Much is being said today about niche marketing -- finding that lovely little cubby where unfair competitive advantage leads to huge margins, easily identified and willing customers and eternal happiness. A proper niche also provides refuge from the brutality of today's ever shorter product life cycles. A "niche" strategy is built around a complete and thorough understanding of your customers which permits you to tailor your approach and your products to their needs, build lasting customer relationships over time and add significant value. This closeness to the customers or special relationship can also become a strong barrier to entry for your competitors.
Venture capitalists are searching more and more for niche companies. Where once they were looking for the home run, they are now more inclined to go after a series of singles. The niche company should be able to dominate their market, stave off competition and thereby make large returns for the investor.
To target the right niche, the process starts with segmenting the market and then moves to identifying that segment where you bring unique solutions to a segment that has money and acknowledged serious problems. This process is far easier with existing well-defined markets. Unfortunately, high tech very often means the pursuit of emerging markets. One strategy, in this case, is to sell technology to pioneers in various segments and nurture the potential high value added application areas. When a segment shows signs of real opportunity, then the company can jump in. For example, the vision system industry went nowhere until it identified a few very specific application areas and then developed products specifically for those applications.
The message is clear and it happens to be the most common single piece of feedback given to companies presenting to the Forum -- "Focus! Focus! Focus!" The entrepreneur often finds it oh so difficult to forsake market opportunities. There are so many wonderful uses for his or her widget that the idea of giving up markets and concentrating on one is anathema to them. However, to take advantage of what is becoming a very successful strategy -- "niche marketing" -- this is the essential requirement.
Reprinted with permission from The MIT Enterprise Forum, Inc. of Cambridge. The article first appeared in the "Forum Reporter," Volume 8, No. 2, October 1989.
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