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Gap analysis: spotting new niches in a market

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By Ian Traynor

Gap analysis is a way of finding niche markets which can give you a competitive edge. Find out how to do it here..

To solve a company's problems, or to fulfil its managers growth ambitions, moving into new product and market areas ("diversification") is often the recommended prescription. But diversification has a poor record of success.

Diversification is most succesful when new products are within existing areas of companies' competence.

A ten-year analysis of hundreds of new products showed that successful companies:
  • Leaned most heavily on previous experience and equipment
  • Exploited what they could do uniquely well
  • Discovered and exploited market areas which they could dominate.
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Most companies (and people) think that they know their own strengths. They do, to a limited extent. But an outsider looking in can often find hidden strengths (and weaknesses).

Formal Gap Analysis has its use, but intuitive leaps are also needed. Had Gap Analysis been applied to transport in 1850, it might have revealed:
  • A fast, public system (the train)
  • A slow, public system (the stage coach)
  • A slow, private system (the horse).

... and a gap for a fast, private system. Probable conclusion: breed a faster horse! The creative leap needed to invent the motor car would not have come from Gap Analysis.

An example of succesful Gap Analysis is villa holidays. In the 1970s, package tour companies found a segment of the public who didn't want to organise all of their holidays, but who disliked the regimentation of package tours.

Since then, the exploitation of this market gap has revealed other niches, which has resulted in Fly 'n Drive holidays and Fly 'n Camp holidays (with tents provided at the destination).

Ansoff's Product-Market Grid

The Ansoff Product-Market Grid shown above may help you to clarify your thoughts about the direction that diversification could take you.

Sales targeting can help to spot market gaps. By focusing on specific market sectors and sub-sectors, new markets may be found for existing products. The research needed for targeting (see our archived feature articles on targeting: Part 1 and Part 2) can uncover demand for new or changed products within existing markets. Customer surveys can also point to changing demand for new products.

One final point. The grass on the other side of the fence often does look greener! But that may be because it has taken skills and resources to get it looking that way. Be certain that you either have these, or can acquire them, before leaping over the fence!


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