Small, niche companies might have nowhere near the marketing power, cost efficiencies and budget of larger retailers, yet in many ways they consistently chip away at their large competitors' market share. It is precisely their niche focus that attracts specific types of customers away from mass-market retailers and into local boutiques, as niche companies can tailor everything about their business to meet the needs of a highly focused customer group. One niche company may not present a real threat to a multinational retailer, but the combination of numerous niche companies can have a considerable impact on a large company's sales.
Unique Products and Services
By definition, niche companies offer products and services that are laser-focused on a specific market segment, serving their needs and preferences so precisely that their products do not appeal to a majority of the market. Because of this focus, niche companies can provide greater value to their customers than bigger competitors. For example, a small specialty pet food store is likely to be the only place that a dog owner can buy food for a pet with special dietary needs. By developing a relationship with that customer, the pet food store could secure future sales of toys, treats, collars or dog beds that may have otherwise gone to a larger retailer.
Focused customer knowledge provides great insight for designing customer experiences. Store layouts, background music, lighting and decor can all be designed around a single customer group in a niche retail outlet. Even line queuing and checkout processes can be custom tailored to provide the ideal experience for a market niche. Further, the lower sales volume of niche companies often results in less crowded stores, shorter wait times, quicker line queues and fewer stock outages, all of which enhance the customer experience. This experiential advantage can help niche companies to secure market share from large retailers despite potentially higher prices and smaller selection. For some customers, experience is more important than price, and niche companies are perfectly positioned to inspire brand loyalty in these customers.
Niche companies have the opportunity to garner a strong brand identification in their target customers. The tight focus of these companies allows them to maximize the effectiveness of their advertising, sales, promotions and public relations efforts through their deep understanding of where their customers congregate and socialize, which media outlets they prefer, their demographics, their occupations and their geographic characteristics. For example, a single-brand fashion retailer targeting youth in urban areas can create such a brand identity that customers are proud to display the brand's logo all over themselves. This kind of brand championship spurs word-of-mouth advertising among the target market segment, encouraging repeat purchases that steadily chip away at larger retailers' market share.
As smaller, less entrenched businesses, niche companies can be better positioned to respond to changes in customer preferences within their target niches. In addition to the advance warning that their close connection with customers provides, their smaller stocks of inventory, fewer outlets, smaller payrolls and smaller marketing commitments make it easier to add new products, alter services, change pricing structures, embrace new technology or experiment with emerging marketing techniques. This can provide opportunities to gain market share from large retailers quickly in times of change.