Niche marketing essay

Niche Marketing

Perhaps niche marketing was not as popular in the 1980s as one might suspect, however, the concept became popular during that era and many successful marketing practitioners used it. Niche marketing implies either focusing on a specific and small segment in which the marketer can be a king and preempt competition, or can strictly corner one part of a large segment and again serve its customers well. At the most abstract and general, a unit's (population or individual) niche is its relationship to its environment. The original meaning of the word "niche" was architectural (from the Latin nidus or "nest") meaning an opening or recess in a wall which was intended to hold a statue or some other object. Although the term was used by naturalists such as Grinnell, it was also present in the work of social scientists such as human ecologist Robert Park. The concept has gained a certain currency in contemporary business usage as reflected in such phrases as "niche market," which seems to denote a specialist company or industry. This latter usage is not an accurate reflection of its ecological meaning because, as is described later, there are generalist niches as well as specialized niches. "Niche" has also been used in various ways in the organizational science literature.

Many small firms specialize in manufacturing products or offer service to different market sectors. The smaller firms in pursuing this activity keep away from competitive forces of the bigger firms because for them specialty is not an attractive way of gaining profit because the segments tend to be less which makes them think that there would be less return on the investments they made. This particular strategy is Marketing Niche.

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This strategy is not only interest the smaller firms but also is an interest to the different division of the bigger companies. An ideal market niche in the view of a firm is:

• Of adequate size to be lucrative to a firm serving it
• Able to grow of small interest to major contenders
• A good fit with the firm’s ability and assets

One of the main corners stone of marketing niche is said to be Specialization. Evidence has shown that if a brand is strong in the niche market, it tends to be more profitable in term of percentage to a strong brand available in the bigger market. In the bigger markets, pressure from the retailers and threats from competitors tends to reduce profits from some top brands as well.

The theory of the niche is abstract and general; its substance is a set of concepts and propositions concerning competition and coexistence. As such, it is not exclusively a biological theory, but a theory formulated to describe and explain competition and coexistence among populations.

Niche competition is mutually beneficial. Everyone has a place where each can excel; no one is going to be driven out of business. Head-to-head competition is win-lose situation. Not everyone will get those seven key industries. Some will win; some will lose. Although high market share usually leads to increased profits, critics often argue that high profits can be achieved with low market share too. They also suggest that firms with both low and high market shares show greater profitability than those that fall in mid-range because large firms with high market share achieve economies of scale, while small firms specializing in a given market achieve higher profits through "niche marketing." Medium-sized firms with neither of these advantages end with low profit margins. Thus, IBM, with 70 percent of the market share in mainframe computers, earns higher profits than Unisys, which has only 12 percent of the market. A. T. Cross Pen Company, through its 70 percent market share in the specialty pen industry, earns high profits because of its niche marketing.

Must market share objectives be followed by all firms? As stated earlier, firms that possess a large segment of their served market are better able to enjoy cost savings in production, marketing, finance, and other areas. This includes niche marketers like the Topol toothpaste manufacturer who pursues a smaller segment of a large market for toothpastes. But, when Pearl, K-Mart, and others began to market their own brands of smokers' toothpaste, Topol's profits suffered. While market share strategy is an attractive and desirable proposition for U.S. companies to pursue, it should be clearly understood that market share goals should be interpreted in the global market context to be practical.

Niche Marketing by Wal-Mart, Kmart and Target

Discount stores have not been very successful in either the past or the present. Such organizations as White Front, Woolco, J. C. Penney Treasure Island Stores, Allied's Almart, Arlen's, Giant Stores of New England, Mammoth Mart, Parkview Gems, and Zayre, all discounters, have departed for one reason or another. Other discounters, such as Ames, Nichols, Bradlees, and Lechmere, are experiencing varying degrees of difficulties. Only Wal-Mart and Kmart have had outstanding success stories. Target, an upscale discounter, has found its market niche and does well serving this market, but Target does not compete head-to-head with Wal-Mart or Kmart. The scenario of Korvette, its early success and its later failure, provides many insights into the competitive marketing strategies of the discounters. Based upon past history, it is possible that Wal-Mart may be repeating some of the errors of Zayre's.

