in Vol. 11 - May Issue - Year 2010
The Search for the Niche
From the economics encyclopedia: Niche strategy = Focus on special areas or segments that have not yet, or insufficiently, been addressed by the competition. Strategy of a company or part of one, which targets a specific market segment and conforms precisely to the wishes of consumers there.
Even in the worst phase of the crisis, but at the latest now, because certain market processes have had a chance to re-stabilize, everyone notices: Those who do not have a niche segment in their range of products or services are experiencing difficult and especially painful times. Regionally, nationally and internationally, a tough battle is commencing. In industries that have a large number of comparable sellers, harsh times are breaking out. Everywhere, the cards are being reshuffled. Suppliers of products or services are being put to the test: Are there alternatives? Can you reduce your prices? Does it perform better, quicker, more flexibly…? Pressure is increasingly being applied, and it is all the greater when many providers are bustling in a market area. In addition, there is the difficult situation that a large share of production volume has simply vanished in some areas. The supplier, who just had to record declines in sales and profit and is already in a depressed phase, is then hard pressed to enter into negotiations with its customer with strength and confidence when there are "hungry" competitors lurking around the corner.
Customer/supplier relationships are changing all over again. In the automotive industry, for example, manufacturers are under enormous competitive pressure - further exacerbated by lean sales figures and overproduction or unutilized production capacities - and this pressure is passed directly to suppliers. High-volume series suppliers, in particular, are being asked to optimize their processes, procedures, methods, costs as well as prices - unfortunately always downward. Simultaneously, as quality requirements increase, customers are increasingly less willing to pay the amounts for services and products that suppliers need to ensure their survival. Many are teetering on the brink, and there is the risk that some of them will not survive in the daily juggling routine as they adjust their processes and associated expenses too much to prices, taking an exceedingly risky path.
All in all, this is an unsatisfactory situation for many of those affected, who have invested dearly and now see themselves forced to rethink their corporate strategy and redefine goals. If there is a willingness to change, a decision must be made in which direction to march. Should the company follow the crowd? Or should it perhaps take a different path and seek out a niche? That requires entrepreneurial courage. Entering unfamiliar terrain and leading a niche existence definitely has a certain charm, but it can also turn out to be a complete flop. It is much easier to make strategic decisions along these lines if there is a solid financial base and failure would not mean immediate ruin. But what if that is not the case?
What considerations and actions are necessary to perform successfully in a niche? And ideally also defend it against invaders?
First, the concept needs to indicate the existence of a market, at least halfway realistically. Nothing is more frustrating than to invent something wonderful, pump money, time and energy into it, and in the end find out that there is no demand for it. The niche is worthless in this situation.
Other important factors are the certainty and good business sense of entrepreneurs and their teams for doing exactly the right thing at the right time and standing fully behind their choices. Although course corrections might be necessary on occasion, the company should not stray too far from its basic strategic idea.
The key to success is the ability and motivation of employees to take on a new and possibly completely unknown area, to learn to specialize in it and persistently and systematically work on implementation, improvement and stabilization, without being deterred or stopped by the occasional setback.
Right from the beginning, it is important to keep one’s eye on economical aspects and apply cost controlling to smaller projects and activities. This is how we can avoid disappointments and the economic worst case. Especially in a niche - where experiential values are frequently lacking and there is no empirical data to fall back on - one is fishing in the dark, and it is difficult to obtain a realistic assessment.
What awaits the successful niche finder?
It is important for the niche provider to not only address a clearly defined or definable target group, but also become very familiar with its needs. Those who track the needs of their target group in detail are better and more quickly informed about new trends and changes in buying behavior, and this lets them react quicker than broad-based competitors which generally react more sluggishly.
Niche providers who understand how to offer a customized product in very good quality and with outstanding services quickly succeed in gaining customers’ trust in their competence – because niche providers – if they exploit their core strengths – are those who know their target group par excellence.
Summary: When seeking out a niche, certain rules must be followed. The business idea should be subjected to critical questioning, and all of its aspects should be illuminated thoroughly and seriously. If the answer at the end is "Yes we can" then a company must follow through consistently and confidently in implementation to establish a niche or occupy a niche. Much success to all those who have the courage!
by Dirk Gather
Contributing Editor MFN and General Manager of GZO GmbH, Germany