How are companies launching and scaling with niche audiences?

Takeaway

  • Niche brands that cater to audiences with specific needs have an easier time finding and engaging the right audiences early on.
  • But when niche brands need to grow beyond this initial audience, they need to evolve their offering without unspooling the fundamental economics of the business and the strength of the brand.
  • Brands that have successfully scaled from niche to general audiences have kept their initial adopters engaged while successfully translating their value proposition into a larger, mass-market context.

Case Studies

Bevel, The Honest Company, GoPro, Bonobos, Nike, Patagonia.

This is Part II of a series on how brands are starting and growing by targeting general audiences.

Even the most seemingly revolutionary products can fail if they are unable to engage an audience. According to Harvard Business Review, American families repeatedly buy the same 150 items for their household needs. Getting shoppers to consider a new product is difficult. If huge companies that already know their customers and have proven business models are having trouble with new products, new and unproven entrants must pay even more attention to how they are going after early adopters who often reside in niches.

Although the word niche often suggests a small and insignificant audience, targeting niche audiences early in a business’s life cycle is an increasingly popular strategy. For niche companies to succeed, they must garner the audience’s attention through their authenticity and relentless focus on the target they’re pursuing. Niche brands have an opportunity to cater to specialized interests and behaviors because the relatively small market allows them to serve an audience’s specific needs. But from here, growing the business further by thinking through the potential scale of niche products can sometimes be a challenge as niche brands move into general markets.

This piece looks at niche business strategies and audiences, specifically:

  1. How can companies start and grow by going after niche audiences?
  2. Can niche brands target general audiences to keep growing?
  3. What challenges do niche brands face as they start targeting general audiences?

Launching into a niche market

Niche brands take advantage of whitespaces in the market, which helps to diminish risk. With advances in social and digital media, these brands can systematically reach different populations which maximizes the chances that their products will succeed. They can target people who are likely to be receptive to new products and who will pay premium prices for them.

Bevel

Tristan Walker started his holding company, Walker & Co., to cater to the personal care product needs of the underserved minority market, which has been relegated to the “ethnic aisle.” He launched his first brand, Bevel, which featured a single-blade razor system specifically created for ethnic men who tend to have coarser and curlier hair. He reached these consumers by first focusing on black barber shops and partnering with them so they received a commission when someone purchased a Bevel product, and then moving on to other small channels like niche podcasts. Most of the company’s growth has since come from word of mouth.

Specific communities are likely to pay attention when a brand builds a product or service just for them. At this point in the brand’s life cycle, the initial target audience is very receptive to on-brand messaging if the product meets their specific needs. Therefore, it’s cheaper and easier to market to niche audiences.

Walker struggled to find funding when he first started the company. The mostly white investors he spoke with didn’t instinctively understand the need for his product. However, Walker was able to initially procure $3 million and, by demonstrating that his was an important and underserved market, he recently raised $24 million. In 2014, subscriptions grew at an average of 50 percent month over month with more than 90 percent of consumers deciding to return. “The changing demographic in this country is the greatest economic opportunity of my lifetime, there’s an inevitability to this, and I think some of the greatest companies that will be built in the next 50 years will keep that in mind,” Walker says. As the company continues to grow, sales in 2017 are up 200 percent from last year, evidence that it is among the fastest growing new razor brands.

Companies that go for niche audiences can hit on very particular pain points and ensure that they get one thing right, which then gives them the space to focus on selling more product and evolving as a brand.

Growing niche brands

As niche brands continue growing, they eventually saturate the market by selling to most of their early adopters. From here, these brands have to look at expanding outside of their niche into new products, markets or customers. This presents a challenge—the underlying fundamentals that make the brand successful don’t always hold as niche brands grow.