The general merchandise discount stores represented by Kmart, Wal-Mart, and Target incorporate a low-cost, high-volume, low-markup; fast turnover operation that extends limited customer services. Merchandise assortments offer considerable breadth and depth with average- to good quality goods. These discounters are sometimes referred to as mass merchandisers and are stripped-down, low-cost versions of the old-fashioned department store with a much greater merchandise assortment. Discounters make purchases in high quantities frequently direct from manufacturers and provide a no-frills, self-service environment. Both store and national brands are featured. Apparel departments do not necessarily provide trendy fashions. Instead, casual clothes, undergarments, and sports apparel are offered. When shopping for clothing items, shoppers need to look closely to find value and bargains.

It is likely those specialty category discounters such as Home Depot, Toys "R" Us, and Circuit City will grow dramatically in the future. However, the general merchandise discounters may not fare so well. The greatest competitive threats to discounters are strong intertype competition from other retailers and the saturation of prime locations. The latest challenge to the discounters is off-price retailers such as Marshalls, T. J. Maxx, and Burlington Coat. These off-price retailers offer medium- to high-quality brand-name products at everyday deep-discount prices.

In considering the success and failures of the discounters, many mistakes have been made, and it has been only those organizations that have been able to make constant adjustments with such variables as innovation, target market and image, physical environmental resources, and human resources that remained viable. These discounters did not necessarily obtain high grades using all variables, but some of the variables were used and implemented in an exceedingly capable manner. Wal-Mart, Kmart, and Target, in this respect, stand out. Innovation took place when Kmart and Wal-Mart decided to offer fashion merchandise. Otherwise, innovation has not been a hallmark of the discounters, as they have followed a price leadership role of earlier discounters of yesterday such as Korvette, A & P, and Woolworth.

Wal-Mart

The discounters have effectively used strategies of target market segmentation and image. Kmart, with many suburban stores, developed an image of one-stop shopping and discount pricing throughout all departments. The suburban target market purchased many items for their homes in Kmart such as paint and lawn and garden supplies. Wal-Mart effectively penetrated the small-town market and has become known as a destination store, that is, a retail unit where the merchandise assortment, presentation, price, or other unique features act as a magnet for customers. Target is the most attractive of the discounters as well as the most upscale. Competitors of Target are specialty stores rather than the mass merchants like Sears or Ward's.

Physical environmental resources have been effectively used by Wal-Mart. A very sophisticated satellite communications system links Wal-Mart with suppliers, and more than 75 percent of incoming merchandise is received by 1 of 17 distribution centers within one day of the order. A concentration of stores situated in small towns has enabled Wal-Mart to develop a network of stores and to spread from its original southern base to other sections of the country.

Wal-Mart has been the most successful retailer in motivating employees. There is high esprit de corps, and principles of teamwork are integrated into performance standards. Much of the credit for employee motivation has been earned by Sam Walton, the founder of Wal-Mart. No other merchant in recent history has been able to duplicate his success as a people motivator.

Many of the failures among discounters developed from their inability to both identify and respond to changing needs of consumers. In many instances, discounters allowed their images to become blurred. Some discounters were unable to control costs and unfortunately increased prices. Other discounters expanded too quickly and lost control of their operations. Unfortunately, some discounters lost sight of selling quality items at discount prices and just offered customers low-quality goods at low prices.

Conclusion

The consumers' quest for value was forgotten--but not by organizations like Wal-Mart and Kmart. However, Kmart has lost some of its original low-cost price appeal and is presently trying to regain its strength by building super centers and divesting itself of specialty divisions. Wal-Mart is encountering store-opening opposition in New England due to a fear of a potential loss of jobs. Both organizations are endeavoring to change with the times and with local conditions, and continued success is viewed positively in the short run. The long term presents a different problem. Department stores and other types of institutions are effectively fighting back. It is possible that general merchandise discounters will become competitive victims much like supermarkets in the future.

Reference

1. Ronald D. Michman (2001) Lifestyle Market Segmentation. Publisher: Praeger Publishers. Place of Publication: New York.
2. George P. Moschis (2004) Marketing Strategies for the Mature Market. Publisher: Quorum Books. Place of Publication: Westport, CT.
3. (2002) Where Convenience Is a Midsized Market Niche. Journal Title: ABA Banking Journal. Volume: 90. Issue: 6.
4. (2006) a Research Study from IEC Publications; Advanced Messaging: Killer Application or Niche Market? Magazine Title: Business Communications Review. Volume: 32. Issue: 11.

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