Panning for gold

How to Identify a Niche

A niche market is defined as a small segment of a larger market.  It is when you focus on specific products or services that differentiate themselves from the rest of the broader market. You are intending to satisfy very specific needs or preferences by focusing on a small subset of the potential clientele of the market. The goal is therefore to target an audience that mainstream companies usually cannot reach easily as the cost would be prohibitive to develop a custom product for this small subset of customers.

Let’s look at the 7 critical points in identifying a niche market:

  1. Evaluate your own knowledge levels
  2. Find solvable problems
  3. Brand loyalty
  4. Pricing
  5. Competition research
  6. Determine the probability of success
  7. Test the idea

Finding a niche can help a business create a competitive advantage as the company’s resources are focused on the development and provision of a specific product or service which builds brand awareness. Therefore, choosing a niche is a worthy strategic marketing decision that could provide a win-win situation for both the customers and the business itself.

Almost every aspect of a market can be divided into multiple segments according to the particular needs of the customers that take part.  A niche can be identified based on various factors, such as the price range (from high to low), demographics (gender, age, income level, even education level), quality (premium, handmade, economical), psychographics (values, interests) and geographics (residents of a certain country or city).

In many cases, the more specialized the products or services a business offers, the less competition there will be, which gives businesses an opportunity to take advantage of a larger share of the niche market and with less price competition. Knowing that this is case, should make the decision much easier to concentrate efforts on making the best possible product for that consumer. For example, there are thousands of companies that sell sports shoes for women, however, the number of shoe companies that provide sports shoes for plus-sized women is low. So, there will not be as much competition to get customers as there would be in the case of selling regular women sports shoes and the price could therefore be increased due to less competition.

These efforts allow businesses to focus on catering to specific customer needs; becoming experts in the service or product they offer. This leads to an almost guaranteed recommendation by its customers if the service is of high quality; thus, creating brand loyalty and a good reputation. A good niche market position could help a business confidently expand its services into new and broader markets, standing out more than others by being the experts on that one niche.

However, if it is a niche market with absolutely no competition, there is a possibility that other companies might have tried to provide a service and found no benefits or profit.

Now that we have seen which factors are key on several niche markets, lets shine some light on how to identify a niche market as it could make the difference for a business in terms of earnings.

Evaluate your own knowledge levels

Perhaps the easiest step, yet the most critical is to get an understanding as to where your, or your company’s expertise, lies and where you could provide a specific and differentiating service. If you have no knowledge or expertise in a subject matter then it would take more time and resources to become familiar with the subject to be able to identify a niche within that market.

It is generally advisable to target a subject which you already have knowledge in, but the Minnesota Mining and Manufacturing Company proved the opposite.  Very few people know the company by its original name, but many know them as 3M.  They originally started as a mining company, but had to pivot their business model when the original mining exploits failed.  They then looked at what else they could use their manufacturing equipment for and began researching and producing sandpaper products.

Tip: Make a 15-item list of products or services that are the most relatable to your expertise and base the rest of the investigation on this list. 

Find out if there is a solvable problem in a subject area that you are investigating.

To successful identify a niche, you need to find out which problems customers are experiencing, then determine whether you have a viable solution. Some of the ways of having better results at this step are by direct interviews or idea extraction sessions with target customers; a good way to cover this could be by social media polls.

Finding forums on the internet that relate to the subject could also be helpful. Look out for problems the forum members are experiencing with similar products or services and see if there is an affordable way to solve the problem.

Researching keywords of the topic of interest can help to discover unpopular terms and show up any issues which could lead to a possible new product.

Tip: Google Adwords Keyword Planner and Google Trends are great tools for this kind of research.  (Leave a comment below if you want to see an article on how to do this kind of research.) 

Brand Loyalty

Investigate whether there is brand loyalty within the user community of the subject area.  The higher the brand loyalty is, the more difficult it would be to move the potential customers over to your services or products as the loyalty might not lie with the quality of the product, but with the social acceptance and esteem that goes along with the brand.

For instance, a loyal supporter of a branded running shoe won’t easily move to an unknown brand, even if the new running shoe is a better fit than the original brand, if the wearer is loyal to the brand.  They would then rather suffer with a more uncomfortable shoe than be seen to switch to an unknown brand.

It would take a lot more psychological input over time to convince these potential customers that your new brand is the same or even better than the brand they trust in.

Gaining new customers could be much easier if there is little or no brand awareness within the area of investigation or your solution is unique or the problem is pressing enough that an outside solution would be acceptable.


It’s not always true that the higher the price of the products, the greater your profit margin can be as the perceived value of the product might not be in line with the asking price.  For instance, in past history we have seen many gold mines closing their doors even though they were mining a scarce and valuable resource (a niche so to say) as the perceived value of gold was under pressure and the mines couldn’t set their own arbitrary price on the precious metal.

You therefore have to be aware of pricing within the potential budget of the clients you are targeting and look at manufacturing or servicing the need within that price point.

I was taught that it is better to sell 1,000 items at £5 each than it is to sell 5 items at £200 each.  You need to get the balance in pricing right as competition will likely come along over time and if your margins are too small then you could quickly be forced out of the niche.

Tip: Mark out price ranges to put out a competitive price when you launch your product or service to the niche market. 

Competition research

Identifying the competition within the niche is critical as it will help to find the weaknesses of the competitors; which can be exploited.  An example of this could be if they provide low or average quality products or services that doesn’t serve the customer’s needs and preferences.

Look for rigidness within the competition which doesn’t allow them to serve the entire market segment.  Then look for the customers that are not fully serviced by them and see whether you can target that segment of the market.

Tip: A good opportunity that businesses cannot afford to lose is when research finds a specific topic that is highly requested but there is low demand or none at all. 

Determine the probability of success

It is mandatory to highlight that economic analysis is necessary for a project to be successful. Researching the top products in the niche market is a good place to start, and that could go in three ways;

      1. If the company does not find any products related to the niche, it could mean that no company has been able to monetize that area, which is a bad sign.
      2. If a good quantity of products is found, but it is not overloaded, and they offer generally low-quality products, then it could be a good opportunity to take advantage of.
      3. If there are loads of supply offshore for the same products or services within the potential niche, then it could mean that the niche might be saturated if it is easily delivered to potential customers in your target area. If on the other hand it cannot be easily delivered then you might have found a link in the supply chain that you could fill.

Test the idea

At this point, every aspect to identify the niche is covered, the only thing that is left to do is to test the most successful idea out of the 15 products or services previously listed.  Do a pre-sale on the webpage and watch if the product or service sells out or not.  If it is not the case, then there is always an opportunity to bring more traffic to your webpage and monitor if there are more results. (Leave a comment below if this topic is of interest and we will publish an article on this.)

It could also mean that the message of the product or service is not clear; if this is the case, a good strategy would be to take a poll to get an in-depth understanding of the potential customers’ needs.

Keep in mind that there is no perfect process to identify in which niche market to invest.  This guide only sums up the process with tips and its goal is to encourage entrepreneurs to do their research. We at Ashrays are always willing to help you with a brain dump exercise to help you get on your way so do not hesitate to contact us if you have any enquiries.

Remember: The benefits of being in the market at the right time are incalculable, and therefore worth the effort to identify a niche market.


Here at Ashrays we are dedicated to give businesses the tools to attract more clients efficiently and economically by creating an online business presence here and on our social networks. Come and join our community today and share your business ideas with like-minded individuals across the world.

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