-It should be profitable to serve that market
-It should have enough number of buyers to make your business sustainable
-The market should be growing or has growth potential so that you can continue meeting the demand for a long time.
The above characteristics may be termed niche characteristics. They could however, just as well apply to a market segment. However, market segments, in contrast, are large identifiable groups within a market, such as the rich segment, the middle class segment, and the masa segment. A niche is a more narrowly defined group within the segment, which may seek a special combination of benefits, such as the class AAA niche within the rich segment, for jaguar cars or upscale condominium markets.
Other observed differences are that:
-a niche is usually smaller in size compared with that of a segment
-a niche focuses on individuals that require special set of benefits, such as those that buy and take virgin coconut oil to promote health – in a segment we focus on a so-called homogeneous group, such as those that instead buy vitamin supplements instead to promote health.
a niche fulfils a specific need in contrast to a segment where the emphasis is on being a manageable part of the market.
Just like market segments, market niches can be found and defined within geographic areas, a specialty industry, ethnic or age groups, or any other particular group of people. Sometimes a niche product can be a variation of a common product that is not produced and marketed by the main marketing firms.
BW: How do marketing professionals and companies develop their own niches and what marketing approaches (methods) do they use to serve the niche?
Prof. Rey Lugtu: Identifying and targeting a niche have two general approaches:
One is market or top-down approach where a large market is broken down into smaller pieces or segments, these segments are further broken down into niches that are defined by a specific group of people or consumers, and then the company finds a product or service to address the specific needs of this niche.
This approach is normally pursued by bigger companies that offer many products to serve various niches. Examples are Johnson & Johnson which has more that 170 affiliates or business units that pursue niche markets – from diabetes care products to eye-care products. Another example is the offering of Smart Communications for seafarers called Smart Link that provides communication services to Filipino seafarers.
The market or top-down approach uses the pull-marketing concept, i.e. where the marketer develops advertising and promotional strategies that are meant to entice the prospect to buy the product or service.
Another approach is the product or bottom-up approach where the marketer starts from the needs of a few customers, produces the specialized product, and gradually builds up a larger customer base. An example of this approach is the entry of virgin coconut oil in the market, which started to address the niche of consumers who desire for a natural and effective way of promoting health and treating illness. It has now grown into a multi million dollar industry here and abroad.
A variant of this approach is called push marketing, where the marketer starts from the needs of a few customers then the company markets the product to all segments hoping the product creates a niche. This approach has been applied by local beverage companies which launched flavored water and blended colas, and launched and advertised them through mass media in an effort to find a stable niche in the long run.
The product or bottom-up approach uses the push marketing concept where in the marketer develops advertising and promotional strategies geared toward the marketing and distribution channels to entice them in promoting the product.
BW: What different market segments advertisers pursue nowadays to sell their products and services. In what industries do they exactly cater to?
Prof. Rey Lugtu: Generally, marketers of consumer goods segment the market bases on socioeconomic classes, i.e. rich segment, middle class segment, and the masa segment. Mass media is replete with advertisements targeting the masa segment such as packaged consumer goods (e.g. instant nnodles) and mobile phone services (e.g. Smart and Globe). Other marketers have segmented the market based on age groups, such as the youth segment (e.g. Smart Addict Mobile) and the elders segment (e.g. Sustagen Prime).
However, many marketers, in their pursuit to develop other markets, have been breaking down these segments into smaller segments or niches. One example is the offering of Smart Communications called Smart Kid, which targets the “kids” niche of the mobile phone market wherein Smart also offers value-added services for kids and parents such as games and location finder.
The working women market has evolved from a niche to a larger market segment. Credit card companies have developed products and service that cater to this segment.
A strong market that has a number of potential niches in it is the overseas Filipino workers (OFW) segment. There are around 5 million OFW with remittances that could hit $11.8 billion in 2007. These present huge opportunities for marketers to target this growing segment and capitalize on certain niches. For instance, Smart recently launched the Smart Services Hub, a platform will enable mobile operators and banks to serve the remittance needs of migrant populations in their respective countries. Through the platform, migrant workers will be able to send remittances to their countries via SIM-based services anytime, anywhere -- all at the speed of a text message.
Another niche marketing was launched by Bank of the Philippine Islands (BPI) in 2006 called “Expat Pinoy” (BPInoy) program that addresses the needs of Filipinos working abroad. Compared with other banks tap the overseas Filipino market only for the remittances or cash transfer business, the program will immediately provide as “pabaon,” or send-off package, to expatriate Filipinos an international automated teller machine card, a BPI Mastercard credit card and a 24/7 counseling service to assist them in managing their finances.
