Competition and market niches

Define what a niche market is in your own words and give two examples of companies, real or fictional, that target one.

Distinguish between a mass market and a niche market, and classify these offerings: a general burger chain, a vegan burger restaurant, a high-street clothing shop, and a specialist technical clothing shop for wildland firefighters.

Explain two advantages an SME has in targeting a niche (fewer direct competitors, more loyal customers willing to pay more) with the example of an optician's specialised in prescription sports glasses.

Explain why a true niche serves a stable need and not a passing fad: compare a shop selling merchandise of a fashionable character with one selling technical clothing for urban cyclists and reason which one will stand the test of time better.

Based on these three trends — an ageing population, remote working, and enthusiasm for outdoor sports — propose a specific niche market for each and describe their target customer in one sentence.

A niche can be too small: "repair of mechanical typewriters" barely provides a business for one person. Explain the balance between specialising and having enough market, and propose two ways of broadening that niche without leaving it (also repairing other vintage objects, selling restored typewriters online).

Not every niche is viable. Explain three criteria for evaluating a niche (that it is large enough to sustain a business, that the customer can be reached, and that they have both the ability and willingness to pay) and apply them to evaluate the niche 'party clothing for dogs'.

Evaluate the viability of the niche "home-cooked food for cats with food allergies": potential size, way of reaching that customer, willingness to pay and existing competition. Conclude whether you think it is a workable niche and what data you are missing to assert it.

Using viability criteria, evaluate the niche 'online Spanish courses for German professionals working with Spanish companies': estimated size, existing competition, barriers to entry, and willingness to pay. Conclude whether you consider it a good niche and what you would validate before launching.

An SME successfully sells climbing gear for beginners in its region until a large sports retail chain copies the product and sells it cheaper. Analyse its options (specialising even further, building a community and services around the product, differentiating on quality, or seeking another niche) and recommend one with supporting arguments.

The founding team of a textile company states: “Our strategy is an indisputable blue ocean: we sell custom-tailored suits exclusively for female executives in the financial sector, with sustainable fabrics at 1.400 € and personalized service in their offices.”

1. a) Technically refute the founders' statement: justify why this business model does not constitute a blue ocean but rather a niche or focus strategy, contrasting how each approach acts regarding non-customers and the trade-off between value and cost.
2. b) Design an alternative proposal for this company applying the blue ocean four actions framework (eliminate, reduce, raise, and create), so that it opens up a new market space and defuses traditional competition in professional fashion.

A natural cosmetics SME analyzes two strategic growth options for the coming financial years:

• Option A (Mass market): Selling moisturizing cream in supermarkets and department stores. Total potential market: 40 million euros. Estimated sales for the SME: 450.000 €. Commercial margin: 8 % on sales. Associated fixed costs (advertising and shelf listing fees): 22.000 €.

• Option B (Specialized niche): Selling a dermatological line for oncology patients in pharmacies. Total potential market: 1,8 million euros. Estimated sales for the SME: 140.000 €. Commercial margin: 38 % on sales. Associated fixed costs (medical certifications and clinic visits): 11.000 €.

1. a) Calculate the operating result in euros of each option and its return on sales (net margin on sales).
2. b) An investor argues: “Option A is always preferable: the larger the market size, the greater the opportunity and safety for any company.” Refute their position using your previous calculations and three theoretical arguments (economies of scale of market leaders, bargaining power of the channel, and defensive entry barriers in the niche).