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A niche market is a focused, targetable portion of a market.
By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. You can think of a niche market as a narrowly defined group of potential customers.
A niche market usually evolves from a market niche, where potential demand is not met by any supply.
Why should one bother to establish a niche market? Because of the great advantage of being alone there; other small businesses may not be aware of a particular niche market, and large businesses won't want to bother with it. The trick to capitalizing on a niche market is to find or develop a market niche that has customers who are accessible, that is growing fast enough, and that is not owned by one established vendor already.
Etymology
The expression niche is borrowed from ecology and implies a situation or an activity perfectly suited to a person or a given type of personality. This concept has been extended from persons to products on the market. Whereas a niche in the strict sense can be a working position or an area suited to a person who occupies it, the market niche is perfectly suited for a product of human labour.
Marketing in and for niche markets
Niche marketing is the process of finding and serving small but potentially profitable market segments and designing custom-made products or services for them. For big companies those market segments are often too small in order to serve them profitably as they often lack economies of scale. Niche marketers are often reliant on the loyalty business model to maintain a profitable volume of sales.
For a study of niche marketing for the textile and apparel industries, see Erin Parrish's dissertation: Niche Market Opportunities in the Global Marketplace*. Parrish, Assistant Professor at the University of Alabama, has published several industry specific articles on niche marketing.
Internet marketeers often find a niche poorly represented online and create a site providing information and goods in this particular field. With little or no competition it's easy to get high search engine rankings and make profit.
"Niche market"