The Honest Company

The Honest Company introduced organic products to the baby and home consumer packaged goods (CPG) industry, which challenged legacy players. The company bet that these niche products—fragrance-free detergent, organic diapers, and plant-based cleaning supplies—could be attractive to a larger market than originally thought. Jessica Alba and The Honest Company team created a brand that has put pressure on traditional CPG manufacturers to make their products more eco-friendly and healthy in order to stay competitive. The top 25 companies’ share of U.S. food and beverage sales have shrunk since shoppers have been turning to smaller brands, with $20 billion in market share value transferred from big CPG companies to long-tail brands in the last six years.

Although The Honest Company is rumored to be worth $1 billion dollars, it is struggling to grow. After initially focusing on direct-to-consumer sales, most of its new growth will likely come from wholesale. The company has recently laid off workers, switched CEO’s, and has struggled to maintain its natural ingredients. Using niches to challenge an incumbent is one thing, but doing so profitably at scale is another. Brands moving from niche to broad audiences need to pay careful attention to their underlying unit economics and constantly project how targeting different customers changes the equation.

GoPro

GoPro initially found success by building a camera that captures the authenticity of adventurous pursuits. The early success drew attention from a larger audience than the brand initially targeted. Regular people, not just pros, started using the camera whenever they did adventurous activities. GoPro was selling the experience of using the camera rather than the camera itself. The company’s strategy involved uploading adventurous videos online that showed users doing exciting things with the GoPro camera, a tactic that resulted in people watching over 50 million hours of videos where the word “GoPro” appeared in the first quarter of 2014. This drew attention from the financial community and the company had an extremely large public offering and raised $427 million at a valuation of $2.96 billion.

However, GoPro suffered a big setback when it tried and failed to turn into a media company. This turbulence is the result of an attempt to scale beyond its core market. In order to scale beyond athletes, the company must convince people that they need to use GoPro in their day-to-day lives. Yet with the iPhone as the most successful camera in the world, GoPro remained a niche choice. If someone was going to carry one camera with them, it would likely be their phone. General markets are much harder to convince than niche ones. By attempting to scale beyond its core market, it began to dilute its brand and its original value proposition. GoPro’s only path to growth was to spend more money to attract increasingly-less relevant customers.

Bonobos

Bonobos has faced a similar issue as it’s looked to continue to grow beyond its target audience and core value proposition. Bonobos originally grew out of the idea of creating a perfect pair of pants for the young and affluent buyer. When Bonobos launched, it had a very limited number of SKUs. But as it grew, their assortment ballooned to 1,308 SKU, according to EDITED. This is not far from J.Crew’s 1,630 options for menswear and Gap’s 2,303. This over-scaling caused the brand to lose focus and expand into too many products.

Niche brands that have successfully scaled

The most successful niche brands have scaled by creating value-driven companies that consider their defining characteristics and become meaningful parts of consumers’ lives. Rather than relying on investors to push growth and scale onto consumers, they have expanded their focus by co-innovating with their buyers and bringing them along for the ride. They act as leaders that larger audiences want to be a part of. Through this, shoppers begin to covet and co-identify with the brand. At the same time, the brand has the freedom to explore new verticals where they can make an impact.

Nike

When Phil Knight founded Nike in 1964, Adidas and Puma dominated the running shoe market. The company broke into the market by creating a groundswell campaign that targeted small running clubs that were blossoming throughout the country. His obsession with creating better shoes using Japanese fabrics slowly created a community of people that felt invested in his shoes and excited by what he had to offer.

By focusing on constant innovation and listening to customers, the company grew from this niche and started to sell to a general audience by translating its message to the wider public. Nike began by selling shoes to runners and experimenting with which product innovations were useful to this audience. To successfully market to players of other sports, they started to think of the brand as different sub-brands they could market to these new audiences. Starting with Air Jordans, Nike shoes for other sports took off and created even more revenue for the company. They moved on to shoes for tennis and football. When Reebok came out with its general fitness and aerobic shoe and took a large chunk of that market, Nike responded by creating a fitness line of its own. According to Nike co-founder Bill Bowerman, “If you have a body, you are an athlete”.

