The best companies do niche marketing at scale. When you consider a go to market strategy, you have to aim at a niche, then scale the number of niches either vertically or horizontally. By doing this, you’ll develop large numbers of engaged fans and achieve greater long term mind share. The key is progressively acquiring more and more niches, and rolling those niches up to larger more umbrella market segments. Each time a business moves from one value proposition to another, or leverages a newly adjacent possibility, their reach, scale and value grow tremendously. Lets walk through the various ways some of the world’s biggest tech companies are solving this same dilemma of trying to market to small, niche groups with specific messaging and doing so at scale across their entire customer base.

Niche Marketing at Scale

What is niche marketing?

I’d define it as thinking of a subset of a subset of something – people who like, “Apples,” Jim's Golden Applesare one group. Then the subset of those who like green apples only could be labeled, “Green apple lovers,” and those who only like a specific brand of green apple could be labeled the, “Golden delicious apple lovers,” then the people who only like apples from a specific farmer named Jim in Washington state who specializes in growing Golden delicious apples would be labeled, “Jim’s Golden delicious apple lovers,” which is yet a smaller subset, still. At each one of these stopping points, we’ve gone more and more narrow, into an easier and easier to define, smaller set of potential customers.

Once you have broken down the task of identifying groups you could target for your marketing strategy, you have to understand them. Get to know them, inside and out. What are their needs? How are those different from other people and how are they unique? Are market centric needs being unmet today? What would provide the maximum value for apple lovers in a specific region of the country, with a specific set of criteria for determining their quantifiable adoration of such a specific product?

Generic entry points for the smallest possible niche:

  1. Price
  2. Functionality
  3. Service and lifetime value
  4. Change perception (create need where there isn’t a perceived need today)

These are listed in order of least to most difficult for initial entry. Selling on price is an easier lever to pull changing perception, which requires a longer term commitment.

For any given market entry point, there will be a corresponding tactic and a message that ladders up to the overall strategy. So you would incorporate and measure the effectiveness of the marketing done as it related to emphasizing the specific entry point chosen. If the measurement of the marketing does not include attributes or characteristics around the core position, then it would be impossible to say if one set of attributes was better or worse than another in driving results.

The tag line and or message should be crafted on a per campaign basis to gauge effectiveness. Then based on those campaign results, rules should be extracted that capture what works, what doesn’t and most importantly how to improve the throughput of future programs.

Bob's Organic Golden Apples

Suppose that in our example, our unfortunate farmer Jim farm is using pesticides. Enter Bob, who decides to go with tactic #4 and compete with an all organic message. As the product is organic, he charges a premium, it offers the exact same perceived functionality (as they’re still apples) and the jury is out on claims from Bob that somehow specifically eating organic Golden delicious apples is linked to longer term health benefits. With this as backdrop, Bob tries to change the mind of all the local shoppers in this small town so he can take share from the incumbent, Jim, for his disruptive business approach. Personally I’m on the organic band wagon so Bob’s my man.

What kinds of programs would Bob attempt to change perception?

Changing perception for Bob is very specific: how can he make the people believe his products are important enough to buy when there is a clear substitute product available at a lower price? In this case, his campaign becomes centered around the, “why charge more,” which is what you get with any premium product. Given the organic feature of his product, you turn the liability, a feature that creates a higher base cost per unit, into the core of the campaign to change people’s perception about your apples. Linking the two concepts, better apples with higher price, will ultimately yield a specific sub-market of consumers like me who absolutely believe that Bob’s organic apples are better.

What about service and lifetime value?

To compete along these axes, the position would be that you have more staff, shorter lines, easier checkout, handier shipping returns, longer call center hours and similar tactics. One study I read about said that Amazon used eleven years in the modeling of how much a customer is worth to them, if that is true, then how much would you be willing to pay to acquire that customer? You would have to figure out how much you make per purchase, how many purchases, what the average commission was per purchase, etc for a given customer over that time period. If you do this calculation, the number may surprise you if you have not already been operating on an LTV basis. The great thing about competing on service and lifetime value can be group behavior analysis and how that impacts goal completion rates over time. With discipline, you can test and iterate towards success by identifying scientifically what features, functionality and experiences in your site cater to the highest, longest lasting relationships with customers.
How would a functional strategy work for a new market?I read about Amazon acquiring Zappos and the fanatical customer service belief that they have. It makes sense for Amazon to purchase Zappos because Zappos core is to have loyal customers (to provide amazing service), so that group of customers would never have any reason to switch. This built in switching cost due to careful selection and optimization for higher lifetime value produced incredible returns for the Zappos team.

