Exo has been working a lot lately on strategic product our-work management mandates for our clients. It is often particularly complex mandates which require a good dose of marketing theory to better structure our thinking. There are several, including one in particular that made me think. If you’ve worked in our-work management, the analysis of BCG (Boston Consulting Group) product our-work matrix is surely familiar. A suggestion though… do not use this to better position yourself!
This mould has 2 axes (x = market growth rate, ordered =relative market share) we learn that:
- In the upper left quadrant are the featured products (the market is growing and your market shares are great!)
- In the upper right quadrant are the dilemmas; because the market is growing, but you have low market shares
- In the lower left quadrant are the products called ‘cash cow’; the market doesn’t believe much in it, but your shares are important.
- The lower right quadrant contains dead weight. The market does not believe in it and you have only low market shares.
Source : https://commons.wikimedia.org/wiki/File:Matrice_BCG.jpg
In principal, it holds its place, does it not? Let me show you how it does not.
Niche markets, virtually a standard in B2B
Are you familiar with the concept of niche markets? Companies that seek niche markets do not seek to have significant market shares; they seek to occupy a piece of land that your competitors cannot attack. Small yet wonderful!
Our IMS client, for example, could compete with the red ocean printers and standard labels. But where would the benefit lie? It’s their strategic choice of development, focused on a range of products, which brought them to occupy niches with differentiated market products. The company benefits from a rather large, blue ocean instead.
Another one of our customers specializes in the production of equipment of primary aluminum smelters (see chart below). There are very few in the world to offer such equipment, so it’s a niche market where for them, it’s a good place to be.
https://www.alueurope.eu/sustainability/life-cycle-assessment/
Long live dead weight
A very specific product for a very specific segment within a company in the market does little for you. The answer, according to the BCG, is simple: drop it. This could be a serious strategic error and may leave the field open to your competitors.
The matrix would suggest removing products if they are not profitable. However, it ignores the possible synergy between the different units of your company. In addition, some niches are to be occupied so that a competitor does not come and take your place.
If you sell luxury products, using the BCG matrix makes no sense (what would be the interest in having a Rolex if everyone else had a Rolex…well, buy a Timex Watch then!). If Rolex has a very low market share, this does not mean that the company is not making money.
Are niche markets for everyone?
Of course not! Niche markets generally apply when:
- You sell high-end products, or even products with high functional risk
- Your company has opted for a focus strategy; it is a typical strategy of SME’s. Take as an example, a company you know perhaps, Exo B2B. They are:
- a marketing agency (there are hundreds just in Montreal alone);
- Specializing in B2B marketing (ah ha! Here, there are much fewer!).
- In a focus strategy, what you will need to use is:
- Concentration: a generalist serves a group of consumers poorly? Awesome! Focus on those consumers to better serve them! (Exactly what Exo did!)
- Specialization: this is a more direct attack against generalists; we want to expel them to a segment of specific markets by offering a new way to serve this segment.
- Gaps: a bit rarer, this strategy is to operate a very small segment that often goes unnoticed. They are such small markets that there is room for only one player, so stay discreet!
Contrarily, niche markets are not for general companies, who will for example, bet on a strategy of cost advantages. The best example: Wal-Mart in B2C. Try to imagine Wal-Mart opt for a niche strategy… it makes no sense!
How would you manage your products and your growth strategies? Using tools, such as a matrix? Your comments and questions are welcome!
