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Niche Positioning: 3 Reasons Why Smaller Can Be Better

by Geoff Dillion

When companies or individuals invest money in a new venture, they generally don't want to shoot small with their market positioning, out of fear that they won't be able to attract enough business by marketing to just one niche segment within their chosen market.

Indeed, many companies take comfort in the fact that by striving for a market position that has wide appeal, they'll only need to capture a small percentage share to be profitable ("All we need is 5% of the market! Let's roll out the advertising!").

What they don't realize is that even a small share can be remarkably difficult to obtain with a new offering in a highly competitive market. A "shoot for the middle" strategy ignores that there are already plenty of competitors fighting over existing market positions within the core of the market, including common positions such as "low price provider", "best-in-class service" and so on.

By owning an identifiable market position or niche that may appear to be on the fringes of the market, you may greatly improve your chances for survival and success. Your offering will be well aligned with the needs of at least some of the people in the market, as opposed to an offering that is designed to appeal to everybody, but does so only mildly.

So the next time your company (or your client) begins to yield to the temptation of shooting for everybody as their target market for a new product or service, think about these 3 compelling reasons to shoot small:

1. You are more likely to have an impact.

A strong position that targets a market niche is much more likely to help you make a dent in the market. It provides your business with an identity, and gives customers who are unfamiliar with your business a reason to consider dealing with you.

For example, if you are a new realtor, you could occupy the first-time homebuyer niche. Maybe an older couple that has bought and sold 10 times will ignore your market position, but that's OK. The young couple two years out of college will hear your marketing message and may respond because your offering is uniquely positioned to appeal to their needs.

In this way, a niche strategy gives some of the people in your chosen market a strong reason to call you. This is almost always preferable to giving many people in the market a weak reason to call you, or no reason at all.

Making a dent in your chosen market through a niche strategy is critical in gaining some revenue in the early days of your business venture, a key to long-term survival. Many businesses overlook this fact when forecasting sales—the early sales may have a greater importance than future sales, depending on your cash flow position in the first few months of your venture (or the trigger finger down at your corporate office). In either case, pulling in a few dollars early in the game is never a bad idea.

2. You are more likely to be able to defend your business.

In any business, you can bet that as soon as you have a few customers, a competitor will be after them. A strong market position will help you defend your growing customer base. Using the above example, a new real estate agent who manages to establish the first-time homebuyer niche position may begin to turn the tide on even the most prolific agents in town by thwarting their efforts to attract first-time homebuyers.

This is true of almost any business. Match your position well against the needs and wants of a niche market, and you'll build a loyal client base that won't easily be swayed by competing offers.

3. You can organically grow your niche.

Service the needs of a particular market niche well, and your niche will start doing some marketing for you.

You may start generating referrals or word-of-mouth advertising from within your niche client base that attracts clients who fall outside of your niche. For example, your first-time homebuyers may make a referral to their parents, or neighbors, or coworkers and so on. Despite your niche positioning as an expert in the first-time homebuyer segment, the strength of the positive word-of-mouth promotion may be enough to convince many of these people to do business with you, even if they are buying their tenth home.

In this manner, your strong, defined market position can help you build business in other segments of the market over time, and grow beyond your current niche position.

Of course, word will spread within your niche as well. People within your niche may be alike in certain demographic categories and thus more likely to spread word about your business to peers. For example, first time homebuyers are likely to be of a certain age and are likely to have most of their social contacts within a similar age range, making it easier for word to spread about your position within the market.

A defined market position that targets a niche market is a great opening play for a new business, or a business breaking into a new market. Whether you are leading new product marketing efforts for a major corporation or starting up in the most entrepreneurial of businesses like real estate, a niche position in the market allows for good short-term prospects and the potential for long-term business maturation beyond your initial niche position.

The next time you look at a market, don't think about getting a small chunk of a big market. Shoot for a big chunk of a niche within the market, and build from there.

Geoff Dillon is a Toronto-based marketing professional. You can reach him at geoffdillon@geoffdillon.ca.

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