Differentiation Part Two: Know Your Niche

The previous article on differentiation, which you can find here, argued that you need to know your value. Your prices should be based on value, not on having lower prices than your competition.

This article considers another aspect of differentiation: your niche.

To be a successful business, you need to define your identity. Who are you? If you own a home improvement company, for instance, how do you identify yourself? Do you refer to yourself as a home improvement company and leave it at that? 

In my city there are two home improvement/remodeling companies that advertise often. They are vastly different. One has frequently-played commercials that end with the tagline, “We’ll save you a lot of money.” The other advertises in periodicals likely to be read by an affluent audience. Their tagline refers to creating “homes of distinction.” One provides a broad range of services, from remodeling to handyman work, focused on customers looking for the lowest possible price. The other limits its work to high-end kitchen and bathroom remodels for clients able and willing to pay premium prices for beauty and high quality. 

From a business perspective, which is better? The answer is: it depends.

If you try to serve a broad range of clients – high-end clients looking for distinctive work, low-end clients wanting to spend as little as possible, and everyone in between – you are going to have a hard time. It’s difficult to do too many things well. It’s difficult to market to an undifferentiated audience. 

A better approach is to define a niche and dominate it. Your niche could be low-cost projects for people with limited budgets. If you can do low-cost projects efficiently, you can have incredible margins. Or your niche could be high-end clients willing to pay premium prices for exceptional quality. If you can do high-end projects efficiently, you can have incredible margins.

Your business should have an ideal client profile that represents your target niche. For instance, your niche could be high-end remodeling projects for empty nesters with homes valued at $500,000 and above. Or it could be home additions for young parents in a specific ZIP code. Does that sound too small? I live in a neighborhood where the houses are relatively small and all more than 100 years old. They have small closets and bathrooms. The kitchens are closed off and small. However, for all their limitations, the houses have great character. The neighborhood is great due to its amenities and location. It has a true sense of community. People who live here want to stay here. In the last few years, several homeowners – all young parents – have had significant additions built on to their houses because they want to stay in this neighborhood. If a single remodeling company could dominate this niche, they would make a fortune. 

There are many benefits to dominating a niche. Here are a few:

  • Marketing: If you have a defined niche, you can have tightly-focused marketing, which allows you to achieve extremely high ROI for your marketing dollars. 
  • Reputation: If you do a great job serving your niche, you will develop a reputation that sets you apart from your competition. You will likely get word-of-moth referrals, which may be the best marketing there is. You may be the only company people contact when they need the service you provide. 
  • Efficiency: Focusing on a niche allows you to be very good at a few specific things. If you can complete projects efficiently, you can generate big profits. 
  • Expertise: Having a niche allows you to develop expertise that is both deep and wide. People will perceive you as the expert in your area, which will allow you to charge premium prices. 
  • Stories: Nothing sells better than stories that resonate with prospective clients. If you can share stories about how you have successfully navigated projects like theirs, you will gain credibility, be perceived as an expert, and set yourself apart from your competition. This makes it easier to win business at premium prices. 

So about the question above, which is the better business, the low-cost or premium company? As long as you know your ideal client and gear your business toward effectively selling to and serving that client, both are fine. Both can be extremely profitable. And both can be enjoyable. Trying to serve a large range of clients or doing undifferentiated work is more challenging. Therefore, define your niche, build expertise and efficiency in serving it, and gear your marketing toward it. Your profits and satisfaction will improve. 

Defining your niche can be challenging. If you need help, reach out to us. We would be happy to help.