Niche products and market segmentation strategies

Business and Niche Products

Three Challenges to Setting Up a Business

The first major challenge to setting up a new business is determining whether there is a market for the product sufficient to support all of the expenses associated with establishing a new venture and product line. The consequences of failing to recognize the limitations of the appeal of the new product include failure of the product line and substantial financial losses associated with the costs of establishing the new line, such as start-up production costs, marketing, promotion, and advertising.

The second major challenge to setting up a new business is raising the financial capital necessary to fund the start-up costs before the product has generated any revenue. These costs include production equipment, raw materials marketing, advertising, and the hiring, training, and payroll for personnel required to get the new venture up and running before any profits are realized.

The third major challenge to setting up a new business is identifying the optimal strategy for introducing the products and/or services in a manner that will be competitive with existing products and services currently serving the same segment of the potential market for the business.

Definition and Three Examples of Niche Products

Generally, a niche product is one that serves a smaller segment of the general market for that type of goods or services. Frequently, the niche market will represent a thematic approach to marketing goods or services already common to the market more generally. An example of this type of product is the sports-team oriented attire provided by professional sports leagues and franchises. Similarly, sports with an element of fan appeal or current fads, such as mixed martial arts (MMA) provide ordinary clothing such as sweatshirts and t-shirts with an MMA-related logo to attract interest in the product as a function of the strength of the fad as in the case of Tapout.com (2009).

Another example of a niche product is the tremendously expensive (up to $2,000) PPM sports mouth guards manufactured by the Makkar (2009). These mouth guards supposedly improve athletic performance through stabilizing the spine in the area of the cranial nerves by aligning the jaw anatomically (Makkar, 2009). Irrespective of whether or not these claims are true, the company has clearly designed its marketing to appeal to youth and recreational athletes hoping to improve their performance by promoting the fact that several professional sports franchises have begun supplying the product to players.

A third example of a niche product are the cheap watches with strictly ornamental or useless "chronograph" functions designed to appeal to the lowest end of the consumer watch market (JCPenney, 2009). They have mimicked the appearance of high-quality precision chronographs costing thousands of dollars and featuring legitimate precision chronograph functions (Omega, 2009). Whereas the high-end watches provide stopwatch and other sophisticated functions, the low-end watches merely mimic the 3-dial layout of the watch face with useless functions such as dials showing the day of the week and the month (JCPenney, 2009).

Advantages of a Niche Product Market and the Relevance of Price

The advantages of niche markets are several. First, they increase sales of products (such as ordinary clothing) for which the consumer may not have any need but the specific orientation of the product (such as MMA sports) generates a desire for the logo rather than the need for the product itself. Second, niche markets (such as that exploited by the PPM mouth guard) provides an opportunity to charge much more for products that may not be substantially different or better for their essential purpose (i.e. protecting teeth during sports) than much cheaper generic alternatives. Third, niche marketing such as imitating the features of expensive watches in cheap watches generates a market attributable to vanity and the desire to mimic the appearance of wealth and privilege. In some cases, niche markets (such as that for MMA clothing and high-end watches) allows the setting of a premium price; in other cases (such as cheap imitation watches), niche markets focus on sales volumes rather than the high unit price of the product.