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A niche market is simply defined as a subset of the overall market, and the individuals who make it up have unique and nuanced needs. This is why companies that target them usually focus on one type of product or service. And this focused effort can yield impressive benefits. A study published in the May 2013 edition of Market Intelligence & Planning found that companies that enter niche markets experience “improved profits, prices, sales, growth, market share, and competitiveness.” became.
The challenge is that predicting future growth in these areas, while critical to success, is not easy.
1. Early homework
The first step to ensuring growth is to find a niche market, an area that is underserved by your current offerings and perhaps ignored by broader market companies. The good news is that the possibilities are expanding. According to Harvard Business Review, more than two-thirds of customers feel that “companies are not responding fast enough to their changing needs.”
One surefire way to find a niche with growth potential is to assess your own needs and the needs of those around you. Is your mother complaining about how empty the house is now that you have moved away? And she’s part of a growing community of empty nesters who are probably in need of personalized home decor. Does your gym buddy keep complaining that his coffee doesn’t fit into his workout menu? Then he just might be part of the health-conscious cold brew enthusiast market.
Related: How to effectively beat direct competition in a niche market
2. Assess demand
Familiar markets are the easiest to research and service. But make sure it’s not too small to be profitable. Just because a sector is underserved doesn’t mean it has growth potential. Therefore, it is important to assess market demand (including maturity and business cycles).
However, just because demand doesn’t seem to be growing doesn’t mean your business can’t drive demand. For example, a case study conducted by a garden furniture company in 2021 found that UK households invested an average of around £670 (US$853) in enhancing their outdoor spaces, and then strategized how to better impact sales results. It has become clear that a thorough analysis has been carried out. The insights gained led to a 160% increase in revenue and the introduction of 450 unique inventory management units into the company’s product lineup. By conducting similar base rate analysis, your company can also shape products for a niche market while simultaneously influencing that market.
Of course, at some point you’ll need to pivot and expand as customer needs change all the time, but the path is a two-way street. You can also strategically drive demand with your product lines.
Related: How to increase profits in niche markets
3. Deeper market research
Once you’ve identified a market with growth potential, you need to find out what products or services meet the unique needs of that market, and why those needs aren’t currently being met. There are many ways to conduct relevant research, but it is usually done by looking at the broader market to which the company belongs. Methods include:
- Track current industry reports: The size and drivers of the sector, including its growth potential, as well as internal and external barriers, should be detailed.
- Engaging with potential customers: Although time consuming, this step is essential. Surveys are an effective way to interact, but for deeper insights, don’t hesitate to have one-on-one discussions through social media platforms or in-person meetings.
- Identify your competitors: Naturally, oversaturated markets are considered the least likely to grow, but while they may be attractive, niche markets with no competitors can pose sales risks even if they can be addressed. Please also note that there is a gender. Therefore, it may be helpful to expand or pivot a little to improve your competitiveness.
Related: How to monitor your competition on social media
4. Consider external factors
When considering growth potential, be sure to consider external factors that could change customer needs and demands or broadly change the market. (For example, we’ve all seen how the COVID-19 pandemic has affected businesses of all sizes.) Getting ahead of them allows you to plan and adapt. It’s also not uncommon for radical innovations (mostly technology) to “leapfrog” your business, so stay aware of advances and plan how to incorporate them into your products.
Another common external factor is any government regulations and their ability to enforce compliance, influence customer willingness to purchase and trust, or outright outlaw the product. Again, studying the possibilities and paying attention to possible regulatory changes will allow you to quickly customize your services and educate your customers.
Related: What every entrepreneur must understand about their first 10 customers
5. Relationships with early adopters and potential strategic partnerships
Developing relationships with early adopters provides valuable insight and feedback that helps you refine, improve, and expand your product to meet the evolving needs of your niche market.
Another important growth support may come in the form of helpful allies. The presence of influencers is a good indicator that there is room for growth in the market. Partnerships with these influencers and other thought leaders help increase visibility and access.
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