What do portable smoothie makers, ergonomic office chairs for gamers and sustainable beeswax cloths have in common? They are all niche products. They are characterized by very specific consumer needs.
Even if Germany has some catching up to do in the area of digitalization, it is successful in the area of niche markets. Could this possibly be an opportunity for our country to position itself more strongly in the area of digital niches?
Plenty of potential in niche business
New niches have emerged in the midst of the coronavirus crisis. These include home office products, face mask designs and special delivery services, for example. But how are niche markets characterized and where are there gaps in the digitalization market?
A niche market is a part of a business sector in which a certain demand has not yet been met. The big advantage? While the number of potential competitors is low, the willingness of interested parties to pay is high.
The need for a digital niche product can arise when customers are not sufficiently supported or the efficiency of processes needs to be increased.
For example, there are many opportunities for new niche products in the area of networking and automation. Likewise, corporate structures with a large number of employees often offer potential for optimization in which digitalization could be further expanded.
Typical fields that can be further developed:
- Information and knowledge management
- Production and logistics
- Machine and system control
- Idea management
- GDPR-compliant cloud technologies
- Public administration
- Cross-system data analysis and modeling
- Automation of processes
- AR and VR for production
- Research
- Green IT
The advantages and disadvantages of digital niche products
One advantage of niche markets is obvious: they are nowhere near as competitive as established markets. This means that a company has a much better chance of becoming successful and making a name for itself than concentrating on areas that the big players have already occupied.
Small and medium-sized companies are often put off by niches as they do not initially promise a large profit spectrum. However, bear in mind that there can be a lot of growth potential here and that there may be other untapped markets hidden away.
They also appeal to target groups that show a very specific interest in your product or service. If you meet their specific needs and offer a first-class service, they are very likely to reward you with a high level of customer loyalty.
Especially in the area of digitalization, the need for better networking, more customer service and the correct use of large amounts of data is growing. Many companies are currently changing their IT infrastructure, linking departments more closely together or digitizing outdated products and systems.
Estimates show that only a fraction of the available niches in the digital sector have been exploited to date. The coronavirus pandemic has mercilessly exposed some of these. The development of new digital solutions will continue to evolve in the coming years. This means that many companies will find their core business in some of these niches and continue to drive forward the digitalization of the economy and public administration.
Opportunities for small and medium-sized enterprises
It can be particularly worthwhile for start-ups, small companies and SMEs to track down niche markets. Because the mills in corporations often grind slowly. Whether car manufacturers, telecommunications providers or banks - many are resting on their laurels. They are reluctant to change structures and models that have been built up over many years. Innovations often have to pass through many departments before customers even find out about them.
Companies with open-minded and flexible employees can take advantage of the attitude: "We've always done it this way" to break new digital ground and possibly even develop into hidden champions (= secret winners).
The prerequisites for successful niche businesses
Companies that focus on a niche market face different challenges than companies with established products that appeal to a very broad target group.
Suppliers of niche products must have a very high level of expertise in their field. In order to be noticed by potential customers, they should also develop a very successful marketing strategy. This includes, for example, search engine-optimized content so that the target group can even discover the product in question. Suitable business partners and a broad - possibly even international - network can also be decisive in successfully selling a digital niche product.
As there is a risk that other companies will also want to profit from gaps in the market and enter the market with similar offers, companies should always keep their eyes and ears open. A special unique selling point or special services for customers can help to maintain the respective niche business in the event of an increase in competitors. The right strategies in patent and trademark law can also help companies to remain successful in the long term.
Many niche companies originate from German-speaking countries
Currently, the majority of companies that specialize in niches are from German-speaking countries. These are often family-run companies that have found their niche. They have set themselves the goal of remaining as independent as possible. At the same time, they try to create a financial cushion to protect themselves as well as possible against market risks.
Companies with niche products often do not have the goal of becoming a giant, as is the case with Google or Amazon, for example. This can be a success factor, as they rely heavily on a stable business environment and are not in a crowded market.
With qualitative product and service features, the right pricing and marketing strategy and the right positioning, digital niches can develop into a profitable business.
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