Nike eventually became a lifestyle brand by continuing to expand its messaging and finding overlaps between its consumers. The company’s target audience evolved from hardcore athletes to people who liked sports because of marketing taglines and imagery. For example, its famous “Just Do It” campaign expands beyond the core motivations of hardcore athletes into the ones of would-be athletes (who need that extra motivation to start an exercise regimen). But this took many decades to pull off, evidence that there are no shortcuts to building a true lifestyle brand, which is earned, not bought.

Patagonia

Patagonia has gone through a similar life cycle, starting off as a rock-climbing accessory store, transitioning to a Rugby-shirt selling brand for rock climbers, moving on to other outdoor sports, and ultimately evolving into a lifestyle brand. It went from an alpine-focused company to selling outdoor clothing for a variety of activities including surfing and swimming.

Patagonia is a great example of a company that hasn’t sold out and continues to keep customers engaged. Although it ran into trouble in the 1990s and had to file Chapter 11 bankruptcy after over-scaling, the CEO rethought his strategy. Since then, the company has reached $1 billion in sales by staying true to its ethos and focusing on durable and simple clothes, great customer service, and a people-and-planet-friendly attitude—it uses sustainable materials, offers free clothing repairs, and provides excellent worker benefits.

The company has unapologetically stuck to its focus on sustainability, recently creating a campaign where it touted its brand’s durability and its focus on the environment by selling items on Black Friday with tags that read “do not buy this jacket” in order to encourage people to keep using their clothes for as long as possible instead of purchasing needless items. Interestingly, this campaign resulted in an increase in Black Friday purchases for the company.

The company’s relentless push on quality, durability and its mission has fueled its success and it’s all been possible because of its non-reliance on investors. Patagonia has focused on growing intelligently. Instead of growing superficially they became “natural growers,” focusing on selling products that people want.

Although it is difficult to scale a niche brand into one that appeals to a larger audience, it is well worth the effort. The brands have endured and continue to be leaders in their fields. For Nike and Patagonia, this took decades. It took Nike 22 years to reach $1 billion in revenue and Patagonia has an estimated 750 million in revenue after 44 years and consistently takes home healthy profits. It takes the dedication to constantly focus on improving, the willingness to listen to customers, and the wherewithal to authentically expand to new audiences.

Wrap Up

Starting a brand using niche tactics is a prudent way to get off the ground by taking advantage of whitespace. However, niche brands can fail when they start to grow inauthentically and expand for the sake of expanding, leaving their core values in the dust. Companies that have successfully grown from niche to mass have kept their mission at the core and stayed true to themselves. They’ve taken their time to co-innovate with their audiences and found overlaps between their current and future audience, all to ensure that consumers want to associate with the brand as it becomes a larger lifestyle company. These companies have invited everyone in on the niche and successfully translated their value proposition into a larger, mass context.

The Cut Ticket

The Cut Ticket provides tactical questions that help you take action.

Brands

  1. What are the unique qualities of the niche you want to go after?
  2. Does it have enough loyal customers to sustain a business?
  3. How will you transition from a niche business to a mass business as you scale?
  4. How will your unit economics hold up as you make this transition?
  5. Will your products have the same degree of appeal to a mass audience as they do to a niche audience? Or do you need to change the product for it to apply more broadly?
  6. Is there something authentic you stand for that will garner attention for the brand as consumers look to authentic experiences?

Financial Investors

  1. Why did the company pick their niche? Do they truly understand it and have experience working in it?
  2. Are the unit economics in the niche scaleable outside of it? Or does the business unwind as it scales?
  3. Is the audience large enough to scale the brand or will the company need to move into different niches to keep growing?
  4. What makes this team best qualified to serve this audience?
  5. Does this audience have the dollars to support this brand?
  6. Are there competitors serving this audience or is the field wide open?