Niche marketing is a business strategy that targets small, well-defined segments of the population rather than the population as a whole. The philosophy is that while your business can't be all things to all people--and it shouldn't even try to be--you can dominate one segment of the market if you understand it well enough and appeal to it in a manner that resonates with its members.
In theory, just about every marketing campaign could be considered a niche strategy. After all, even a Super Bowl ad, which could be viewed by 100 million people, is still going after only one segment of the population: people who watch the Super Bowl. In practice, though, niche marketing is about defining categories of people that your business can appeal to, and defining them as narrowly as possible. Targeting African-American consumers, for example, is a fairly broad marketing strategy. Targeting African-American working women ages 25 to 49 is a niche marketing strategy.
The biggest advantage of niche marketing is its cost-effectiveness. Say you sell skateboards. You could put up billboards all over town and advertise all day on all the local TV stations, and your message would probably reach a lot of people who might be interested in buying a skateboard. But it would be enormously expensive, because you'd also be paying to reach a lot of people who have no interest whatsoever. A niche strategy would focus your marketing dollars in the places where you're most likely to find customers. You could buy ads in high school papers, or put up posters at concerts that appeal to young people, or run ads during "action sports" broadcasts on TV. Doing these things will cost less money, and they will reach fewer people--but a high percentage of the people you reach will be in your target market.
The U.S. Small Business Administration credits authors Donald K. Clifford, Jr. and Richard E. Cavanaugh with popularizing niche marketing in their 1985 book "The Winning Performance." The authors had studied more than 6,000 companies that were growing faster than the average of the large companies in the Fortune 250. They found that more than 90 percent of those companies were engaged in niche marketing, though the practice didn't yet have a common name.
Clifford and Cavanaugh boiled niche marketing down to five steps: make a list of your customers and potential customers, narrow that list to a group that you can serve better than your competitors and that will be profitable to serve, draw up a profile of people in this group by identifying their common demographic traits, tailor not just your advertising but also your product itself to serve the needs of this group, and don't be afraid to try a different niche if the one you've chosen isn't working.
Clumsy niche marketing can come across as pandering. Entrepreneur magazine columnist Kim T. Gordon stresses that it is imperative that you be able to speak to your target market in their own language--as an insider, not an outsider. And before rolling out your campaign, always test-market it with people in your target demographic. They are in a better position than you to tell you what you're doing right and wrong.