Do you start with a product, an idea or a skill? Whatever your answer, you must find a gap in the market to focus on. You’re not likely to succeed if you go head on against a business that is already established. You must find a group of potential customers that the main players have ignored.
Think about how Nintendo spotted a gap in the crowded market for computer game consoles. It chose families, rather than teenage boys, and the Wii has become one of the marketing success stories of the last few years. A gap in the market is called a niche. It must be large enough for you to make a reasonable profit and small enough for you to dominate it.
case study AT Cross is famous for its gold-plated writing instruments that every up-and-coming executive wants to have. Rather than attacking the whole stationery market, and making every sort of pen and pencil imaginable, it has chosen to focus on the high-price niche, and has added business bags and gold-plated accessories, such as cuff links, to its exclusive product range.
Product niche. Your product could have a unique feature that appeals to a particular market group or application. Dyson’s Cyclone vacuum cleaner is an example of this type.
Location niche. This is usually a service, such as a local convenience store that’s open all hours, or an airport departure lounge shop.
Customer niche. Find a group of potential customers that have similar characteristics or interests that you can easily identify. The grey market, for example, refers to people over 60. Extreme sport enthusiasts form another market niche.
Low price niche. You could decide to reduce the quality or the number of your product’s features and sell it at a reduced price. This is what the food suppliers do with their ‘own-label’ products.
Luxury niche. You can price yourself into a market with a high quality, stylish and expensive product. The most important aspect of this niche is to have the right image and reputation. Honda created a new brand, Lexus, to move into the luxury niche. It also built a new dealer network to distance itself from the existing Honda brand.
If you already sell a product in a particular market niche, you need to see if there are any other niches where it would also sell. Often you can make a simple modification and sell it into another group of customers. There’s more about this in Secret 3.4
You must find a niche in the market, without too much competition, where you will sell enough to make a profit.
2.2 Define your ideal customer
The work that you do to define your potential customer is probably the most valuable time you spend in marketing. Traditional marketing people call this segmentation, and they will put a lot of time and energy into getting it right.
Let’s assume that you have an idea for a product and need to decide who it’s aimed at. The best way to do this is to have a meeting with two or three people who know the product and the type of customers you’re interested in, then take these four simple steps.
1 Start with demographics. If you are selling to consumers, this is their age, gender, income bracket and geographic location. If you sell to businesses, it’s their size, industry and the region or country in which they are based.
case study In the 1950s, Parker turned the pen business on its head when it decided that its ideal customer was someone looking for a gift. Parker Pens put more money into the packaging, so their products became presents. These days, we have specific pens for pre-school children, school children, students, office workers and professionals. And nobody actually buys a pen for themselves.
2 Look at buying habits. Will customers be heavy users and buy your products and services every day, week or month? Or will they buy only once every few years? For example, office workers in the city may buy coffee from the same place every day, whereas, at the other extreme, people tend to buy a car only every few years and a house just three or four times in their life.
3 Consider who will purchase the product. And how they will pay for it. For example, baby clothes are for babies but they’re bought by parents, grandparents and friends. Will people pay for your product with cash or credit card? Or, in the case of a very expensive item, will they need a bank loan? If so, you might like to approach a bank so that you can arrange loans on behalf of your customers. That would be a great added-value service.
4 Think about the motives for buying your products. Is it a lifestyle purchase, where customers buy to feel good or improve their status in their community? Or will they buy to solve a problem, save time or reduce costs? And think about whether they will make a decision based on quality, service or price.
When you have finished, you should have a picture of your ideal customer. Then you need to consider how they might find out about you, where they would buy your products and the size of the market.
The time you spend on clearly defining your ideal customer is never wasted.
2.3 Understand how and why they buy
This is where you need to be a bit of a psychologist. There are two aspects to this. You have to understand why people would want to buy your type of product. And, you must know why they would choose yours rather than one of your competitor’s.
Think for a moment about what people actually do before they part with their money. Whether you realize it or not, they think through four steps, usually without knowing it. We call these the buying stages.
Need or want stage. This is when a person decides that they want or need something. It might be that they want to save money or time, or they might want to gain something, such as money or status. Equally, they might want to avoid something, such as hunger, thirst or having to clean the house on their hands and knees.
Knowledge stage. They search for information to help them decide which one to buy. For some products, they will look at advertising, brochures or reviews in specialist magazines. For other, more basic products, such as bread, they’ll probably just look at them on the shelf.
“Look at markets through the other end of the telescope – not the lens of what you want to sell, but the lens of what people want to buy”
Gary Bencivenga, American celebrity copywriter
Preference stage. Then they actually make a decision and choose the one they will have. Even though they might have thoroughly researched the product, they will often subconsciously decide on things like colour, quality, price, style or what’s in fashion.
Buy and justify stage. After they have made their decision and bought the product, they will then justify to themselves that they’ve made the right choice. They will say things like “it was the best,” or “it was reduced in price”.
Some people make almost instant decisions because they’re known as decisive. Some need lots of information and facts before they can make a decision. They are methodical and they just need time. Then there is another group, who take almost forever to make a decision. These are cautious and you will need to encourage them to make the decision by telling them who else has bought your product.