Advantages of Niche Positioning

When companies or individuals invest money in a new venture, they generally want to shoot small with their market positioning or in other words target 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 niche appeal, they'll only need to concentrate their resources in a small area to be successful.
By owning an identifiable market position or niche that may appear to be on the fringes of the market,small firms greatly improve their chances for survival and success. Their offering will be well aligned with the needs of the select few people in the market. This is better than a product/service that is designed to have a wide appeal to everybody, but the competition is so fierce that the new firm is bound to lose.

Yesterday I happened to meet an extraordinary person Mr. Dee Mehta, the co-founder of Bayside Design Inc. A niche design service provider who specializes in offering high-end package design services. Needless to say that his firm is successful and have carved a name for themselves in the Silicon Valley. During our conversation, he brought up a fact that he was also the co-founder if Velio Communications Inc. Velio Communications was not very successful and was acquired by LSI Logic.

It was during my conversation with this tireless entrepreneur, I began to formulate three compelling reasons to target a niche market and be successful.

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 ASIC design services provider, you could occupy RTL verification services niche. This may not appeal to most large semiconductor firms, but that’s OK. Small startups which have little expertise in design verification will hear your marketing message and will come to you because your offering is uniquely positioned to appeal to their needs. E-Infochips a design verification service firm has managed to do just that.

Another Example, Bayside Design Inc offers package/board design & analysis for high end designs.

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, Einfochips or Bayside Design Inc, is in a good position to grow its niche market position even when more than reputed design services firms.

A niche service provider can alter their service offerings to meet their customer needs more readily and hence command a higher customer loyalty. This will build a stronger customer base and it is easier to defend their business from competition.

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 clients who 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, Open-Silicon a customer for Bayside Design Inc was eager to introduce Bayside Design to other firms in Israel. Independently, it would have been impossible (or close to impossible) for Bayside Design to reachout to firms in Israel.

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.

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.

Closing Thoughts

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.