What Is a Niche Market?

Definition & Examples of Niche Markets

Woman shopping for organic fruit
•••

 

Betsie Van Der Meer / Getty Images

A niche market is a focused, targetable portion of a broader market in which specialized products or services can be sold. Establishing a niche market helps businesses gain competitive advantages.

Learn more about niche markets and how to find one for your business.

What Is a Niche Market?

A niche market is a segment of a larger market that has its own demands and preferences. Companies focus on niche markets to better cater to a specific consumer than competitors who target a broad audience. Catering to the unique demands that mainstream providers aren't addressing, businesses pursue niche markets to build loyalty and revenue with a largely-overlooked audience.

For example, rather than offering a general cleaning service, an entrepreneur might pursue a niche by offering floor polishing services exclusively. Another business in the same city might occupy a separate niche, specializing in solely biodegradable cleaning products. 

Markets of any discernible size contain multiple subsets, although not all possible niche markets will be worth targeting.

How a Niche Market Works

The key to establishing a niche market is research. By diligently researching niche markets, a business can determine what unique segments already exist, and explore where new ones could be successfully developed. Once you've found a potential niche market, it's essential to think about whether it can become profitable.

If it's a niche market with no competition, it could be that businesses have already found it not to be profitable or worth the effort. If there are a small number of similar products or services, that could be a sign that your idea is potentially profitable. The trick to capitalizing on a niche market is to find or develop a segment that has accessible customers, room for growth, and no dominant competition.

You can define a niche based on many factors, but some common ways are:

  • Values
  • Interests and hobbies
  • Geography
  • Price
  • Income
  • Quality

Profitably meeting a given audience's demands depends on specialization, quality assurance, and communication with one's target audience.

Benefits of Niche Markets

There are several benefits to targeting a niche market:

  • Reduced competition
  • Focused business efforts
  • Providing expertise
  • Establishing brand loyalty

The more specialized the products or services you offer, the less competition there will be, which gives businesses a chance to take advantage of a larger market share and less price competition. Targeting a narrower audience also allows businesses to focus their efforts on catering to specific customer needs.

If you sell backpacks, for instance, there are countless types you could offer, and if you try to offer them all, it's going to be virtually impossible to please all customer types. However, suppose you focus on backpacks designed for avid hikers who go on multiday trips and camp outside. In that case, it becomes much easier to concentrate your efforts on making the best possible product for that consumer.

This concentrated effort offers a chance to become known as the specialist in a particular product or service and makes a business more likely to be recommended by its customers. Solidifying a niche market position can help a business confidently expand its offering into new, broader markets. If you're known to offer high-quality hiking backpacks, your brand will make consumers more likely to trust your products if you decide to expand and begin offering school backpacks.

Criticism of Niche Markets

The main disadvantage of focusing on a niche market is that you may become too dependent on a product or service, making yourself vulnerable to market changes and stagnant growth. On the other end, if you find yourself having success, you will likely have increased competitors. Once one business has established and vetted a profitable niche, others will be quick to move in. This is especially true with larger companies with the money and resources to avoid barriers to entry.

Key Takeaways

  • A niche market is a segment of a broader market with its own needs and preferences.
  • Finding a niche market requires researching consumers' preferences, competitors, and potential market changes.
  • Niche markets can be defined based on values, hobbies, location, or quality.
  • Having success within a niche market will welcome more competitors.