How to go after a niche market; Pros and cons

In this extremely competitive world we live, it is very hard to differentiate your products or services by simply adding more features or reducing prices, these practices can only last for the short term as changes are taking place at an immense rate and sooner or later you will run out of profits. So, what shall a business do? Go after a niche market. Niche marketing is a very old term but forgotten by many, what it basically means is serve a specific target market or target group, not everyone.

So, how to go niche?

The first step is to decide which market you are going after. The web hosting industry is a good example, if you decide to serve everyone you will end getting lost in the thousands of providers but if you decide to go niche, your chances of success are way much higher. So, focus on a specific market e.g your country, city or focus on a specific group of customers e.g users of ecommerce scripts, users of wordpress platform.

The second step is to make sure that you have or can develop the expertise in the field. If you provide wordpress hosting, are you familiar with all aspects of wordpress? Can your answer most questions regarding wordpress? If not, then you either need to focus on something you know very well or build the expertise.

The third step towards going niche is to develop a business plan tailored to this market you are planning to serve.

I assume that you have done your research and know already your competition and existing offers.
So, what are the benefits of niche marketing?

Increased profit margin – I do not say big profit margins because serving a specific target group or market does not mean you can charge any price you want, you can add a premium because you are considered an expert but people are not damn these days, hence, price your products or services wisely. Furthermore, dealing with a specific market or product will help you develop additional expertise and ultimately reduce your costs substantially (theoretically speaking at least).

Stronger brand – When you serve a specific target market or group of customers you have higher chances to develop stronger brand because you will stand for something very specific in consumers’ mind and be positioned as the expert in this field. So for instance if you provide wordpress hosting, the first provider internet users will bring into their mind when launching a new blog will be your business.

Reduced marketing and admin costs – When you serve a specific target group your admin costs are lower because you need fewer resources to serve the market. Same rule applies to your marketing costs as a total, since your budget will be allocated into channels that serve only this target group or market. However, targeting advertising is usually more expensive (per channel).

Higher return on marketing expenditure – By serving a niche market you can allocate all your marketing resources into a specific target group hence having higher return on your marketing budget.

Nevertheless, there are some disadvantages when you go niche

Smaller number of potential customers – By default when you decide to serve just a specific target group or market you will serve much fewer customers; it is just simple mathematics, so your sales will probably be lower than if you served a broader market, however, your profit margins will be higher.

Customizations – Depending on the industry you are in, you may have to do customizations to your existing product in order to serve a specific market. For example, if you provide only ecommerce hosting, it may be required to provide additional features to your users since all of them will be launching electronic stores.

Higher per employee costs – Although you need fewer resources to serve a smaller market, these resources must be expert on the field, therefore, you usually have to pay a premium to get them; e.g wordpress engineers are more expensive than simple coders.

I am in favor of niche marketing for the reasons I explained, however, going niche assumes persistence and patience. Do you think niche marketing can really benefit a business?