Another emerging niche is the business process outsourcing (BPO) employees niche market. This group aged 19-35 years old, normally works in call centers and other BPO’s usually in the metros during the night shift. This group which numbers to about 200,000 and growing rapidly by 30-40 percent until 2010, has created a culture of its own, with the same tastes in music, food, fashion, and lifestyle. The average starting salary of these employees is $275 a month is well above minimum wage of about $6 a day, and they are spending everything!
Niche marketers in the fast-food and restaurant bar business have started to realize this by opening during the night-til-dusk shift, and offering promotions to call center employees.
Many marketers in the consumer goods industry have not yet taken steps to capitalize on this fast growing niche. There are obvious potentials for niche products such as night cosmetics and beauty care products, vitamins and food supplements, and other services that open during BPO hours.
BW: TV, radio and print are still the most-used mediums of advertisement. How effective are they in serving/advertising the niche markets? In what industries does each one is associated with when it comes to reaching the intended niche market?
Prof. Rey Lugtu: TV, radio, and print advertisements are pull marketing approaches that are intended to entice the prospective consumers to buy the product or service. As discussed previously, pull marketing approach is employed in the market or top-down approach in niche marketing i.e. a large market is broken down into smaller pieces or segments, these segments are further broken down into niches that are defined by a specific group of people or consumers, and then the company finds a product or service to address the specific needs of this niche, the advertises or promotes the product to entice prospective buyers to buy.
Generally, the market or top-down approach in niche marketing is employed by bigger companies in the fast moving consumer goods (FMCG) industry, telecommunications services industry, and financial service industry.
Since radio and print advertisements can be localized, these can be employed in targeting geographic segments e.g. Cebu market, Davao market.
Print advertisement can further be localized based on special interest publications, and therefore be used to reach a niche market more cost-effectively. For example, the Village Voice publications in upscale villages in Metro Manila can be used by niche players to market products and services such as high-end cars and upscale restaurants.
BW: More specific target markets may need to be reached through nontraditional yet more precise means. What are the various nontraditional means and how each can be effective in promoting the products and services?
Prof. Rey Lugtu: The advent and growth in information and communication technologies (ICT) has lowered the distribution cost of digital products and services. Corollary to this, digitization technologies has lowered the cost of production; thus allowing for the lower cost of producing and marketing products and services to niche markets.
One clear example of this is iTunes, the online music store of iPod. iTunes has more than 5 million songs compared to a typical physical music store of 55,000 tracks. iTunes distributes all sorts of music to even the esoteric music lover – from Jamaican music to Acid Jazz tracks.
Another example is Amazon, which carries 3.7 million titles compared to 100,000 titles of a typical large physical bookstore. Amazon distributes book titles for even the very specialized niche buyers – from those who look for weed gardening to readers who look for subjects on Asian poetry.
These long list of songs and books titles address specific requirements of many niches, thus constituting the “The Long Tail” of demand for niche products, as coined by Chris Anderson in his seminal book “The Long Tail”.
What is means for local marketers is that products that can be digitized and/or distributed digitally via the Internet can prove to be viable and even profitable. Take for instance mobile content being distributed by wireless operators like Smart and Globe. Each of these operators would have hundreds of content providers producing hundreds of content categories – from ring tones, to a MMS picture of movie stars – which translates to thousands of content categories which address a specific market need or niche. The cost of production of these thousands of content is low because everything is digitized. Likewise, the cost of distribution via the wireless operators is low, which makes it possible for wireless operators and content providers to make money out of thousands of types of content.
The Internet has also enabled enterprising Filipinos to reach the OFW and migrant Filipinos abroad. One good example is Pinodelikasi.com, an e-commerce site that markets and sells various Filipino food products including danggit, dried pusit, dried mangoes, canned Filipino specialties (adobo, bistek tagalog, pork adobo, calderetang baka and bopis), and other items, including a Banaba tea (mixed with Pandan) called Haliya. It has grown into a profitable and viable business model that the World Trade Organization nominated Pinoydelikasi.com for best e-commerce model.
The Internet and even the mobile phone usage in the Philippines has allowed marketers to use these tools to reach various niches more cost-effectively. Though there are only about 10 million Internet users in the country, it is growing rapidly and coalescing into specialized user groups that niche marketers can target.
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