Many leading companies in the global market operate under the general public's radar, and their strategic methods are even less known.
What makes these companies so successful and unique? Professor Hermann Simon, the founder of Simon-Kucher, has spent over 20 years studying these "Hidden Champions" and their tactics. This article reveals insights from these specialized firms to help you develop a successful niche strategy.
What is a niche business strategy?
A niche business strategy focuses on targeting a specific market segment. Here, companies provide unique products or services catering to that segment's needs or preferences. Concentrating on a narrow market segment can help companies differentiate themselves from competitors and build a solid competitive advantage. This strategy involves understanding the target audience deeply, offering specialized products or services, and effectively communicating the value proposition to the niche market.
The benefits of a niche strategy
Reduced competition
Focusing on a specialized segment of the market allows businesses to face less competition than targeting broader markets. This can lead to higher profit margins and greater market share within the niche.
Increased customer loyalty
Serving a specific niche allows businesses to develop products or services that precisely meet the needs of their target audience. This often results in stronger customer loyalty and repeat business, as customers appreciate the tailored solutions provided.
Enhanced brand reputation
Becoming known as an expert within a particular niche can elevate a company's brand reputation. Customers perceive niche businesses as specialists in their field, which can lead to increased trust and credibility.
Improved marketing effectiveness
Niche marketing enables businesses to tailor their marketing efforts more precisely to the preferences and behaviors of their target audience. This leads to more efficient marketing campaigns and higher conversion rates.
Opportunity for premium pricing
Niche businesses can often command higher prices for their products or services due to their specialized expertise and the perceived value they offer customers within the niche.
Reduced risk of commoditization
Niche businesses are less susceptible to price wars and commoditization because they offer unique value propositions that differentiate them from competitors. This helps maintain profitability and sustainability in the long term.
Niche strategy and Hidden Champions
"Hidden champions" refers to relatively unknown or inconspicuous companies that dominate niche markets, often globally. These companies are usually leaders in their respective fields. However, they may not be widely recognized due to their focus on specialized markets or products. They typically excel in innovation, quality, and customer service within their niche.
Companies looking to perfect their niche strategy can learn from Hidden Champions thanks to their shared emphasis on specialization and focus.
A niche strategy involves targeting a specific segment of the market and tailoring products or services to meet unique needs. Hidden Champions epitomize this strategy by concentrating their efforts on serving niche markets exceptionally well.
By aligning its resources and expertise with a narrow market segment, Hidden Champions achieves a competitive advantage over larger, more diversified competitors. They become leaders in their niche, often commanding higher prices and enjoying stronger customer loyalty.
While this specialism can seem dull to outsiders, something is fascinating and remarkable about these organizations. Several Hidden Champions have accomplished what many multinational corporations fail to – a monopoly de facto, or global dominance in their sectors.
Where did Hidden Champions come from?
If the term Hidden Champions were to be given a nationality, it would be German. Since its recognition, the term has been represented and defined by German SMEs. After all, German-speaking SMEs firmly represent half of all global hidden champions.
“Single product, single market” is the dominant strategy of hidden champions in Germany. Although not well known, specialized German SMEs are found in many products people all over the world are familiar with. For example, 50 German suppliers provide up to one-third of Tesla's 3 parts, 41 of which are hidden champions.
Moreover, Apple has 767 suppliers in Germany, covering a wide range of precision components. These components are hidden behind the screens, invisible and untouchable to consumers, but they directly affect the user experience.
Seven lessons from Hidden Champions for your niche strategy
Why are these companies so successful? What are they doing differently from large corporations? The answer: Almost everything! Here are the most important lessons from which large as well as small companies can benefit.
1. Extremely ambitious targets
You don’t become a world market leader by chance. You achieve this by setting ambitious targets and pursuing them with never-ending perseverance. The targets of Hidden Champions are aimed at growth and market leadership. These companies grow rapidly.
2. Focus and depth
Focus and concentration are the only ways to become world-class. Hidden champions define their markets narrowly and work deep into the value chain. Their vertical integration is 50%, compared to the average industrial company's 29%.
3. Globalization
Focus makes a market small, but globalization makes it large. Hidden champions have their own subsidiaries in all critical global markets and practice direct customer relationship management. They invest continuously in markets of the future.
4. Innovation
Hidden champions invest nearly twice as much revenue in R&D as other companies. On average, patent intensity is up to five times higher for hidden champions. About two-thirds of the hidden champions consider market and technology equally important driving forces. Only 19% of large corporations achieve this balance.
5. Closeness to customers and competitive advantages
While only 5-10% of employees in large corporations have regular and frequent contact with customers, about 25- 50% of hidden champion employees can say the same. Closeness to customers is the biggest strength of mid-sized companies, even more so than innovation. Product quality and service are two of their outstanding competitive advantages.
Hidden Champions have created new competitive advantages through advice and systems integration. These advantages are hard for competitors to imitate, as they are not found in products but in the minds of their employees.
6. Loyalty and highly qualified employees
The employee turnover rate of hidden champions is far below industry averages. This figure is much more important than the average sickness rate. Every lost employee also means lost skills and knowledge.
Hidden champions have significantly increased the number of highly qualified employees. Better qualifications are the foundation of their superiority.
7. Strong leadership
At the head of hidden champion companies are strong personalities who identify completely with the company. On average, CEOs of hidden champions remain at the top for ten years. CEOs of stock market listed companies, in contrast, average five years. Younger executives and women are also more present than in large corporations.
The Wisdom of Hidden Champions
In summary, Hidden Champions follow their own path. They do nearly everything differently.
They deviate from management fads. They pay little heed to what other large corporations do or what management gurus proclaim.
In essence, they apply common sense. It's so simple, yet so difficult to implement and this is perhaps the most important lesson.
Simon-Kucher and Hidden champions
Our founder, Professor Hermann Simon, coined the term "Hidden Champions," which is now a global concept featured in his book, which is available in over twenty languages.
At Simon-Kucher, we excel in pricing, marketing, and sales strategies, helping companies refine their niche approaches. We utilize a deep market understanding to uncover niche opportunities, tailor marketing strategies, and define precise target markets.
Our specialized strategies are designed to enhance product appeal, foster brand loyalty, and build lasting customer relationships. Catering to small and large businesses, we ensure our clients can achieve sustainable growth and competitive advantage in their specific market segments.
Reach out to us today!
