... where visionaries, game changers, and challengers discuss business models
A common problem with many small businesses is the idea that the entire market is their market. For example, a video production firm looks at the growing market for promotional videos and states – “last year 1.2 billion dollars were spent on promotional videos, even if I only capture one-half of 1% I will be fine!” While I always applaud enthusiasm, this does not take into account that there are thousands of people doing the same thing (or millions these days) and each one of them wants that one-half of 1%! Furthermore, many of those companies already have their video company they work with and changing that relationship will be very difficult, if not impossible.
The reality for all small businesses is that they will win or lose based on their market niche. The narrower the niche, the better they will do. Niches allow a company to specialize. Niches allow a company to target market. Niches allow a company to build a loyal customer base. Niches allow a company to understand the peculiarities of a certain sector. Niche markets are good. Large markets are bad. Simple really :-).
Does this rule apply to everyone? Yes. Even a business as straightforward as a barbershop requires a niche approach to marketing. You may say that anyone could walk into a barber and ask for a haircut and you would be correct. However, walk into or observe a successful barbershop for a day and you will see that that is incorrect. For example, my barber’s target market is an Italian, local, 45-70, simple cut, quiet, soccer loving, crowd. A friend of mine goes to a chic, 18-25, gay, Portuguese, chatty, loud music loving, crowd. I wouldn’t go to his barber and he wouldn’t go to mine. Even though my wife says I should! Something about my haircuts apparently :-).
Although each of these barbers and their market have grown together, the examples show how important a niche is. A barber in each of these shops knows what types of cuts are required and can specialize in them. They know how they should talk, treat people, price, etc. Niche marketing and niche operations.
Doesn’t niche marketing restrict revenues? What happens if someone outside your niche asks for a service? Of course, take the business, but beware of the possible dangers. If you are not comfortable with that niche, you might not do a good job. This will result in negative comments about your business. It will also take you longer to learn how to do the work (learning curve is steeper), resulting in a smaller margin of profit. It might take you away from your core base which might result in you losing business in your sector. Nothing wrong with trying out a new business line but make sure you understand what you are getting into.
Perhaps the greatest advantage of niche marketing is the ability to target your market. Targeting allows you to spend less on marketing in general while getting a higher hit rate. Let’s take a look at our Portuguese, gay, barbershop. It now makes sense to only hire Portuguese speaking barbers – saving time and personnel problems. Advertising can now go in the Portuguese newspapers and also in the local gay press. The age demographic will also help to focus the marketing dollars because each area of advertising tends to focus on certain age groups.
How about margins? Well, my barbershop charges $18 for a cut, with the average person leaving $20. My friend’s shop charges $35 with most people leaving $40. My friend’s shop takes a little longer to do the cuts, but not much more. Also, they’ve added a high end coffee machine and people can get a good cappuccino while they wait – dropping a few more dollars into the owner’s pocket while they do so. It is even possible to buy a beer, illegally of course, but for a few bucks one can appear in a nice glass. Perfect for those afternoon, after work, haircuts.
Even this simple example shows the power of niche marketing and advertising. It lowers costs, increases margins, allows specialization, attracts great traffic to your business. So, the next time you think all the world is your market, think again. Better to have a bird in hand than hundreds flying around out of reach! Sorry for the poor metaphor, but I think you get the idea :-)!