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Niche Marketing and the Importance of Product Differentiation Kynda R. Curtis, University of Nevada, Reno ([email protected]) Stuart T. Nakamoto, University of Hawaii at Manoa ([email protected]) Overview • • • • • Two competition strategies Niche marketing steps Product differentiation strategies Promotion and Pricing Producer payoff Competing – Option One Lowest-priced provider – Substitutable product – Results in lower cost over competitors – Production/marketing efficient • Economies of size (scale & scope) – Typically involves expansion – Difficult to maintain • New firms can duplicate process • Compete with low labor costs in other countries • Requires continual investment in cost-reducing technology Competing – Option Two Niche marketing (= market segmentation + product positioning) – Differentiated product • Product is consumer centered • Product has specific characteristics – No constant pressure to cut costs – May require technical labor and/or innovative technology Definition of Niche Marketing (= market segmentation + product positioning) • Supplying a specialty good or service to a market segment or targeted group of consumers – Previously underserved market – Market unsatisfied with mainstream product • New product • Variation on an existing product – Unique attribute (characteristic) – Different service Niche Marketing Steps • Identify niche/target market • Identify needs of that market – Surveys, focus groups, product testing, etc. • Select product differentiation strategy which meets market needs – Characteristics, packaging, delivery, etc. Niche or Target Markets May be defined by…… – Geographic region • Country, state, city, neighborhood – Socioeconomic characteristics • Age, Ethnicity, Religion, Education, Gender, Income, etc – Tastes & Preferences • Health & nutrition • Hedonistic characteristics – convenience, time savings, ease of use, support certain causes Example Niche Market • Buyers, who are they? – 30-50 year age group, primarily female, married, college educated, home owner • What are their needs? – Health conscious (diet), support locally grown, price not a major concern if product warrants it. • Where/How do they purchase? – Natural food stores, mail order, farmers’ markets • What types of media do they use? – Radio - mornings and late afternoon – TV - early evenings and weekends – Newspaper- Sunday Differentiation Strategies • Should focus on needs of niche/target market – Product specific – Process specific • Customer willing to pay a price that covers seller costs – Both parties must gain Product Specific Differentiation Strategies • Observable Characteristics – Sight, smell, touch, sound • Experience Characteristics – Taste, texture – functionality (shelf life, maturity) • Brands and labels • Customer loyalty Process Specific Differentiation Strategies • Credence characteristics – Production practices – Production location • Labeling and 3rd-party certification • Marketing practices Producer Payoff • Studies show consumers willing to pay premiums for identified characteristics (labeling, promotion, 3rd-party certification) – – – – – Food safety Specific nations/areas of origin Natural/organic/reduced chemical inputs Humane animal treatment Nutritional related factors (e.g. high antioxidant, low fat) Market Outlets • Where does your target market shop? – Direct-to-Consumer (Direct Marketing) • • • • • Farmers’ markets Catering Internet/mail-order Restaurants Roadside/farm stands, CSA, pick-your-own, etc – Retail • Supermarkets • Small grocery • Natural food stores – Agr/rec tourism Product Promotion & Advertising • Advertising (persuade) • Promotion (inform & educate) • Focus contingent on market preferences – Media: Radio, newspaper, television • Time of day/week; section of newspaper • PR—human interest stories, food articles – On site (Point-of-Purchase or POP): Store display/samples, table tent cards, farmers markets, cooking demonstrations – Materials, samples, presentations – Events: Farm tours, festivals, holidays Pricing • Role of cost of production & marketing – Associated break-even prices & volumes • Price & availability of competitive goods – Substitutes, complements & ability to “isolate” the target market • Elasticity of demand – Consumer response to price changes Examine Competition Pricing • Penetration Pricing – Lower than competition pricing – Stimulate demand • Parity Pricing – Equals competition pricing • Premium Pricing – Higher than competition pricing – Signal quality Summary • Niche marketing is a competitive strategy • Niche marketing equates to differentiated products for target markets • May be product and/or process specific • Labeling and 3rd-party certification can help • Requires knowledge of target consumer • All product packaging, labeling, advertising, and promotion must be target market centered • Higher pricing and more rewarding customer relationships