Market Niche

A market niche or niche market can be characterized as a market sub-segment in which a limited number of high demanding customers are willing to pay premium prices for specialist products (Parrish et al., 2006). This chance of increased profits enables producers to offer elaborate services and pursue a close customer relationship. Thus, the producers build a high reputation which gives them a strong market position (Parrish et al., 2006).

Kotler (2003) describes five key characteristics of niche markets:

• the customers in the niche have a distinct set of needs;
• they will pay a premium price to the firm that best satisfies their needs;
• the niche is not likely to attract competitors;
• the niche marketer gains certain economies through specialization; and
• the niche has size, profit, and growth potential.

According to Shani and Chalasani (1993), a market segment is in contrary to a market niche the result of a top-down approach meaning, the breakdown of an overall market into different segments to highlight the differences in the market. Additionally, a market segment is also larger than a market niche. On the other hand, a market niche is the result of a bottom up approach meaning it starts with at low customer base sharing similar needs and consumption patterns. Over time, the customer bases increases over time (Shani and Chalasani, 1993).  

Similar to mass customization, producers pursuing a niche market strategy strongly focus on the customer and his or her individual needs (Parish et al., 2006). Mass Customization, however, is even more oriented towards individual customer needs, as MC is based on a pull-production.  . As in mass customization, any final product might be unique, mass customizing producers face many markets-of-one meaning any customer represents a (single) market (Gilmore and Pine, 2000).

References:

Gilmore, J.H., Pine, B. J., II, (2000): Markets of one: Creating Customer-Unique Value through Mass Customization, Harvard Business School Press.

Kotler, P. (2003): Marketing Management, 11th ed., Prentice-Hall.

Parrish, E.D., Cassill, N.L., Oxenham, W., (2006): Niche Market Strategy for a mature marketplace. Marketing Intelligence & Planning 24 (7): 694–707.

Shani, D., Chalasani, S., (1993): Exploiting Niches using relationship marketing. Journal of Services marketing 6 (4): 43–52.