Niche Markets
Exam Board Links
AQA A-Level Business
Unit 3 - Decision making to improve marketing performance
Chapter 3 - Making marketing decisions: segmentation, targeting and positioning
Edexcel A-Level Business
Theme 1 - Marketing and people
Chapter 1 - The market
The Body Shop
Anita Roddick discovered a segment of the skincare market. A segment that large brands like Estée Lauder ignored. So, in 1976, she founded The Body Shop.
There were lots of consumers who bought skincare products. But there was a small group of consumers who wanted natural ingredients and cruelty-free products.
The Body Shop was the first skincare brand to develop a range of skincare products that weren’t tested on animals.
Roddick created products with natural ingredients like plants. It meant they weren’t harmful to humans, so it didn’t need testing on animals first.
The Body Shop has 1% market share of the overall skincare product market. That 1% is likely 90 to 95% market share of the natural ingredient and cruelty-free skincare product segment. In other words, "a big fish in a small pond".
Less competition
At the time, The Body Shop was the first skincare company to target this niche market.
Large brands either weren’t aware of this niche due to a lack of market research. Or ignored it because it wouldn’t have the same sales volumes as the mass market. So, it made it easier for The Body Shop to attract consumers to buy their products.
Higher prices
The Body Shop can and does charge higher prices for two reasons.
Its products better meet the wants of its target market: cruelty-free and natural ingredients. There are fewer competitors fighting to sell their products to the same customers.
As a result, The Body Shop has high gross profit margins.
Targeted advertising
Roddick was ‘anti-marketing’ in the sense of advertisement. Especially because big skincare brands dishonestly promoted their products this way.
She could have advertised in women’s only magazines, but she didn’t. She could have paid the local newspaper for adverts, but she didn’t.
Instead, she had black chalkboard outside her shop. Messages about cruelty-free and natural ingredients caught the attention of her target market. In those days, consumers went out to the town centre to buy products. They didn't have phones. So, if signs caught their attention, they went into the shop.
Once a customer bought a product, word-of-mouth marketing did the rest.
Targeted distribution
The Body Shop created its own distribution channel. It opened shops in towns and cities where its target market resided.
The Body Shop was able to show product demonstrations. They allowed potential consumers to try the initial 25 products. Most importantly, they could educate consumers about their ethical and eco-friendly practices.
All of which contribute to building a relationship with the customer and enticing them to buy a number of products.
Matching unit costs
The unit cost (average cost) at The Body Shop may have been the same as large skincare brands despite the lack of economies of scale.
The Body Shop likely had lower fixed costs in terms of shops, storage and staff. In addition, Roddick skipped the middlemen, went straight to producers in the UK and abroad. Suppliers got a better price, and so did she, enabling her to achieve high net profit margins.
A niche market is a small segment of buyers with specific needs and wants.
Advantages of Targeting a Niche Market
Fewer competitors targeting the same consumers.
Easily build brand awareness within the niche.
Consumers may believe the products are of higher quality and value.
Businesses can charge higher prices.
Easier to target a specific consumer.
Likely have lower promotional costs.
Higher operational profit margins.
Expand by opening additional shops.
Charge higher prices.
Achieve healthy gross profit margins.
Reinvest in research and development for new products.
Increase sales volumes and build market share.
Disadvantages of Targeting a Niche Market
Limited market size.
Low sales revenues.
May not be able to achieve some form of economies of scale.
Prices could be too high and perceived as not value for money.
Competitors may enter the niche.
Competitors may attract consumers with a better product.
Existing businesses may lose loyal consumers.
Sales revenues could begin to fall + a fall in market share.
Is it a good idea that a business targets a niche market?
1
Ultimately, it depends whether a niche market has sufficient demand to achieve a breakeven as a minimum, but ideally a healthy profit for the year.
2
Ultimately, it depends whether there are established competitors with a loyal customer.
3
Ultimately, it depends whether a business can achieve similar average costs to mass market products in order to maximise gross profit margins, even with lower sales volumes.
Past Paper Questions on Mass and Niche Markets
While there are limited past paper questions directly assessing your knowledge and understanding of mass and niche markets, questions could appear on this year's papers.
Edexcel A-Level Business
A-Level Paper 1 - November 2021 - Question 1c
Assess a likely trade-off for Bon Bon’s of not having ‘mass market ambition.’ [10 marks]
AS-Level Paper 1 - June 2019 - Question 1d
Explain how The Good Hotel in Guatemala could benefit from operating in a niche market. [4 marks]
A-Level Paper 1 - June 2018 - Question 2e
Haier is aiming to continue its global expansion in the white goods market. It could do this by focusing on either global niche markets or global mass markets for white goods. Evaluate these two options and recommend which approach is most suitable for Haier. [20 marks]
AS-Level Paper 1 - June 2018 - Question 2a
What is meant by niche market? [2 marks]
AQA A-Level Business
A-Level Paper 1 Business 1 - June 2022 - Question 13 (Multiple Choice Question)
Which one of the following is least likely to be an advantage of operating in a niche market for a small business? [1 mark]
A-Level Paper 1 Business 1 - November 2021 - Question 5 (Multiple Choice Question)
In 2019, the niche market of electric cars increased its share of the global car sales market from 0.8% to 2.4%. However, global car sales fell by 2.5%. Model X was the most popular electric car. On a Boston Matrix for the global car market in 2019, Model X was a: [1 mark]