Friday, 14 November 2008

How "niche" should a start up be?

We came across this topic on the “Discussion Leader” site of the HBS Press. It’s an interesting place with simulating points of view.

The topic got us thinking of a fundamental misunderstanding.
How “niche” asks the author? Does that mean there are levels of niche?

"Should a start-up be mass market or niche?", he asks. Well, firstly, it’s a question you ask before you create your company. Not after.

Clearly, it can be played both ways. The mass market will give it (due to lower price) less margin per unit, but more sales volumes....hence good profits.

If you want a "niche" product, you have to be ready to continuously innovate to be at the cutting edge "wow" factor of your category....then recover that cost of innovation through pricing.

If you think you need to have millions of consumers to make the business a success, remember to have distribution systems/ customer support systems/ pricing and product development tuned to this.

Your choice of the 4 Ps..product/ pricing/ place and promotion is based on who you are targeting as your consumer. Be sure you know how your product will evolve over time. Without that vision of maybe 3-5 years, you cannot begin to decide whether you want a mass market play or a niche play.

In the consumers space, brand building rests on creating a duality for consumers. Consumers today want to be connected to "communities". While at the same time want to be able to express their individuality.

Nokia/ Apple/ Nike do this very well. A belonging to a community of like minded people helps consumers validate themselves.

How a start up should do this, we leave to its creators to decide. But to build a consumer brand, you have the ability to "personalise" the product. Question- how do you create a useful do you make this idea bigger?

We advice a company that is trying to establish itself in the consumer goods (jams/ pickles) space with its USP (for the Indian market) being that it has an astounding 60% of real fruit and vegetable pieces in the product.

We think this product belongs to a "niche". The product can demand a price premium. Fewer units of sales, but more profits per unit. No brand in the history of marketing has had a mass market appeal and maintained high volume share over a sustainable period of time. So a choice has to be made. We can always debate whether mass market or nice market products have greater long term benefits, but that’s not for now.

In our view brands that can innovate continuously, win. The choice of mass market or niche is not a determinant to the durability of the brand. Innovation is. And innovation forms the backbone of any brand built over decades.

We personally rate "value share" more useful than "market share".

The view of value at the "bottom of the pyramid" has convinced most marketers in India to run after volume market share. VCs believe (naively) that high volume share, i.e. large consumer base, can be magically converted to high revenues and profits in the long run. This is false, but a commonly held belief of most financial analysts and VCs.

So what should you do?

Understand how many people would YOU like to sell the product to.
(Please don't say "as many as possible". )

Niche or mass market strategies both work. A marketer has to decide where he wants to play.

Ritu and Venkat

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