. If the market is big enough, other firms will eventually want a piece of this market. If the competitors have sufficient capital and the barriers to entry are low, the first entrepreneur may struggle to defend its best position. Being best is easier when the market niche is very small and your firm is the only significant player. This positioning may be the “nirvana” of niche marketing, but I don’t know of many of them.
This leaves being different as the remaining option for most entrepreneurs. In this environment, the solution offered is unique enough to be a better choice for the customers; an example of this might be the Ferrari. The Ferrari, with its unique styling and high-end performance, is considered different to the point being of exotic and is highly valued by a special segment of automobile buyers. Ferrari has a loyal following, has few real competitors, and commands a very special price for the car’s unique attributes.
Alternatively, things can be done differently. My favorite example of doing the same thing differently is Starbucks, where a pedestrian product like a cup of coffee is delivered, packaged, and sold as a lifestyle item. In return, Starbucks commands a premium price and is rewarded with incredible brand equity. We can argue about their product quality, but essentially, they are doing things differently rather than offering something different. Being different or doing things differently tends to be the domain of many successful entrepreneurs.
To be successful, an entrepreneur has to be first to market, has to be the absolute best, or has to be demonstratively different from the competition. While it may be “possible” to be all three (first, best, and different), the challenge for the business is to be sustainable over the long term. Can you name any businesses that are first, best, and different and have stood the test of time? It is truly a short list and subject to great debate.
Coca Cola comes to mind as a firm that might be first, best, and different, but some would argue about the firm being first, best, or different. Coca Cola was actually beat to market by a “coca-wine” which was initially sold as a headache medicine; but Coke was the first mass-marketed soft drink. Pepsi drinkers might argue that Coke is not best by citing the “Pepsi Challenge”, which was a blind taste test that showed that cola drinkers had a preference for Pepsi over Coke. Is Coke different? People have voted yes with their dollars with Coca Cola topping $43 billion in 2005 revenues; remember, “Coke is It.” There is no doubt that Coca Cola has been a sustainable brand; it was founded in 1886 and has been a cultural phenomena. It must be said that Coca Cola is not exactly a niche player, but it illustrates the point that it is hard to be all three: first, best, and different.
Thus, the choices that remain for the successful entrepreneur tend to favor the creation of a unique offering for a special customer that has not been served well or at all by the other providers; this is the essence of niche marketing. As for which niche market to choose, that is up to you. Making that choice a reality then becomes a matter of designing, implementing and managing your niche market strategy, which we will discuss in much detail in this book; but, before launching this strategy, you must define your purpose.