Page 331 - Marketing Management

308 PART 4 BUILDING STRONG BRANDS

Telepizza adapted Domino’s pizza
delivery concept to Spain with
much success.

Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small market, or niche, as
we introduced in Chapter 8. Smaller firms normally avoid competing with larger firms by targeting
small markets of little or no interest to the larger firms. But even large, profitable firms may choose
to use niching strategies for some of their business units or companies.

ITW Illinois Tool Works (ITW) manufactures thousands of products, including nails,
ITW screws, plastic six-pack holders for soda cans, bicycle helmets, backpacks, plastic buckles for
pet collars, resealable food packages, and more. Since the late 1980s, the company has made
between 30 and 40 acquisitions each year that added new products to the product line. ITW has
more than 875 highly autonomous and decentralized business units in 54 countries employing
65,000 people.When one division commercializes a new product, the company spins the product and people
off into a new entity. Despite tough economic times, ITW experienced an increase in revenue in 2008. 31

Firms with low shares of the total market can become highly profitable through smart niching.
Such companies tend to offer high value, charge a premium price, achieve lower manufacturing
costs, and shape a strong corporate culture and vision. Family-run Tire Rack sells 2 million specialty
tires a year through the Internet, telephone, and mail from its South Bend, Indiana, location. 32
Houston-based VAALCO Energy decided that its odds of striking it rich were better in foreign terri-
tory than at home where it faced hundreds of wildcatters. Drilling in an oil field off the coast of
Gabon in West Central Africa, it has met with a lot less competition and a lot more revenue. 33
Return on investment for businesses in smaller markets exceeds that in larger markets on average. 34
Why is niching so profitable? The market nicher knows the target customers so well, it meets their
needs better than other firms selling to them casually. As a result, the nicher can charge a substantial
price over costs. The nicher achieves high margin, whereas the mass marketer achieves high volume.
Nichers have three tasks: creating niches, expanding niches, and protecting niches. The risk is
that the niche might dry up or be attacked. The company is then stuck with highly specialized
resources that may not have high-value alternative uses.

Zippo With smoking on a steady decline, Bradford, Pennsylvania–based Zippo
Manufacturing is finding the market for its iconic metal cigarette lighter drying up. Its marketers
need to diversify and broaden their focus to “selling flame.” Although its goal of reducing re-
liance on tobacco-related products to 50 percent of revenue by 2010 was sidetracked by the