Niche marketing strategy is crucial for SMEs’ success, new study says

According to a recent study, which examined a huge swath of literature on Small and Medium Enterprises (SMEs) and their effectiveness, SMEs are most likely to find success if they adopt a niche marketing strategy – an approach focused on targeting a small market of consumers in an attempt to fill their needs and develop a strong, lasting relationship.

The most fundamental threat to SMEs, which make up over 90 percent of the world’s business, is the ultra-competitive and over-advertised global marketplace. To survive this common pitfall and to capitalize on markets despite having low budgets, the study argues that SMEs need to find a small market of consumers with similar demographics, buying habits, and lifestyle characteristics, meaning focusing on fewer customers and in turn, facing less competition.

Niche Marketing Strategy

In addition to targeting fewer customers and avoiding competitors, niche marketing strategies are characterized by building long-term relationships, by filling customer’s needs that are often ignored by mainstream businesses, by developing a strong reputation, by using word-of-mouth references, and by focusing on specialized and high-quality products and services.

Proponents of niche marketing strategy argue that small and medium sized businesses can thrive by pushing unique and differentiated products and services to specific consumers groups who have been not been satisfied by larger companies. SMEs exploit many of the same market characteristics to become successful – the market is concentrated and small but big enough to be profitable, there’s limited competition, the targeted consumers have sufficient purchasing power, and there are unfulfilled needs.

Much of niche marketing strategies’ success owes to the deep loyalties it builds with customers.

Unlike large companies, SMEs who practice niche marketing have small customer bases and therefore, it is easier for them to know and satisfy the needs of those customers. This, in turn, builds a strong loyalty between the consumer and business and can lead to many more sales.

Niche markets have the potential to be more profitable than mass markets because SMEs using niche marketing strategies can meet the needs of the subset market better than a large company casually selling to the same market segment, and therefore, charge a higher price.

The success and failures of SMEs have vast implications for a nation’s economy, especially in developing countries, according to the authors of the study. In particular, SMEs make a significant impact on regional economies, job creation, the production of essential goods and services, and the development of rural economies. Therefore, it is imperative for small businesses to adopt a niche marketing strategy in order to thrive in the competitive global marketplace.

Niche marketing strategies not only work as effective tools for the survival and success of SMEs, but they also offer businesses a great chance at growth. Apple’s first release of the iPad is a perfect example of the benefits and potential of niche marketing strategy. Apple saw and exploited the niche market for tablet computers and turned it into a mass market, which it now dominates.

Examples of SMEs building niche markets before developing into globally known brands is not unheard of. Patagonia started as an outfitter for hardcore outdoor enthusiasts before becoming wildly popular among young adults. Square, a software that allows merchants to accept debit and credit card payments through a tablet or mobile phone, used innovation to find a niche market and is now used by millions of small businesses. And Whole Foods began as a grocery store focused on bringing organic food to health-conscious shoppers before healthy eating and organic food joined the mainstream.

Niche market or success story?
The study also notes that in a survey of 1000 Fortune companies, all of the respondents said they have started to serve niche markets for some of their products and services. Another survey cited by the authors discovered that businesses received a 27 percent return on investment from smaller markets compared to only 21 percent from larger markets.

“Therefore, proper identification of a target market and niche marketing strategies has a positive impact on a firm’s overall success and competitiveness,” said the authors.

Smaller businesses aren’t the only ones who benefit from niche marketing strategies. Like Apple mentioned above, large companies are more and more looking to smaller markets to diversify and stay competitive. Many of these businesses are exploiting a host of niche markets as well as their traditional mass markets.

T-Mobile, struggling against its giant competitors AT&T and Verizon Wireless, launched its “Un-carrier” campaign that switched from its mass marketing strategy and targeted a niche market of young, fed-up cell phone users who were dissatisfied at how cellular carriers were treating them. T-Mobiles niche marketing campaign was successful because it differentiated itself from the other major carriers and hence, limited competition and now the company is the fastest growing carrier in the US.

This recent study is further proof that niche marketing strategy is beneficial to SMEs survival and success by generating increased profits through building deep relationships with customers and by reducing competition. The literature examined by the authors Dr Abdul Razak Bin Omar, Fazli Wadood and Prof. Wan Zahari Wan Yusoff of Tun Hussein Onn University of Malaysia, also showed that a niche marketing strategy is a viable option for small business with limited funds as well as gives them an opportunity for growth.

Source