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Why niche is necessary

Nov 25 2012 12:14 *Ian Mann

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Niche by James Harkin

THE sub-title of the book contains its central message: business needs to specialise to survive.

If you were going to open an ice-cream stand on a popular beach this summer, the best position you could choose would be in the middle of the stretch of beach on which there is bathers. By being in the middle, you are accessible to the largest number of potential customers.

The large retailers, using the same logic, took the centre position in their context, whether in food, clothing, household goods and so on, and thrived. Frank Woolworth’s five and dime stores thrived on just this logic, being the go-to store for everyone across a large swathe of goods.

By 1979 F W  Woolworth had become the largest department store in the world. In 1997 the last Woolworths store in the United States closed and was replaced on the Dow Jones stock market index by Walmart. And in 2009 it closed in Britain.

What went wrong?

Using a wide array of examples, Harkin argues that the days of the generalist are over and the only survivors are the niched businesses.

He cites General Motors with its almost indistinguishable brands, Readers Digest with the “general interest” magazine, newspapers providing general news, the big five Hollywood studios with their wide audience appeal movies, political parties with policies as wide as possible, and more.

In every case the generalist lost to the specialist and where the generalist remains, they are battling to survive using the last-gasp argument, lower prices, to attract what audiences remain for them.

The reasons for moving towards the middle were different in each industry. In car manufacturing it was led by the need economies of scale, which led to the move to produce more cars on the same platform. The result was the difficulty in distinguishing a Chevy from a Pontiac or a Buick.

When there wasn’t much else available, the whole family might have read the Readers Digest. When there was only a handful of TV channels to view, the programming could be designed to appeal, more or less, to all.

As Harkin explains, it wasn’t only the changes going on around the generalist companies that caused their demise; it was as often the false belief in their strength that led them to make poor decisions.

At its height, General Foods produced some of the most valued mainstream brands, such as Maxwell House coffee.

Produced with higher quality Arabica beans, the flavour was appreciated and valued. With time and the increased costs of Arabica, they began to add more and more of the cheaper Robusta beans.

When America re-discovered their love of coffee and chains of speciality coffee houses opened catering to the coffee enthusiast, it wasn’t Maxwell House that won; it was Starbucks with their high-priced drinks and superior quality.

What has become undeniable is that if a person can get exactly what they want rather than only approximately what they want, the will choose the exact - even if they have to pay significantly more for the pleasure.

With access to information unprecedented in human history and available with ease, compromising is almost unnecessary.

In the movie industry, the big five studios have been replaced by studios with clearly defined audiences and styles.

Miramax allowed Tarantino to produce his movie, Reservoir Dogs, despite not really approving of it, making way for a movie that had a narrow (but lucrative) appeal and a string of similarly successful, niched works.

With their low budget and high quality positioning they produced The Crying Game, Sex, Lies and Videotape, and others.

American cable channel HBO started competing by acquiring exclusive rights to sporting events, but soon moved to focus on producing the highest quality television programming available.

Rather than going for the mass appeal big shows, such as Big Brother, or superficial dramas and movies, they focused on turning HBO into a haven for the highest quality fare aimed at the upper end of the thinking market. 

HBO produced The Wire, Sex and the City, and the enormously successful Sopranos. All were aimed at very specific, highbrow audiences.

Large corporations that saw the writing on the wall began to absorb the niche producers. Ben and Jerry’s ice-cream, the product of two hippie activisst, was acquired in 2000 by Unilever.

Rather than absorbing it into their huge company and making it look and feel like another Unilever brand, they left it as it was, with its underground ethos and 1960s character.

The move to niches is most easily seen in the field of newspaper publishing, where general interest brands are struggling to survive. If one can get up to the minute (literally) news online in only the field of one’s immediate interest, why buy and read a generalist paper?

The analysis of the causes, forms and consequences of not defining a business offering in a more niched way makes this book worth reading.

That we need to focus our businesses more is hardly new; Harkin will, however, add a very strong sense of urgency to your pursuit of a niche. 

Readability: Light --+-- Serious
Insight:       High -+---- Low
Practical:     High -+--- Low

 - Fin24

* Ian Mann of Gateways consults internationally on leadership and strategy.
 

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ian mann
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