Niche Leadership...What Next??

Some companies have achieved a very high dominance in their niches but in spite of those examples, it will not be unfair to say that there is a limit to how much you can succeed in a niche. At the least, the gap between the marginal cost of gaining market share and the marginal benefit will become far less attractive after having achieved a high market share in their defined niches.

Several companies have followed different strategies to grow their business after they have reached their maximum potential in their niches:

Expand geographically

Niche players tend to dominate in a small region. With international tariff, non-tariff and cultural barriers coming down, it is easy to access similar niches in other countries and regions. Hohner in harmonicas, Tetra in tropical fish feed, Steiner in military binoculars have all achieved a worldwide market share of over 50% in their defined niche.

Expand the niche

Many niches marketers cater to aspirational groups. There would be a number of individuals want to be part of the group but cannot be because they lack certain key abilities or are not sufficiently motivated. Several companies have come up with ideas to grow their niches. Honda plans to introduce two models, CBR1000 and VR800, to tap the nascent superbike segment in India. In order to grow the market, Honda intends to include riding lessons as well, for those with no experience of riding a superbike. Other such examples are the Nikon school and the BMW performance driving school

Up-sell and cross-sell

Once a company has acquired the loyalty of customers in a niche, it can leverage its goodwill to sell other products to its customers. Harley Davidson has been doing that by selling biking accessories jackets, saddlebags, etc. Even Royal Enfield has now started drawing significant revenues from its line of add on kits.

From niche to differentiated product

Several companies have made the transition from being a niche player to being a company with a differentiated product serving the general market.
Micromax succeeded in becoming the market leader in the rural mobile phone market in India. Now, they are trying to sell to the rest of the Indian market. The clothing and sorts good industry has several examples like North Face, Underarmour and Billabong, who started off as niche marketers but now cater to the general market. Some of these have made the transition smoothly but some others have had a rough time. HTC withdrew several models which affected its image of a seller of high end, touch screen based smart phones. Several sellers of high end products tried to expand their market by introducing low priced products. Notably, fashion brands like Gucci and Burberry have suffered heavily because of this strategy.

Multi-niche

Sometimes a company may decide that it is very well configured to cater to a niche. Rather than expand by catering to the whole market, the company may prefer to concentrate on another niche in addition to the one currently being served. Over time, the company would hope to acquire the reputation of a marketer proficient in handling niches. Infomedia 18 has six special interest magazines like AV Max, Better Photography and T3 but its publishing arm has resisted coming out with a general interest magazine like Newsweek or India Today.

Maslow's Hierarchy

Maslow's hierarchy of needs places all human needs in a five layered hierarchy. He proposed that humans will seek to fulfill higher order needs only after their lower order needs are sufficiently met.
The hierarchy of needs, according to Maslow (in order);
Physiological needs - Breathing, Homeostasis, Thirst, Sleep, Hunger, Sex, Protection (clothes and shelter)
Safety needs - Personal security, Financial security, Health and well-being, Safety net against accidents/illness
Social needs – Friendship and Intimacy
Esteem – Need to be respected
Self actualization – Need to realize ones maximum potential and possibilities

This order is taught in basic courses in marketing as it forms one of the important frameworks to understand consumer motives. There are several examples of products being successful in the market after it was repositioned to meet a different class of needs, either higher or lower.

By its Iron Shakti campaign, Kellogg’s is trying to tap safety needs by raising concerns relating to iron deficiency in children.Mercedes Benz has really fin tuned its ability to appeal to the esteem needs of its customers. In India, Mercedes discovered that large family businesses were an important segment for them. So they are selling multiple units to them by trying to sell the S-class to head of the family, the E-class to other important members and the C-class to the junior members of the family.

Marketers have not found it sustainable to try to sell products by overtly positioning to satisfy physiological needs. Most physiological needs like hunger and thirst are very easy to satisfy and thus, such positioning will not give any long term advantage to the marketer. On the other hand, a physiological need like sex has several complex sociological connotations and most marketers would have a nightmare dealing with it.

The main criticisms to Maslow's theory:

1. It does not sufficiently account for taste or aesthetics. If taste is clubbed with self actualization it weakens the whole model. But how else would you explain the idiosyncratic preference for a red t-shirt over a green one.
2. The model has been developed after observing exemplary people like Einstein and Eleanor Roosevelt. Generalization to common people may be unjustified.

CLTV

The customer lifetime value (CLTV) is a metric that is used by a number of companies to direct their marketing investments. BMW, the high end carmaker, uses the general formula of CLTV to direct their customer acquisition costs. Walmart.com leverages its customer data to accurately work out the value of its customer base.

These examples of companies using CLTV are few and certainly fewer in the Asian context. The main reason for that is that companies treat their marketing investments as short term investments. There are certain marketing investments which have an impact over a long period of time. Unfortunately, general accounting principles allow marketing investments to be treated as a short term expense, so there is a focus on their immediate payoffs.

There needs to be better communication between the finance and marketing departments to enable a long term view of such investments. Another important measure would be to quantify and express customer equity (the sum of the CLTVs of all the firm's customers) as an important intangible asset of the firm

Also it is important to note that all revenues because of the customer will not come from the customer. There will be other revenues because of word of mouth publicity, network effects, collateral advertising, etc. For example, an additional customer in Ebay does not pay Ebay directly but results in indirect revenues like commissions from sellers, ads, etc.

Using the CLTV concept, Pepsico recently concluded that Diet Pepsi, rather than regular Pepsi, is its number one soft drink.

Recently, mergers & acquisition dealmakers have relied on extending the concept of CLTV to value a customer base. It is rumored that CLTV based recalculations pushed Vodafone's valuation of Hutchison Essar from $10 billion to over $20 billion within a period of 6 months.

Working out multi-year impacts of marketing investments will not lead to an increase in marketing budgets but will lead to re-allocation of marketing expenditure based on the true value of the investments.

Hans Rosling: Presenting Data