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Markets aren't that great at dealing with niche preferences*

* least relative to more common preferences, and are probably still the next best alternative

Rewind to the 80s or 90s and you would have been hard-pressed to find many decent cafes or restaurants serving good vegetarian food (at least where I live in Auckland). There might 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 bolognaise without the bolognaise - but that's dam boring, and not worth the trip.

Being part of a niche consumer group, like vegetarians, can be difficult. Such consumers may not be able to get what they want easily because the market isn't sufficiently incentivised to serve their tastes.

Today, in many food joints there is a lot on offer for many different tastes. Vegetarian meals are actually worth ordering. The market has evolved to better cater to those tastes. There aren't necessarily as many vegetarian options as omnivore options, but that's by definition. Omnivores accept eating a wider variety of foods than vegetarians.

Vegetarian food has gone from being fairly niche with only a small number of consumers (e.g. due to cultural, religious or personal reasons) to be 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 shared characteristics. Niche consumer preferences broadly fall into two types:

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

  2. Niche because the product or service is exclusive.

This article focuses on the first type - not many people liking the product or service. A product could be niche because of tastes, demographics, geography, or a range of other reasons.

Markets aren't that great at dealing with niche preferences

Markets aren't that great at providing for people with niche preferences because to offer a wide supply of a product or service requires sufficient incentive to create that supply. The incentive is typically smaller 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 difficult to come by. There may be a limited supply and range of the product/service. Or products may be more expensive than expected.

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

Trying to buy a shark from a pet store. Niche preferences and economics.

Different preferences encourage market diversity

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

Innovation gives consumers the opportunity to find new products and services that can better match their tastes. The benefits of this are clear on supermarket shelves. In New Zealand supermarkets, there use to only be a few brands of milk, led by Anchor and Meadowfresh. Today there is a 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 in popularity. That's been a big thing in the food industry with previously niche food types like Asian fusion becoming much more popular as people caught on.

Ultimately producers have an incentive to grow their business and move beyond a niche.

Similarly, products can become niche due to changing technology, different tastes or other market forces. For example, the market for vinyl records is much smaller now than it was in the 1970s. Though interestingly, vinyl is making a comeback.

Not every preference can be fully catered for

Having a variety of preferences in the market is a good thing, it supports innovation and consumer choice. However, markets can't cater to each and every preference, and it's unreasonable to expect otherwise. There aren't enough resources on the planet, and for some products and services there is limited capability to even deliver them (e.g. talking dogs).

This article discussed preferences in regards to markets - but preferences go wider than that covering social relationships and politics, among other things. Stay tuned for a future article discussing the difficulty of creating social cohesion when there are numerous social and political preferences.


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