Niche strategy

This is the fourth posting in a series on business-unit strategy.

We have so far assumed that the the competition occurs on a fairly broad level of the market. In addition to the previous two strategies, a third strategy focuses on one particular market niche. This strategy has some interesting implications illustrated in the figure 1.

Figure 1.

Niche strategies are possible to achieve across the whole spectrum, but empirically they are more common on the uniqueness side of the spectrum. A niche strategy involves doing everything the targeted buyer group requires. Since the company only focuses on one customer group the risk of getting stuck-in-the-middle is minimised for a niche strategy (i.e. Company 12). Hence, the dotted line which applies to companies with a niche strategy. There could be more than one niche company with exactly the same detailed strategy, but that is not always the case.

Some niche strategies are found at the extreme ends of the spectrum. There might not be room for a broad-based Company 11, because most customers would prefer Company 1. However, there will normally be a small niche of the price sensitive part of the market that prefers Company 11's even lower prices. Company 11 has nothing else to offer than low price. A similar story can be told for Company 14, that is a high-end alternative to Company 7.

Niche companies have a small share of the total market because they are focusing on only one segment of the market. It is not possible to define a maximum market share, above which the niche strategy is no longer viable. It depends on the size of the targetted customer segment as well as how many other companies that might target the same customer segment. (Note that I measure market share as percent of the total market. Some like to measure market share as percent of the served market.)