In most markets there is one dominant (mass) segment and several smaller (niche) segments…

For example, in the confectionery market, a dominant segment would be the plain chocolate bar. Over 90% of the sales in this segment are made by three dominant producers – Cadbury’s, Nestle and Mars. However, there are many small, specialist niche segments (e.g. luxury, organic or fair-trade chocolate).

Niche marketing can be defined as:

Where a business targets a smaller segment of a larger market, where customers have specific needs and wants

Targeting a product or service at a niche segment has several advantages for a business (particularly a small business):

• Less competition – the firm is a “big fish in a small pond”
• Clear focus - target particular customers (often easier to find and reach too)
• Builds up specialist skill and knowledge = market expertise
• Can often charge a higher price – customers are prepared to pay for expertise
• Profit margins often higher
• Customers tend to be more loyal

The main disadvantages of marketing to a niche include:

• Lack of “economies of scale” (these are lower unit costs that arise from operating at high production volumes)
• Risk of over dependence on a single product or market
• Likely to attract competition if successful
• Vulnerable to market changes – all “eggs in one basket”

By contrast, mass marketing can be defined as:

Where a business sells into the largest part of the market, where there are many similar products on offer

The key features of a mass market are as follows:

• Customers form the majority in the market
• Customer needs and wants are more “general” & less “specific”
• Associated with higher production output and capacity (economies of scale)
• Success usually associated with low-cost operation, heavy promotion, widespread distribution or market leading brands