Booz Allen Hamilton explains why: As every market matures, choice increases. Then competition drives up quality and convenience to the point at which offerings become commoditized. The only businesses that then thrive are those that move beyond "me-too" or incremental offerings to marketing more-relevant and more-differentiated products and services. The only way to accomplish this is to focus on a narrower target.
Of course, narrower targeting is not a new concept. But today, technology encourages and enables it. Marketers are empowered by more-detailed consumer data, able to micro-target messages, interactively engage consumers with a whole new level of intimacy and frequency, and customize to consumer specs with small-batch manufacturing and new distribution options.
This evolution has brought about a revolution in the economic model we're all working in regardless of the category in which we compete. As Best Buy, Intuit, Sundance Cinema, Method and others are proving, the really stunning nature of this new economy is how nonmass markets now rival or exceed mass markets in their economic potential.
How do Booz Allen, The Economist, academics and even the popular press now refer to this permanent economic shift in brand strategy? They call it niche marketing. "Niche" is derived from the Latin word for "nest." The inference of marketing as something that helps individuals feel snug and in harmony with their self concept is the antithesis of the old economy's marketing to the lowest common denominator.
Today, niche also means something different from marketing segmentation. While segmentation looks for similarities among a diverse group, niching looks for differences within a similar group. It then finds opportunities to customize products and services to the narrow interests of each niche. In this way, nichemanship is a complement to segmentation. In fact, you could call it optimized segmentation.
The smallest nest
The brands that will survive and thrive in the new economy will be those that give up illusions of massiveness and figure out how to excel at attracting and keeping loyal as narrowly focused a niche as is economically feasible.
It's not just that technology enables and requires it. It's because consumers who have experienced ever-greater levels of having their self-interests met by a niche provider never again settle for anything less. (You know mass marketing has heard its death knell when even a senior Wal-Mart official admits that "no customer today will stand to be treated as part of a mass market anymore.")
That's why, no matter what category you're in, the future of marketing is niche marketing. It cannot be stereotyped as irrelevant.
In fact, those who ignore niche marketing will experience loss of share, margin and profitability; their value propositions simply will be less relevant than those of competitors. For those slow to adopt niche marketing, the future also is bleak. Attempts to recoup share will be difficult because competitors will have preemptively established closer customer relationships.
Turtles finish last
It's pure survival of the fittest -- but with technology such as DVRs and the world "live" web it will feel like economic Darwinism at the speed of light. The only marketers that survive and thrive will be those that quickly embrace the principles of this new economy's nichecraft.
Of course, an impressive list of brands in every category of business already get that "niching" is the competitive strategy of the day. These include PepsiCo, Kohler, Hallmark, Crocs, Annie's Homegrown, Red Bull, American Girl, Clorox, University Islamic Bank, Shouldice Hospital, Fair Indigo, Unilever's Axe, Target, Crate & Barrel and Hewlett-Packard.
All these companies -- from legacy brands to start-ups -- have the same business objectives: improved share, margins and profits; faster growth; and the ever-higher returns demanded by investors. That they are turning to niche marketing to deliver on these objectives should tell you one very important thing: They believe that the mature marketplace and resulting new economic model require new means of achieving the universal goals of all business.
While the classic definition of niche marketing -- the targeting of a more narrowly defined customer group seeking a distinctive mix of benefits -- still rings true, it no longer implies what it did five or ten years ago: A small, low-volume, erratic market opportunity that is transactional, likely unsustainable and unscalable -- a course taken by less sophisticated businesses.
In contrast, the new meaning of niche marketing is quite positive. The Economist argues that the very definition of a flourishing economy today is one rich with niches.
Glut of niches
There are many reasons for this esteem, the first of which is that a niche's size no longer has the same limitations of magnitude as in the past. In fact, today niches come in many sizes. Yes, some are small, like those described in Chris Anderson's "The Long Tail." But many can be quite large, like the million-customer "mega niche" described in a recent Wired magazine feature. Especially heartening is that many niche brands already represent hundreds of millions in annual sales. Some niches target a narrow interest that becomes the next big trend, disrupting a whole category. Target, Starbucks and Apple, when they started, were all believed to target a narrow passion of seemingly limited potential.
So rather than equating niche with "small," think "narrow." As in narrowly targeting a group whose self interest/self concept is so clear that a marketer can offer something ultrarelevant and vastly different from alternatives. Then the scarcity principle allows the marketer to charge a premium, reaping higher margins.
When you expand the relevance and differentiation to multiple products and services (even information, experiences, networking and more), you gain share of wallet and can experience volume and growth that makes up for the narrowness of the target.
Offerings that resonate with the target for which there are few alternatives create a loyal customer base with all the benefits: more predictable revenue streams, lifetime value and word-of-mouth advocacy on your behalf. This, along with consumer-generated content and online communities, create marketing efficiencies that further drive growth and profitability.
In all these ways, the value of niche marketing today is so different from the old stereotype of a marginal business opportunity. Some of its best practices have changed as well.
Smaller targets, larger focus
Ten years ago, the medium was still the message. Eight years ago, we could still think of the 4P's -- product, pricing, place, promotion -- as essentially independent strategies. Five years ago, everyone started to buzz about customer-relationship marketing. About two years ago, we got really excited about digital-marketing tactics and started to apply them without any real strategic purpose. All this has changed.
So what's really new about the new niche marketing? It's realizing that while our targets have to narrow, our definition of marketing communications has to broaden. Today, everything communicates what a brand stands for, all the time.
It's like the old saying: If you are on the wrong train to begin with, every stop along the way is the wrong stop.
So how do you get on the right train? Ask the niche for directions.
Niching nowTo harness the power of niche marketing to achieve your business objectives in the new economy, follow these principles:
- Position your brand as narrowly as is economically possible.
- Become the specialist that anticipates the needs of your target.
- Rapidly work with the target niche to co-innovate.
- Set as your goal such consumer centricity that the target niche will want to co-brand their identity with yours.
- Live by a higher standard of ethics.
- Embrace a business model and metrics that grow the most valuable assets of the new niched economy.
- Reap first-mover advantage by learning how to identify a niche of opportunity.
- Re-imagine your role as that of entrepreneurial founder of a special interest group.
- Forget push marketing; excel at pull marketing.
- Realize your brand is now "media" competing against all other media.