Why advisers should focus on niche markets

Financial advisers who successfully target niche audiences not only have the potential to expand their profits as they service a smaller client base, but their practices are often also better protected when it comes to weathering unexpected storms.

Considering that South African financial advisers typically have more than double the number of active clients compared to their UK counterparts, the benefits of focusing on niche markets should be well considered, says Jacques Coetzer, GM of Strategy and Transformation at SanlamConnect.

“While both a segment-based approach and a niche strategy offer benefits, the advantages of a niche focus may include fewer competitors, longer potential relationships and word-of-mouth referencing. Most intermediaries start out as generalists – it’s inherent to the way you build your practice and it’s commercially viable. It’s still important that you ensure your value proposition is relevant to each segment you offer and that you have the ability to reach all your clients effectively.”

He adds: “With a niche approach there are a number of factors to consider. The link between a niche offering and a targeted segment is crucial. It’s easy to confuse niche and segment. A segment is more a market/client descriptor than a business descriptor (classic segment definition would be: a grouping of clients that have a similar need, and the ability to pay for that need, that you’re able to fulfil better than your competition); whereas a niche refers to very specific choices/value propositions that are offered to a very specific target segment.”

In unpacking three of the most critical benefits to finding your niche, Coetzer notes:

  • Build better, long-lasting customer relationships: By focusing on a set audience, you can invest the necessary time to understand their needs and build stronger relationships with them.
  • Leverage the power of word-of-mouth: ThriveHive says finding your niche is “word-of-mouth-friendly”. Based on your specialised and quality service, your audience is likely to refer you to other potential clients.
  • Compete with less competitors: With a clear competitor advantage that focuses on the needs of a specific audience, you can access an untapped market.

Finding your niche

Take a look at your client base. Is there a group that presents an opportunity for you to target a specific segment? Now weigh up the questions of business ability and commercial viability:  

  1. Are you able to deliver that niche offering? Perhaps you want to focus on high net worth individuals or medical doctors – can you align your business with legitimate strategies to fulfil their needs?
  2. Does it make financial sense for your business? For instance, if you want to target NGOs, will they have the ability to pay for your service?

Evolving your niche

The biggest requirement of a niche approach is staying close to and evolving the needs of that segment. The more focused you are in terms of your clients’ needs, the more specific your value proposition can become. In his bestselling book Competitive Strategy: Techniques for Analyzing Industries and Competitors, academic Michael Porter strongly advises on having a focused strategy. 

This may seem like a daunting task, but if you build strong relationships with your clients (which is easier if you’re servicing a smaller segment), you’re able to discuss honestly whether or not you’re still fulfilling their needs in the way they prefer. Their feedback will give you the ability to keep your finger on the pulse and, if necessary, evolve according to what they want/need – a crucial aspect to your success.

Another key factor lies in trying to find a competitive advantage you can sustain long term that works for your target segment and makes commercial sense.

Perfecting your niche

If you successfully target the right niche, you can benefit from higher profits due to having a smaller client base and less expenditure to service them. It’s not about how much you can sell, it’s about how well you can sell in a specific segment.

Often, taking a long-term strategy pays off. For instance, if you decide to target medical doctors, you’ll most likely not make a lot of profit during their early years (as they pay back student loans and practice set up loans), but in the later part of their careers, when they start to make money, you will benefit from your close relationship with them and their trust in your product. Selling to existing clients is cheaper than selling to a new client.

Always remember: sometimes circumstances will be out of your control (perhaps due to the state of the economy, or a global pandemic!), and this applies to most professions. But when it comes to niche segments, you’re often better protected.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za