Build a Profitable Business with a Niche Strategy

Posted by Elena del Valle on June 23, 2011

By Bill Hettinger, Ph.D.

Bill Hettinger, Ph.D., author, Finance Without Fear

Photo: Bill Hettinger, Ph.D.

Most business owners are forever looking for a way to compete effectively in the marketplace.

In today’s world there are really two types of strategies used by businesses, operational centric and customer centric.

An operational centric business focuses on providing its products to the market at the lowest possible cost. This is the business strategy that characterizes Wal-Mart and many of the other big box retailers. They are interested in offering the lowest prices and their product offerings and customer service decisions are made with an eye towards being as operationally efficient as possible.

Contrast this with a customer centric business strategy. A customer centric business focuses first on meeting the needs of the customer and uses strategies such as customer service, sales and marketing, innovation and design, and unique product offerings to meet the needs of the customer.

A business with an operational centric strategy offers commoditized products to its customers, whereas a customer centric business treats each customer’s needs as unique and is focused on serving individual niches.

For many small businesses, the specialized niche strategy is the key to survival. A small business is not going to be able to compete effectively with the Wal-Marts of the world. By pursuing a specialized niche strategy, it doesn’t have to.

The key to operating with a niche strategy is to identify products or services that have value to the customer and where the customer is willing to pay a premium for those products or services.

The key to a niche strategy is customer value. Customers do not buy products because a retailer offers those products for sale. They buy products because they get a specific benefit or value from those products.

When a customer has a need or problem, their primary focus is not on price, but rather on having their need fulfilled or their problem solved.

If you don’t believe this, just consider what you would be willing to pay the plumber at 2 A.M. in the middle of a holiday weekend.

A business that uses an operational centric approach makes a smaller profit on each product and relies on a high volume of sales to make money.

In contrast, a customer centric business sells a smaller volume but needs to charge a higher price to support the additional costs of customer service, and because they fill a customer need, the customer is willing to pay this higher price. Ultimately this higher price should translate into higher profits.

Pursuing a niche strategy is a great way to survive and prosper in the face of the Wal-Marts of the world.

Pursuing a niche strategy is also a great way to build a business that serves the Hispanic market. While the Hispanic population has grown by more than 15 million people between 2000 and 2010 and now comprises more than 16% of the total US population, it’s small in comparison to the 83.7% of the population that’s non-Hispanic.

When the operational centric businesses make product decisions, their focus is low prices and operational efficiency. They are not focused on serving the unique problems and needs of each customer. Their product offerings are targeted towards the large population, and not generally towards the Hispanic market or towards other niche markets.

The lack of focus by the big-boys on these markets leaves an opportunity for customer centric businesses that wants to offer niche products to the Hispanic market. Any unserved need that can be identified becomes a business opportunity.

Clearly, there are many small businesses that compete in this market. Some are profitable. Some are not. The key to profitability is not simply offering products that are different than those offered by Wal-Mart, but offering specific products and services where there is a customer need and customers are willing to pay a premium for products that meet that need. This is the secret to success with a niche strategy.

For small business to thrive in today’s world, it’s imperative that the business pursue a customer centric strategy and focus on specialized niches. It’s impossible to compete against the big boys with an operational centric approach.

Bill Hettinger, Ph.D. is an internationally known consultant, educator, and thought leader. He is the author of Finance Without Fear: A Guide to Creating and Managing a Profitable Business. He can be contacted at billh@financewithoutfear.com