December 1, 2015 Comments Closed

Using Niche Marketing to Produce Superior Growth

Posted by:admin onDecember 1, 2015

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What is a niche market and why do you need one?

The key to delivering superior growth performance is for your business to be seen and positioned as something different and better than your competitors. You cannot be all things to all people; therefore, niche marketing is one of most important strategic decisions that you can make about your business.

More and more top producing firms are promoting their specialty capabilities and leveraging their industry and product expertise to drive growth.

For many firms, selecting a niche market or industry is an evolutionary process that begins by exploring appropriate industries. It ends with getting new clients that are profitable.

Niche marketing is an ideal growth strategy for any firm, regardless of size. It’s a much easier way to engage in prospecting and business development activities, allowing you to leverage your specialised knowledge, capabilities and resources.

There are two common types of niche marketing: industry focused and product focused:

  • Industry-focused specialization is when a producer focuses on clients within a certain industry, such as construction, transportation The term “industry vertical” has become common in recent years as a shorthand way to describe the packaging of capabilities within a particular industry.
  • Product-focused specialization can involve working with clients across multiple industries but within a particular line of business or product type, such as professional liability, worker’s compensation, income protection and retirement planning.

Some fear that by focusing on a niche market, you’re putting all of your eggs into one basket. However, studies have demonstrated that firms built around one or more industry verticals and/or one or more product-focused specialty teams outperform and grow faster than those firms that do not.

You don’t have to, and in many cases it makes sense not to, limit yourself to just a single niche market. You can allow yourself to counterbalance different market cycles. For example, if you serve accountants, they’re generally pretty busy between April and September. Therefore, having a secondary market such as churches would allow you to maximise your time when your first market cannot be or is not receptive to receiving messages.

The selection process

Here are techniques to help you select your ideal niche market:

  1.  Classify all of your clients by SIC Codes. This is a four-digit number to identify commercial entities. The first two digits categorise the businesses into broad industry groups; the third and fourth digits further identify subgroups in each category.
  2.  Identify the industries you are serving. This should be easy to complete if you have a contact information system; if not, list all of your industries on a spreadsheet and sort by revenue from the largest to the smallest to identify every industry that you are currently serving.
  3.  Identify your primary and secondary industries.  A primary industry is one that constitutes a relatively large percentage of your total revenue, and a secondary industry is one that currently constitutes a relatively small percentage of your total revenue.
  4. Estimate the growth potential. It’s important to estimate the potential for future growth among your primary and secondary industry candidates. Look to see if the industry is stable or growing at a rapid rate.
  5. Determine the size and number of prospects. A list broker or the Dun & Bradstreet database service can quickly tell you the number of prospects by market segment.
  6. Define your criteria. Some criteria can include the number of existing clients in this niche, the nature of the competition, referrals sources, niche influential, personal interest (of you and your staff) and cost of identifying and contacting targets.
  7. Assess your resources. Determine whether you have the capabilities, experience, technology, ability and/or the support of partners with relative experience in the niche.

Here are some additional sources of information for estimating potential growth:

  • Predicasts Overview of Markets and Technology – A useful tool for understanding the growth and future direction of your niche market. This database is usually available in the reference section of any major library.
  • The “Industrial Outlook” produced by the U.S. Department of Commerce – Traces the growth of 200 industries and provides five-year forecast for each industry.
  • Gale’s Encyclopedia of Associations and the National Trade and Professional Associations of the United States – List the details of thousands of industry associations, available from major libraries and online.
  • Directory of Australian Associations – Lists the details of over 4,000 associations and key decision makers. Available from major libraries and online.

 Making the go/no-go decision

There is no magic formula for deciding what niche to pursue; in the end, your decision must feel right based on your research and analysis. The markets that you choose must be within your expertise, and it is your willingness to commit and invest your time, capabilities and resources that enables you to stand out from the crowd.

If you have any doubts

It’s important that you have confidence in your capabilities to engage and successfully penetrate the markets that you define. This confidence also applies to withdrawing from existing niche markets that may no longer fit (unless they are needed for short-term survival).

Making a decision to abandon a declining niche that that you’ve previously penetrated is difficult, as you have already invested the time and resources. Using the above checklist to identify potential new niche markets and monitor the existing ones will help ensure that your firm stands out from the crowd and consistently produces superior growth returns.

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