What is a Market Niche?

By Peri Pakroo (updated by Jennifer Craig) | August 4, 2011

(And Why It’s Useful to Define One for Your Business.)

A niche is a narrow subsection of the market that is not being served or not being well served. Even though it is narrow by nature, it should not be so narrow that there are not enough customers to sustain a business. The most profitable niches are low on competition and high on demand.

A business can highly tailor its operations to meet the needs of a specific niche (i.e. a Japanese restaurant), or, it can use its niche more as a marketing tool (i.e. a gym that focuses primarily on tourists).

A major question might be, “Why is it useful to carefully define a market and focus on a niche?” The answer would be to set the business apart from its competition. When marketing, a business niche helps to “hook” customers by appealing more to their specific needs. Niches can be profitable because they serve needs that may be overlooked by competitors, and they make marketing easier when finding and reaching potential customers.

Having a niche market helps a business when crafting its marketing message. For example, if the business is trying to reach high-income women executives, the marketing message must contain appropriate language, images and tone to be successful. A phrase like, “Yo, Mama,” would not work.


The best way to reach niches is the successful use of demographic characteristics. Small businesses need to remember that there are huge marketing firms that spend all their money and staff doing nothing but demographic research. With that said, a small business will only scratch the surface in using demographics effectively, but logic and the obvious will usually win.

First, they should begin by looking at a list of specific criteria describing their customer base like age, income levels, buying habits, gender, occupation, married or single, and the list goes on to include: children; no children; residence location; ethnicity; and hobbies or interests. In fact, a business could increase factors to finite levels (color of hair/eyes; teeth or no teeth, etc.)

Secondly, a business’s competition is any business trying to sell similar products and services to roughly the same market. The more a competitor targets similar niches, the more likely they become direct competitors. Businesses should learn everything they can about their competitors, and identify the ones that are the most direct, remembering that Wal-Mart, K-Mart, and Sears compete as well as the mom-and-pop stores down the street. Remember too, niches, that are low on competition, offer better opportunities for profitability

Thirdly, a business’s industry is the broad world of businesses that operate within its general field, some of which may be direct competitors and many who may not directly compete. Examples of industries would be restaurants, manufacturing, retail, jewelry, automotive, small appliances, and the list continues. New industries emerge from time to time like satellite television and mobile phones. Other industries fade over time, like analog broadcasting, video and DVD rentals (pushed out by streaming online), record stores, mills (much has been sent offshore), and video post production. Other industries have morphed like newspaper publishing (the entire process has changed) and photofinishing (nobody buys film anymore but digital photos can be emailed to processors for prints).

Future industry changes could possibly include eliminating phone books (everything is online these days), possibly radio stations (people are streaming Pandora), and television (now becoming 3D and possibly going holographic).

Understanding an industry requires being aware of trends and best practices within that industry. For example, a small-town restaurant owner should know about trends in the restaurant industry such as using organic meats or providing wireless Internet access.

While these trends may be widely followed in big cities, they might not be available at all in the small town restaurants, allowing the business owner an opportunity to develop a competitive edge by offering both items. It is important to stay abreast of industry trends to anticipate change (especially in technology).

Think about past trends that have since passed and probably left businesses scrambling to survive:

  • 8-track tapes and recently, cassettes
  • Floppy disks
  • Fashion trends (always changing and redefining the market)
  • Diets (always changing)
  • Cameras (35 mm and film), which have moved to digital

There may be a profitable niche in serving customers who use obsolete technology! If a business is the only electronics shop in town that fixes or sells turntables, VCR’s, and cassette players, it may have a profitable niche with little competition, even though those products are by no means a growing technology. As with any niche, the trick is to make sure it is big enough to support the business. For example, some small engine repair shops have closed because it is cheaper for the customer to replace the item (especially with China prices) than to repair it.

Knowing the target customer, the competition and the industry will improve a business’s competitive edge (meaning they stay up with or ahead of the competition). When a business owner understands the trends in the industry, and what competitors are offering, the owner can refine the business idea to target customers that are not served (or not served well) by the competition.

Thus, niche marketing helps the business to hone its skills, well define its focus, stay on top of the competition and stay ahead of industry changes. Niche marketing usually is less costly because it is easy to identify where and how to find its customer. All-in-all, small businesses should know their niche and how to profit by it.

About the Author

Peri Pakroo (updated by Jennifer Craig)

Posted in