One of the biggest challenges—perhaps “temptations” is a better word—in rough economic times is for a company to try to take on too broad a range of business. It takes a lot of self-discipline to turn down work that really isn’t in one’s wheelhouse. From small businesses to corporate giants, there are numerous stories of businesses that overreached into arenas outside their core competency, and then paid a high price for the diversion. Often the economic costs of a failed expansion are outweighed by the loss of focus on the core competency that made a company successful in the first place.
On the other hand, companies that know what they are good at, and stick to it (Jim Collins’ “Hedgehog” concept), taking on only the customers that align with their skill set, seem to weather the economic storms and even have the ability to command premium pricing for their products and services. And that’s the economic power of the niche: For most companies, a 5% – 10% increase in top line prices can result in a 100% increase in bottom line profits.
This is really what is at the heart of succesful branding, because branding is all about differentiation. It’s about creating as much distance as possible between your organization and your competitors. A clearly defined niche or specialization is the best path to such differentiation.
When confronted with a choice between a generalist and a specialist, risk-averse customers will almost always pick the specialist. For example, let’s say you hurt your knee in a skiing accident. Would you rather go to a general practitioner or Vail’s premier orthopedic sports surgeon?
Niche positioning helps mitigate cost considerations since specialists command higher prices than generalists. As one colleague puts it: “Mystery equals margin.” A high degree of specialization that is beyond the grasp of your audience to acquire on their own instantly makes you an expert worth listening to. It makes your brand worth paying a premium for. You’ll also find yourself having greater authority and commanding more respect in your relationships with your audience. There’s a world of difference between being called in late into your customer’s initiative as a potential “vendor” bidding on a project, and playing a consultative role early in the development stage as a trusted advisor.
Identifying your niche ultimately means deciding what your “sweet spot” is, and what it is not. Put another way, your organization is defined by the type of business you turn down as much as it is by what you take on.
We’re fortunate, here at The Creative Alliance, to be able to work with many companies who are among the leading specialists in their respective fields. Our job is to distill, package and communicate their unique relevance to the markets in which they compete. A few examples:
- LaserCycle USA of Louisville, Colorado is positioned as the alternative to Chinese producers of inferior remanufactured laser toner cartridges, and has thus seized the niche of environmentally responsible, high quality, American-made products.
- KT’s BBQ, a counterculture Boulder icon, has maintained its niche of having the simplest menu in the restaurant business for nearly 20 years, avoiding the temptation to expand its offerings and lose focus on its core competency: really awesome BBQ (in a town known for vegetarianism).
- NationAir Aviation Insurance of Chicago is a company that offers insurance products in one, and only one, industry. “Aviation insurance is all we do,” says NationAir President Jeff Bauer. “We have to be good at it.” The company’s single-minded focus has enabled it to offer value-added service and expertise that far surpasses the much larger generalist insurance firms it competes against.
Truth be told, the more narrowly focused and well-defined a company is in its mission, the easier it is to develop its brand and creatively express its relevance to the marketplace.
Such wisdom of the niche is not new. As Plato—that great marketer of the 4th century BC—said in Book III of The Republic:
“Each man is capable of doing one thing well. If he attempts several, he will fail to achieve distinction in any.”