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http://niche.host22.com/Italic text What Advantages do They Offer? Dawn Thilmany, Ph.D. Professor, Department of Agricultural and Resource Economics Colorado State University Overview Niche markets are an attractive opportunity available to small businesses forced to compete against the scale economies that larger competitors are able to achieve. In the food sector, organics, local products, heritage varieties, biodynamics, and humanely treated livestock are a few of the alternative product choices sought by specific consumer segments. The choice to pursue a niche marketing strategy will not guarantee success, and, similar to any business decision, requires critical assessment. Exploring niche markets is representative of the set of management choices every agricultural operation faces, as niche marketing provides creative managers with a means to use new and untapped resources while creating new revenue streams. Doing so successfully requires significantly different management skills and marketing strategies. This fact sheet defines niche markets, outlines the steps to evaluate an operation’s current strategic position, examines how a niche market focus might affect that position, and finally, sketches out the important components of a niche marketing plan. Essential elements of a niche marketing strategy to consider include: • Know the customers. Segmenting the overall market allows the business manager to target what the business venture can offer. • Set clear goals and objectives for what the business hopes to achieve by following a niche marketing approach: Reach new customer segments? Lower marketing costs? Secure premium pricing? • Does niche marketing match up with the resources, capabilities and preferences of the venture? Understanding Niche Markets Niche markets consist of groups of consumers (market segments) within the larger marketplace who have similar demographic, buying behavior, and/or lifestyle characteristics. Examples include food buyers who prioritize quality assurances and source of production, and consumers who seek an easy preparation entrée available in convenient form. Even consumers with the same buying behavior may have differing motivations (which are essential elements to know for marketing and promotion). For example, organic consumers used to be identified by their concern for their environment, but now there are entirely different segments of consumers who buy organics because they perceive those foods as having higher nutritional benefits. Understanding target consumer segments is a crucial factor in determining whether an operation has the resources, interests, and business elements necessary to meet the needs of prospective customers. Once the like-minded consumers have been identified, it may be helpful to name or label them (called “clustering”), as a way of facilitating targeted marketing activities and “branding” 1-1 of the venture’s offerings. Clustering of consumers also allows a business to plan more targeted and effective marketing activities, especially if the venture understands the consumers’ motivations for buying products or visiting specific shopping or tourism venues. In addition, consumer clustering may also help with estimating potential visitor numbers and appropriate price points for different customer groups. For example, consider a venture that wishes to market to a customer group that prioritizes convenience. If it takes more marketing resources to get the venture’s product in ready-to-eat form or to nearby markets (farmers’ markets or direct deliveries), then the prices charged can be higher for this customer group to offset the additional resources. In comparison, this method of marketing would not work for a customer group that prioritizes price and is willing to go out of the way to locate lower-cost items (i.e. bulk prices for ranch-purchased freezer beef). After the niche is identified, the next step is to find this buying public and grab their attention. This takes thoughtful promotional planning and development of messages to connect with potential buyers. Marketing materials, such as websites, brochures, personal communications, packaging, public image, etc., need to integrate credible claims, motivational messages, and consistent images to connect to (and build loyalty with) niche market consumers. In summary, consider these three rules for niche marketing, from Entrepreneur.com: 1. Meet the market’s unique needs • This may require consumer and/or market research 2. Say the right thing • Develop promotional materials targeted at the motivations and interests of the consumer segment 3. Test market • Start small with minimal capital investment, which may require partnering with established retailers or partners Considering Niches as a Business Opportunity Many times a market, business, or personal event forces producers to make important decisions about the future direction of their agricultural operation. Niche markets are particularly interesting for operations looking to grow or change. One potential decision may be to grow the size or scope of the operation. Generally, goals for growth involve increased sales, a larger set of employees or capital resources (land, buildings and other improvements), or the diversity and number of enterprises integrated into the operation. The desire for growth is usually driven by optimism for market opportunities, or a new resource (or previously untapped resource, such as the business skills of a family member). Other operations may seek to improve or stabilize their financial returns rather than grow. Most change requires some form of diversification or development of new revenue streams. Most niche-driven change is driven by STRONG indicators of changing consumer tastes (on the demand side) or changing personnel interests of family members or long-term employees (on the business organization side). “Opportunity is missed by most people because it is dressed in overalls and looks like work.” Thomas Edison 1-2 No new business direction will come without much planning and thoughtful consideration of the desired outcomes. Whether growing sales and enterprises to meet new financial goals, increasing direct sales to attain personal goals, providing consumer education to develop a loyal customer base, or beginning organic production as a reaction to evolving values and perceptions about environmental stewardship, the internal business intentions must be matched to the external niche market opportunities. If the internal desired outcomes align with available opportunities, it may be time to develop a sustainable and effective plan for action. Any plan directed at niche markets should include: • Clear and consistent image/themes • Alignment with business structure/culture • Clear links between strategy and actions • Focused attention and action where needed A Strategic Assessment of the http://niche.host22.com/y new market niche? If only a small modification is necessary, the operation may, for example, be able to follow the success of other enterprises with only minor adjustments to the target niche (maybe organic and heirloom fruits instead of just organic) or serving the same niche in a new geographical area (i.e. the operation’s local food system). Another important task is assessing the operation’s available resources. If it is determined that the operation is poised to enter the niche market, it will be necessary to identify any new or slack resources that will allow for the new niche activities and/or growth. Beyond resources, an operation considering niche markets must also assess its capabilities, competencies and competitive advantage. The firm’s capacity to deploy resources to achieve a desired end state is the first managerial requirement, as it addresses the resource and technical aspects of how well a firm can execute a production and marketing plan for the niche. The primary base for the firm’s capabilities is the set of skills and knowledge of its employees. Once the operation’s capabilities have been determined, the next consideration should be its core competencies. These competencies are generally a result of deploying resources using the firm’s capabilities. For example, if a farm has a beautiful natural resource base, but is not making the farm available for agritourism, then the farm does not have a core competency. However, even if a farm has a strong capacity for deploying resources, that does not mean it has a competitive advantage. Only a core competency that is unique to the firm will help to create a sustainable competitive advantage (for more information on competitive advantages, please see fact sheet WEMC FS#5-08, “Strategies for Competitive Advantage,” in this publication). Many firms focus on three or four core competencies to differentiate themselves, establish customers within the target niche market, and develop a competitive advantage. Given this, the operation should explore the three or four competencies it has, and consider whether those areas are flexible and responsive enough for the niche market(s) under consideration. To be effective, these core competencies must be distinctive and the capabilities should be performed better (or in a more unique way) than competitors. Bold text''' More information http://niche.host22.com/