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Nichemanship
By Michael Alan Hamlin
October 11, 1999
In Asia’s Best: The Myth
& Reality of Asia’s Most Successful Companies, I observed
that successful companies in competitive sectors were best characterized
by their dominance of market segments, rather than overall market
leadership. I called this practice "nichemanship." Originally,
it was "niche-manship," so that it would be at least half
a correct word. Recently I decided to either add to — or take
from, depending on your perspective — global colloquial English
and revise the term. It’s now "nichemanship," without
the distinct hyphen. Be advised.
Strategically, nichemanship is most
often associated with firms that find competing head on with larger
competitors with a rich store of resources of dubious merit. Rather
than compete directly, these firms — mostly mid-size compared
to industry leaders and very entrepreneurial — take on a segment
of their industry leader’s business in which they can perform
more efficiently or profitably than larger competitors. Frequently,
industry leaders ignore these niches because they are too small
or too troublesome to serve to be of interest.
Once of the best examples of nichemanship
that I’ve observed over a good portion of the last decade involved
a popular Hong Kong consumer finance firm, JCG Finance. While Hong
Kong’s taipans were getting wealthy developing new real estate
cautiously allocated to the market by the former British colonial
government to keep prices high, this firm was busy cultivating consumers
who wanted to take out a mortgage on older flats and homes so that
they could renovate. For large banks, dealing with middle-class
couples taking out relatively small mortgages compared to the cost
of buying a new flat just wasn’t a sexy — or very profitable
— business. So JCG pretty much had the segment to itself, and
thrived on it.
Another niche that JCG successfully
capitalized on was personal loans taken out for a variety of purposes
by lower income residents. These loans went for such things as consumer
electronics, school tuition, and the like.
While the lobbies of Hong Kong’s
stodgy banks were filled with the employees of the former colony’s
big-name corporate brands — senior executives naturally got
better service and didn’t have to cool their heels — our
fast-growing consumer finance firm was happily taking applications
from laborers and imported domestic helpers. When I was there, determined
applicants lined the lobby waiting for their turn to transform stable
employment into credit.
Another financial sector example
of nichemanship is also a Hong Kong example, and involves a bank
— Heng Seng. This bank is a highly profitable subsidiary of
Hongkong and Shanghai Banking Corporation (HSBC). When I came across
this institution, I had the opportunity of interviewing executives
from both Hang Seng and its parent.
The parent of course was lofty in its persona, insisting that it
would always be a commercial bank. Consumer banking was, well, not
very important in Hong Kong, although that certainly seems a bizarre
notion now. Well, Hang Seng showed that it was bizarre then, too,
but as in JCG’s case, large banks sniffed at non-commercial
banking. But Hang Seng realized, to its merit, that to be significant,
it had to be different.
While that might seem obvious, much
of Hong Kong’s success remains anchored on being connected
to the right circles and doing the right things. By "right
things," I mean politically correct and popularly admired.
Since its parent and other respected commercial banks exercised
domineering influence over the "right" circles —
big business — those connections — or lack thereof —
offered little prospect for real business for smaller banks.
For Hang Seng, commercial opportunity
was the purview of its parent. But Hang Seng’s success was
ultimately the result of its determination to pursue inconvenient
opportunity.
Inconvenient opportunity proved to
be not the financing of new condominiums built on scarce, government-released
land, but homeowners. Hang Seng became the most rapidly expanding
bank in Hong Kong not because of its customer asset base, but because
it fashioned itself into a consumer retail bank competing on the
basis of technology, sales, and cost leadership according to its
former chief executive, Alexander S.K. Au. It made life easier for
consumers.
Tougher times in Hong Kong caused
Hang Seng’s parent to rethink its infatuation with commercial
banking, and HSBC now styles itself principally as a consumer bank.
It’s a messier business, but ultimately it is more profitable
to deal with a large group of customers who provide better margins
than a relatively limited number of large corporate clients.
Marketing guru Philip Kotler says
now that competition is increasing in Asian markets, nichemanship
is becoming an important feature of most every company’s strategic
marketing plan as the importance of allocating scarce resources
to most profitable customers increases. Segments that represent
great potential may be so competitive that it is just too expensive
to acquire and keep customers. As JCG Finance and Hang Seng demonstrated,
"unattractive" segments are often worth much more than
the larger market, which may not even be reasonably accessible to
smaller players.
As a result, Mr. Kotler argued during
his recent presentations in Manila that traditional ways of doing
business and brand building — big-time advertising budgets,
for instance — don’t mean near as much as they used to.
What does matter is the company’s capacity for connecting to
and interacting with the right group of customers — ones that
are both profitable and loyal — and staying focused on them.
That’s the game of nichemanship.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
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