A functionality oriented entry point would have a campaign centered around the, “missing ingredient,” which in the case of our friend Bob and his apples would be to leverage the concept of the idea that the apple is just one part of what you get from Bob. You would sell the drive through or walk up experience, the free durable shopping bags and similar aspects of the customer journey. Essentially, the customer would start to believe and feel like they’re paying for not just apples, but an apple centered experience, which might include content for apple insiders, exclusive member’s only discounts, recipe ideas and more. Anything and everything should be considered that would switch people from the incumbent brand to the upstart brand as long as the emphasis was on the larger message of, “getting more,” or something being missing from the more alternative brands. The result would be a firm position from the start as the brand in a category which is being redefined, with the incumbent immediately repositioned as the laggard based on this new definition of a whole product in that category.

Thoughts on price as a strategy and the movement towards freemium?

Bob's Organic Apple Stand

Recurring revenue businesses are the, “holy grail,” of business as they tend to have predictable and high lifetime value, they also typically have a free subscription component. The two may be disjointed, in the case of search engines, where the consumers use one aspect of the service where advertisers leverage another aspect of the service. If you consider the measurable, predictable number of clicks in the search engines, you could view the auctions as variable rate subscriptions, with the normal variance being only up and to the right. To apply this subscription concept to Bob and his wonderful but expensive apples, he might start a subscription freebie that features his apples prominently and start offering free apple related content, community and gamification elements to drive adoption of his freebie offerings.

As a result of the movement towards becoming a starting point for apple lovers, even if they weren’t buying his apples specifically but aiming at, “apple meta data,” Bob could start to acquire customers despite the price premium by virtue of being first in the prospects mind, as a result of the free subscription add-ons. The value of being there, all the time, in front of the apple community would come with a certain intrinsic value. Based on the old direct marketing theory of, “two percent of anything converts,” Bob could build a substantial business given the highly qualified nature of his followers. Poor Jim will be left in the dust unless he learns to adapt.

When taking marketing from micro to macro, what else changes?

Bob's FruitsTo really dominate the category, it might become necessary to offer both a premium (organic) and a commodity (non organic) apple so that you can sell as many apples as possible. Or it might make sense to extend another way, into growing more varieties of apples, or other organic fruit. If I were Bob I would go with the second option since being “organic” is a core belief he is trying to instill in his followers. Eventually, you own the apples business. What comes next? Why, you go after pears of course or maybe mangoes (love mangoes)! Then you tackle other fruits and eventually make the leap into a whole new super set, vegetables, as it’s still within the larger super-duper  set of, “fruits and vegetables” and on the same level in the food pyramid.

In any growing business, the concept of the, “adjacent possible,” should be the first place you look for ways to grow revenue. Anytime you want to change perception, you have to be able to turn points of differentiation into perceived value. Maintaining that central consistent message will yield higher average lifetime value on a per customer basis. By leveraging adjacent opportunities to the core business, it should be possible to gain some economies of scale after a given number of niches have been rolled up to a higher than average market share.

Transitioning from a series of niches to a smaller number of larger groups

Amazon went from the, “A-Z of books,” to the, “A-Z of shopping,” since they first started. Facebook went from the, “A-Z of Harvard Students,” to the, “A-Z of past, present and future college students,” to, “anybody thirteen years of age or older.” Google went from the, “A-Z of a sample of webpages,” to the, “A-Z of the entire html web and it’s parts,” to something even bigger, each time. When a company grows from one series of niches and starts to move into larger groups, it is moving along different axes of value. As a result, there have been a few books discussing just this one aspect of marketing, such as, “Chrossing the Chasm” by Geoffrey Moore and “The Dip,” by Seth Godin. Taking the leap from a series of niches to a larger super-set is risky, a big challenge and fraught with more issues than this short chapter will address. While I recommend reading more on the subject, from my perspective, the process is essentially as follows.

  1. Be deliberate in the key, central message about why the shift
  2. Communicate with all stakeholders and dialogue publicly, where appropriate
  3. Leverage strategies that are based on maximizing the lifetime value as the primary driver of a shift in strategy from smaller markets to larger markets with a new clearly defined core customer.

When you stick to these principles, your marketing efforts will pay far larger and longer lasting dividends than without. With large businesses or smaller ones, adjacent opportunities will always exist. To deal with change, you can either adapt or bury your head in the sand and wait for the inevitable. Companies that plan for change, adapt accordingly and act instead of reacting leverage adjacent, niche markets to the core area they are in to grow and profit.

How Google targeted webmasters as their primary niche market

For those who have not heard of him, “GoogleGuy,” was a member of WebmasterWorld, an online forum for web professionals, representing a voice from the Google team back in 2001.

By leveraging an active forum for web professionals, Google was able to figure out how to best cater to their needs in a way that other search engines could not match. A few innovations that set Google apart more than a decade ago, back when Yahoo had the upper hand in search, despite not owning a web search technology.

History shows us Google was right to focus on webmasters as a first successful niche market to identify. Facebook aimed at college students in Harvard; again, history shows us that this was a solid niche to begin with.

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