I spoke with a client today who was questioning whether it was preferable to go after a niche fashion business or should she have a broader product assortment. My belief is that new companies should have a narrowly  focused brand and develop that till it is very strong before adding additional products.
According to marketing expert Philip Kotler, a niche market is a group with a more narrow (that market segment) definition. Usually it’s a small market whose needs are not being well served.
Niche players share a common set of traits. These include a deep understanding of their customers and their customers’ needs and the ability to stay engaged with those customers. Ideal niche market companies should consistently produce quality and innovative products.  Serving a niche allows companies to focus on meeting the needs of a smaller group of customers.  Their product is very specific and the company continually stays true to their brand.
Entrepreneurs who see a direct correlation between the size of a target market and the probability of success miss the opportunity to serve healthy niche markets. Niche marketing not only provides startups with an opportunity to launch the business successfully, but can also help them grow into major players in a larger market. Healthy, profitable businesses such as Spanx and LuluLemon serve thriving niches.
“Companies that try to be ‘all things to all people’ have significantly higher costs, never really establish a strong customer base from which to grow, and often disappear before achieving profitable growth. If your like most people, though, it’s really hard to walk away from any potential business. Yet closing the door on some opportunities truly opens far more doors for you in others.” – Crossing the Chasm by  Geoffrey A.Moore
Benefits of Concentrating On a Niche Market:
1. Increased Profits
By focusing on your core business you are able to husband your resources and not spread yourself too thin.  You don’t waste time and money on things that do not bring significant returns.
 
2. Reduced Marketing Costs
Once you can identify exactly who your target customer is  you can create a marketing and sales strategy targeted specifically for them. Knowing your “buyer persona”  is the critical first step in creating highly relevant content that sparks prospects’ interests.
3. Greater Trust and Credibility
As you gain experience in your specific marketing niche, you start to develop a reputation as an expert in the field. People will trust your opinion and consider you a thought leader in the industry.  This is a great way to establish an emotional connection with your customer which is key in building brand equity.
4. Reduced Competition
Once you are seen as an expert in your field, it’s easier to get more of the same types of customers. You have a clear sales advantage.  Later on if you want to add brand extensions you have a customer base already in place to market to.
 
Niche businesses are not immune to competition, especially from larger market players with substantial resources and economies of scale. So in the face of competition, how should you respond? Successful niche businesses will respond with innovation and higher-quality products, rather than cost-cutting measures. They also do not try to sell commodity products that directly compete with big companies assortments.
The bottom line is that despite some difficulties–securing funding and managing growth–many entrepreneurs who are focused on niche markets find it incredibly profitable and fulfilling. The keys to success are to stay in touch with your customers, understand their needs, keeping a laser-sharp focus on serving those needs with a commitment to continuous innovation and staying consistent in the look and concept of your brand.