What is a business niche?

A business niche is a focused or specialised segment of a broader market that businesses may serve to differentiate themselves from the competition. Because a niche is a specialised market segment, we typically describe the characteristics of the niche’s consumer base.

In the world of marketing, we often talk about two things: demographics and psychographics. Demographics include details like the person’s gender, age, where they live, how much money they make, and other corresponding factors. Psychographics, on the other hand, are all about a person’s behaviours and preferences. For example, if someone prefers food with all-natural or all-organic ingredients, that is a psychographic characteristic. When we talk about a niche, we mean a specific group of people who share certain demographic or psychographic traits. And these traits give them particular needs and preferences that businesses can cater to.

Why focus on a niche?

Concentrating on a niche offers numerous advantages. One of the most compelling reasons is the ability to empower businesses, particularly smaller ones with limited resources, to cater to a specific consumer group. It’s a practical and sensible strategy.

This focused approach enables businesses to specialise, delving deeply into the niche’s unique needs and challenges. When you deeply understand your customers ‘ preferences, it becomes easier to solve problems, address these pain points, and enhance products and services. This, in turn, fosters customers’ loyalty and satisfaction.

Opting for a niche becomes a mutually beneficial arrangement for both the business and the customers. Concentrating on a niche streamlines operations, which makes your business more efficient. Your focused efforts as a business owner allow you to understand better and anticipate your customers’ requirements, resulting in improved products and services that cater precisely to their needs.

How do you find and dominate a niche?

There are different strategies in finding a niche, all of which require observing a market base. Here are a few questions to ask to help you identify a niche within your market base:

1. Can you identify a cluster of customers that share similar characteristics?

Identify a cluster of customers that share similar characteristics.

Identifying a niche requires identifying patterns in a customer base. Imagine you are a small café. Every Saturday and Sunday morning, you notice a group of weekend cyclists who pass through your café looking for something to replenish their energy after a long bike ride.

Now imagine what you can offer to them so that they can stay for a while and mingle with fellow cyclists before they head home. Perhaps a special cold drink in the summer, or a warm cup during the cooler months. Maybe even a high-protein breakfast to keep them healthy.

Certain trends are more conspicuous than others. Let’s take the example of Lego, the Denmark-based international designer and manufacturer of toy bricks. While plastic bricks have been in the market since the 1950s, Lego only began recognising that many of these toys were being bought and played with by adults. The idea of an adult fan of Lego, more popularly known these days as AFOL, became mainstream after the release of the Lego Movie in 2014. And since then, Lego has been intentional in designing sets that cater to the adult market.

2. Is there an underserved and neglected market?

Perhaps there is a group of people who have specific needs but whose needs are not being fully addressed.

Maybe you own a small restaurant and notice that conscious consumers are looking for all-natural, all-organic healthy meals that fit a specific budget. Or perhaps your restaurant is located within an area where many remote workers visit on specific months and need a relaxing place to stay for a while to work.

Many successful business owners started their companies out of their own underserved needs. Take for instance Over the Moo, an ice cream brand hailing from Australia that specialises in dairy-free ice cream crafted from coconut milk. The brain behind this venture, Alex Houseman, found himself in search of dairy-free ice cream options that not only catered to lactose intolerance but also offered delightful and rich flavours that he craved, all without breaking the bank. Disappointed by the lack of options in the non-dairy ice cream market, he took matters in his own hands, formulating ice cream using coconut milk, offering a lactose-free alternative to dairy milk.

Another case in point is Whole Kids Australia, a business run by a family that specialises in wholesome organic snacks for children. Monica and James Meldrum, the founders of this venture, found themselves looking for nutritious and delicious snacks to offer their nieces and nephews. Unfortunately, they could not find anything in the marketing that met their stringent criteria. As a result, they decided to create their own line of fruity snacks that not only tasted great but also packed with essential nutrients and free from common allergens. To ensure the highest quality, all ingredients they used to craft these snacks were sourced organically.

Both businesses have grown into million-dollar enterprises. If you are interested in learning more about these locally nurtured success stories, you may find profiles of these businesses in my Small Business Success series. Please check out Over the Moo here and Whole Kids Australia here.

3. Is the niche a large potential market?

In an ideal scenario when selecting a niche, you aim for it to be sufficiently sizable to ensure profitability and room for expansion. Looking at examples of Lego, Over the Moo, and Whole Kids Australia, these companies identified niches that offer a substantial market size, enabling profitable operations.

Targeting every underserved market is unnecessary, especially if they lack the scale to ensure profitability. Nevertheless, it is advantageous to stay observant because niches can evolve and expand over time. The needs of these groups of consumers may give you an idea of how to compete with your competitors or maybe grow your business by serving a niche.