Exercises: Competition and niche markets

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.

The figure shows a broad market containing a small, specialised segment marked with '?'. Explain what this segment is called and give two advantages that an SME might gain by targeting it instead of competing in the general market.

Classify each business according to whether it targets a mass market or a niche: a supermarket chain, a specialist tea shop, a shoe shop for special sizes and a neighbourhood hairdresser for everyone.

Describe in three lines the typical customer of a competition chess equipment shop: what moves them to buy, what they value about the shop and why a large supermarket does not give them what they are looking for.

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.

Look at your own neighbourhood or town: identify two poorly served needs that could become business niches and describe the specific customer of one of them.

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.

A traditional bakery competes with five others in its neighbourhood; another bakery specialises in gluten-free and nut-free pastries for people with allergies. Compare their situations: competition, customer loyalty, pricing potential, and the risks of each strategy.

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.

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'.

In the same city, a general bookshop and a bookshop specialised in comics and manga coexist. Compare their competitive situation: who each one competes with, what price margin it has, what relationship it maintains with its customers and what risk each model runs.

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.

A neighbourhood hardware store is losing customers to a nearby DIY superstore. Propose two niches it could occupy (advice to professionals, urgent repairs, tool rental) and reason which fits best with the resources of a small hardware store.

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).

A team with the idea "a sports app" decides to narrow it down: "a strength training app for women aged 40 to 55 who train at home". Explain what the project gains by narrowing down like this (clear message, less competition, tailored product), what it gives up and how you would check that the chosen niche is big enough.

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.

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.

"TecnoMóvil", a neighbourhood mobile phone shop, watches as the big chains and the operators take customers from it. a) Analyse its competitive situation. b) Propose two niches it could turn to (older people with training included, express repairs, refurbished phones). c) Evaluate the viability of each option and recommend one with arguments.

A small local oat milk brand triumphs in its region, until a multinational launches a similar product 30% cheaper. Analyse its defence options (specialising even further, selling proximity and origin, creating a community, agreements with speciality coffee shops) and recommend a strategy.

A driving school reinvents itself: lessons only in electric cars, a pupil tracking app and combined points recovery courses. Explain why it is creating a market space with less direct competition (blue ocean), how that differs from taking refuge in a small niche and what risks it assumes.

A Spanish premium Iberian cured meats company is considering the haute cuisine niche in Japan. Analyse the barriers it will encounter (food regulations, consumption culture, logistics, price), what adaptations the product would need and what three checks it would make before taking the leap.

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).