What Is a Niche Market?

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No business can be all things to all people. At some point, you're going to have to define your market so you can communicate effectively with the people you want to do business with. A niche market is simply a small, specialized portion of the market that you've identified as needing a particular product or service. Focusing on a niche makes it much easier to become an expert and well-known within your field.

What Is a Niche Market?

Simply stated, a niche market is a narrow subsection of the overall market, for example, a restaurant that sells only Japanese food. It's not necessarily a small market, though many niche markets are. Rather, it's defined by the fact that every customer in the niche has a particular set of needs that are not being met by mainstream businesses. The women's shoe market, for example, does not prioritize the needs of vegan consumers. A company that focuses on selling high-quality, cruelty-free shoes to vegan women stands a good chance of becoming a market leader in the niche, making it difficult for newcomers to get a foothold in the market.

Niche Market Examples

Niches don't exist, they're created – most commonly by blending aspects of the following characteristics to find a subset of consumers whose needs are not being met:

  • Price: discount, mid-range, premium.
  • Quality: low, moderate, high, luxury.
  • Demographics: a consumer's age, gender, education and income level. 
  • Geographic: the consumer's precise location.
  • Psychographics: the values and attitudes of the consumer.

Continuing with the women's shoe market as an example, office shoes for high-income female executives would be a niche market, as would shoes with large sizes or wider-fitting, comfortable shoes for nurses who are on their feet all day and low-priced shoes for teenagers in the latest street styles. The possibilities are virtually limitless.

Why You Should Cater to a Niche Market

Niche marketing allows you to become a big fish in a small pond. That's because, unlike in generalized markets, niche markets tend to have much less competition. You are taking your products directly to the people who have a strong interest in receiving them, which means you can quickly establish brand loyalty and presence. People generally prefer to deal with experts who speak their language, which is how you hook customers into your products and services. Another benefit is it requires significantly fewer resources – niche marketing tends to be extremely cost-effective. For example, a high-end lake-homes realtor would only have to leaflet the $1 million-plus homes located by the water, not the entire town.

Disadvantages of Niche Marketing

The main downside is the smaller market size. At some point, your marketing efforts will reach a majority of customers in the niche, after which there may be limited opportunities for growth. It's critical that you define a niche with enough buyers to sustain your business in the long term, and preferably one that you can target with supplementary products as your business grows, such as a vegan shoe company that also offers vegan handbags. The ideal niche has low competition and high demand. Without these things, your market may be too small and you may struggle to reach revenue goals.

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About the Author

Jayne Thompson earned an LL.B. in Law and Business Administration from the University of Birmingham and an LL.M. in International Law from the University of East London. She practiced in various “Big Law” firms before launching a career as a business writer. Her articles have appeared on numerous business sites including Typefinder, Women in Business, Startwire and Indeed.com.