Niche marketing is sometimes a misunderstood term. Basically, niche marketing refers to competing within a narrowly defined market segment with a specialized offering. In essence, the firm virtually becomes a ‘big fish in a small pond’. The firm’s competitive advantage comes both from its expertise (as it’s a specialist) and from having a high market share (of a relatively small market segment). As a result, many potential competitors do not deem it viable to directly compete against niche marketers.
Niche marketing is a somewhat rare strategy to implement and the term is sometimes confused with one-to-one marketing (discussed below) and being a small market player. Most small businesses are generally not niche marketers; they simply have a very small share of a large segment (whereas niche marketers have a large market share in a small/tight segment).
“A small market that is not served by competing products.” (Keegan, Moriarty, & Duncan, 1992)
“A method to meet customer needs through the tailoring of goods and services for small markets.”(Stanton, Etzel, & Walke, 1991) ”
The customers in the niche have a distinct set of needs; they will pay a premium to the firm that best satisfies their needs; the niche is not likely to attract other competitors; the nicer gains certain economies through specialization; and the niche has size, profit, and growth potential” (Kotler, 2003).