There is a huge listof different marketing strategies to increase business profits. Despite this,one of the most popular is a niche or focused strategy. It has itsdisadvantages and advantages, however, small, medium and large businesses useit to increase their profits.
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Niche strategies are appropriate:in the presence of a sufficiently large segmentthat ensures the required profitability and growth prospects;if there is no interest in the segment on thepart of industry leaders, which reduces the likelihood of competition withthem; if there is a sufficient number of segments inthe industry to select the most attractive of them, corresponding to thepotential of the organization; if the entity wishing to service the segmenthas the appropriate experience and resources.
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Even a smallorganization, using a niche strategy, can achieve a competitive advantage ifits products are attractive to the segment and it has a successful competitiveposition.
The disadvantages ofniche strategies include:The likelihood of the entity being pushed outof a narrow target segment by competitors (by offering a product that bettermeets customer needs or by obtaining resources that exceed the company’sresources); The likelihood of erasing differences incustomer needs between the target segment and the rest of the market, whichwill open the way for competitors; The likelihood that the segment will be highlyattractive to a large number of competitors, which may significantly reduce itsprofitability.
Examplesof companies that have chosen various niche strategies
eBay (electronic auctions);Porsche (sports cars); Cannondale (elite models of mountain bikes); Horizon,Comair and Atlantic Southeast (passenger airlines with low traffic at a rangeof 50-250 miles); Jiffy Lube International (refueling and lubrication of cars,minor repairs); Enterprise Rent-a-Car (rent of cars instead of repaired);Bandog (restoration of tires; the company actively offers the services onhundreds of parking places of trucks); Motel 6 and Ritz-Carlton.
Niche strategies inthe hotel business MOTEL 6 and RITZ CARLTON compete in different segments ofthe hotel services market. MOTEL 6’s focused strategy is focused on low costs,while RITZ-CARLTON has focused on differentiation.
MOTEL 6 is focused onthe poor travelers who need a room for one night. MOTEL 6 offers them clean,comfortable rooms without any excesses. In order to reduce costs, the companychooses inexpensive sites for the construction of buildings near highways with heavytraffic; builds hotels without bars and restaurants (but sometimes withswimming pools); uses standard designs, cheap materials; in the rooms only themost necessary furniture.
All this reduces thecost of both construction and maintenance. Since there are no bars, restaurantsand additional services in the hotels, the company manages only theregistration staff, technical services, and cleaners. In order to attracttravelers who need a modest but comfortable accommodation, the company usesradio advertising, which involves well-known radio commentators. Advertisinghighlights the advantages of MOTEL 6 cleanliness, comfort, quiet atmosphere,low prices.
The RITZ CARLTON isaimed at travelers and customers who are willing to pay for excellent service andpersonalized service. RITZ CARLTON hotels are distinguished by their excellentlocation and magnificent room views, architectural style with national flavor,great restaurants, fine cuisine, luxurious lobbies, swimming pools, gyms,technical perfection of rooms, various hotel services, large and well-trainedstaff.
Both companies focuson fairly narrow market segments. The competitive advantage of MOTEL 6 is itslow cost and limited range of services for unpretentious travelers. Theadvantage of RITZ CARLTON is in a wide range of services for sophisticatedcustomers. Both strategies are successful, albeit different. This is explainedby the heterogeneity of the hotel services market, which has different segmentswith different needs and financial capabilities of consumers.
A niche low-coststrategy is widely used in business. Manufacturers reduce marketing,distribution and advertising costs by moving to direct sales in retail storesand store chains, delivering standard branded products at discounted prices.The combination of cost advantage and narrow market niche service gives goodresults if the company finds ways to reduce costs and limits the targetaudience to a particular market segment.
At the other end ofthe market spectrum are such companies as Chanel, Rolls-Royce, Haagen-Dazs, andW.L.Gore, which have created niche differentiation strategies focused on elitemarket segments that require first-class products and services. In any market,there are segments where customers are willing to pay more for additionalproduct features, allowing companies to implement focused differentiationstrategies that serve an elite customer base.
Another example of asuccessful niche differentiation strategy is the elite chain of Trader Joe’s150 outlets, a combination of a delicatessen store and a food wholesale base.Trader Joe’s customers buy expensive exotic products along with a standard setof common groceries, so the store’s stock contains exquisite products such assalmon sandwiches and jasmine fried rice, and at the same time standardproducts that can be found in any supermarket. Trader Joe’s difference from itspeers is not only the combination of exotic and conventional products andcompetitively low food prices, but also the opportunity to turn a regulargrocery shopping trip into an exciting, entertaining experience.
Blue Mountain Agenthas a strategy of differentiation in the production of greeting cards anddiffers from its competitors – Hallmark and American Greetings – not only bythe distinctive design and content of its cards but also by the presence ofelectronic greeting cards.
While selecting a particular niche as the primary focus of attention makes it much easier to find and attract clients, it is essential that there are enough clients in that niche to make it an advantage. An animal shop, targeting a wide range of pet owners, will have far more potential customers than a shop specializing in pet ferrets or poodles only. These niches may be too small for the local market.
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Veterinariansspecializing in the treatment of cats or horses stand out against thebackground of general practice veterinarians and can position themselves asexperts in this niche. This will already be an advantage of niche marketing –people often prefer to deal with narrow specialists who focus on one narrowniche.
Applying a nichestrategy always gives good results, especially in startups, the clearer thedistancing and dissimilarity to competitors for a certain category of clients,the greater the chance that the project will “take off”. If you’re astartup, fast business loans can help you a lot. Most entrepreneursexperience a sudden need for extra cash at some point during their careers,especially startups.