Markets aren’t that good at managing niche preferences *


* … at least in relation to the most common preferences, and they are probably still the next best alternative

Rewind the 80s or 90s and you’d have a hard time finding many decent cafes or restaurants serving good vegetarian food (at least where I live in Auckland). There may have been a few places that offered a good meal, but mostly those tastes weren’t well catered for. Sure you could have ordered spaghetti alla ragù without the ragù, but it’s damn boring and not worth the trip.

Being part of a niche consumer group, such as vegetarians, can be difficult. Such consumers may not be able to easily get what they want because the market is not sufficiently incentivized to satisfy their tastes.

Today, in many food joints there is a lot to offer for many different tastes. Vegetarian meals are really worth ordering. The market has evolved to better suit those tastes. There aren’t necessarily as many vegetarian options as there are omnivorous options, but that’s by definition. Omnivores agree to eat a wider variety of foods than vegetarians.

Vegetarian food has gone from being quite niche with only a small number of consumers (e.g. for cultural, religious or personal reasons) to being much more mainstream. Vegetarianism is a good example of where a niche has expanded.

This article discusses niche preferences in relation to markets, products and services.

What is a niche preference?

Niche consumer preferences by definition only have a small number of consumers. These consumers have common characteristics. Niche consumer preferences generally fall into two types:

  1. Niche because not many people love / need the product or service.

  2. Niche because the product or service is exclusive.

This article focuses on the first type: not many people like the product or service. A product could be niche due to tastes, demographics, geography, or a number of other reasons.

Markets aren’t that good at managing niche preferences

Markets aren’t that good at providing people with niche preferences because offering a broad offering of a product or service requires enough incentives to create that offering. The incentive is typically lower with few consumers, unless there is a high willingness to pay within that consumer group.

With few consumers, products and services within a niche can be hard to find. There may be a limited supply and range of the product / service. Or the products may be more expensive than expected.

That said, markets can and do cater to the needs of niche consumers and are arguably better than the alternative. Pricing mechanisms can encourage suppliers to meet niche demand. A more controlled distribution system could direct resources to meet the needs of niche consumers, but with other drawbacks (e.g. inefficient).

Different preferences encourage market diversity

Numerous preferences are good for markets as they encourage more diverse products and services than if preferences were more similar. Manufacturers have incentives to create a wider offering and tailor it to specific tastes. In this regard, different preferences support innovation.

Innovation offers consumers the opportunity to find new products and services that best suit their tastes. The benefits of this are evident on supermarket shelves. There were only a few brands of milk in New Zealand supermarkets, led by Anchor and Meadowfresh. Today there is considerable variety with numerous smaller players.

Niche markets don’t necessarily remain niche and vice versa

Niche preferences can develop and become more mainstream as a product or service gains popularity. This has been a big thing in the food industry with previously niche types of food like Asian fusion becoming much more popular as people have taken hold.

Ultimately, manufacturers have an incentive to grow their business and go beyond a niche.

Likewise, products can become niche due to changing technology, different tastes, or other market forces. For example, the vinyl record market is much smaller now than it was in the 1970s. Although interesting, vinyl is making a comeback.

Not all preferences can be fully satisfied

Having a variety of preferences in the market is a good thing, it supports innovation and consumer choice. However, the markets cannot cater to every single preference and it is unreasonable to expect the opposite. There are not enough resources on the planet, and for some products and services there is a limited capacity to deliver them (e.g. talking dogs).

This article discussed preferences regarding markets – but preferences go beyond those concerning, among other things, social relations and politics. Stay tuned for a future article that will discuss the difficulty of creating social cohesion when there are numerous social and political preferences.

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