As a small business or startup, limiting your customer base with a niche might seem like the antithesis of what you’re aiming for. Why, when you’re desperately trying to get a foothold and grow, would you seemingly put a cap on that growth possibility?
There are a few very good reasons, it turns out.
“You need a long-term plan to target progressively larger markets, but in a startup business you generally only have limited sales, marketing and distribution capacity,” Jones explains. If you’ve spent any time as an entrepreneur, you surely know the pain of limited resources.
Jones cautions against trying to win over a diverse customer base with those precious resources, “you may risk making no impact on a larger market, when instead you might develop a strong, valued relationship with a smaller number of customers if you initially target a niche.”
“It's unlikely the first niche you target will result in you finding the highest LCV (Lifetime Customer Value).”
He also has some solid tactics for counteracting the limited potential of a niche market, and it’s all in the planning.
“It's unlikely the first niche you target will result in you finding the highest LCV (Lifetime Customer Value),” says Jones. “So it's a good idea to plan for testing more than one market niche over time until you're certain you've found the largest addressable market of highest value customers.”
They use a process of market testing they call ‘concierging’ to find them.
At BlueChilli the benefits of a niche are well known, and they use a process of market testing they call ‘concierging’ to find them.
Jones explains, “BlueChilli startups are encouraged to begin by ‘concierging’ early customer relationships; spending a lot of time with a small number of customers initially to really begin to learn what they like and don't like about paying to use your product or service.”
“After a period of concierged sales and marketing research we encourage them to develop customer acquisition marketing online, as it's easier to accurately target your marketing spend to defined customer demographics and test the response rate to different marketing techniques,” he says.
“For instance, do more people click the 'buy' button when you talk about features and price, or do they respond better when you create FOMO (fear of missing out) or when you show you understand the problems they face? Does offering a discount increase response or not? Does increasing the price (and hence margin) make a difference to response? All this research is easier and cheaper to do online.”
When it comes to marketing, finding your niche allows you to more accurately, and cheaply, target your customer base.
“This helps us create marketing messages that appear more authentic and less like advertising.”
‘The narrower your niche, the easier it is to study your customer demographics” says Jones. “Where do they live and work? Who do they share a household with? What other brands do they buy and how frequently? What sort of language do they use to describe products or services like yours and your competitors? What media do they spend the most time on?”
“This helps us create marketing messages that appear more authentic and less like advertising,” Jones explains. “It is also likely to improve the performance of a marketing strategy when implemented, which is important because most startups don't have an unlimited marketing budget!”
Aja is Sydney-based writer and serial entrepreneur. She regularly writes about small business, entrepreneurship, and health and wellbeing. Her latest entrepreneurial adventure is yeahmama.co.