Competition and Market Niches
Imagine you want to open a taco shop in your neighborhood, right across from a huge chain that sells cheap tacos at all hours. Competing head-on against a giant with far more resources usually goes badly for an MSME. The smart move is to look for gaps where competition does less harm and to serve specific needs that large companies neglect because they aren't profitable at their scale. At the end we'll see what that taco shop would do.
What a market niche is
In contrast to the mass market, which tries to reach everyone with a general offering, a niche targets a small group with an offering designed precisely for it.
In the figure, the large rectangle is the broad market and the small one, marked with "?", is a specialized segment within it. What is that kind of segment called? You just read it in the definition.
Define what a niche market is in your own words and give two examples of companies, real or fictional, that target one.
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…
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…
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.
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…
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.
A real niche, not a fad
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…
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.
Evaluating whether a niche is viable
Existing competition and barriers to entry
Besides the three criteria, before launching, check who you will be up against.
Existing competition means the companies that already serve that niche, even if only partially. If several are already well positioned, you will have to offer something clearly different; if there are none, find out why (further below, in "Careful"). Substitutes also count: whoever solves the same need in a different way.
Why do they matter? If the barriers are high, few new competitors will catch up with you and your niche will be better protected, but it will also be harder for you to get in. If they are low, you get in easily, but anyone (including a giant) can copy you.
Validating the niche before you launch
The criteria are hypotheses until you test them with real data. Before investing, it pays to validate with cheap, quick tests:
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Surveys or interviews with potential customers: do they have the problem? How much would they pay?
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Presale or trial orders: sell a small batch or reserve orders with a deposit. Someone actually paying says more than "yes, I'm interested."
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Estimating the size: how many customers there are in your area or channel and how many you could serve.
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Checking minimum costs: with the price they accept paying and the sales that seem possible, are fixed costs covered? If not, the niche isn't enough.
Why? Being wrong about a survey or a trial order costs little; being wrong after renting a space and buying equipment can cost you the business.
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…
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'.
Using viability criteria, evaluate the niche 'online Spanish courses for German professionals working with Mexican companies': estimated size, existing competition,…
Using viability criteria, evaluate the niche 'online Spanish courses for German professionals working with Mexican 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.
When the giant enters your niche
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…
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 blue ocean versus the niche
A niche, on the other hand, focuses the offering on an already identified segment: it serves those customers better, normally with more value and at a higher price. That is why a niche chooses between value and cost; the blue ocean tries to eliminate that choice.
To design a blue ocean proposal, a four-actions matrix is used on the factors the sector competes on:
| Action | Question |
|---|---|
| Eliminate | Which factor that everyone takes as mandatory can be removed? |
| Reduce | Which factor can be offered far below the sector's standard? |
| Raise | Which factor can be raised far above the standard? |
| Create | Which new factor has the sector never offered? |
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…
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 pesos and personalized service in their offices.”
- 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.
- 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.
Back to the beginning: the taco shop across from the chain can focus on a niche (guisado tacos with nixtamalized corn tortillas, vegetarian options), validate it with a presale or a survey among its neighbors, build community in the neighborhood, and avoid the price war.