Technological advances have made the world a global village where businesses can now access markets beyond their immediate location.
While this globalization has been the key to many businesses’ growth, it has led to intense competition. Many people have seen their “local monopoly” eroded by more intense international competition.
Financial advisors do not get a pass. Now many advisors use a virtual or semi-virtual system, which means they can acquire clients from anywhere. Consequently, advisors that have depended on establishing dominance in their locale now face competition with virtual advisors marketing to the same people even without a local presence.
There are two ways to approach this intense competition – fight to be the cheapest advisor and compensate for it with low operation cost or stand above the competition by building a brand.
The first option is not always palatable. Competing on price will not help you achieve your business goals or live the life you have always desired. Moreso, there is always someone out there who will offer a cheaper price. It’s a battle into oblivion.
That’s obviously a path you don’t want to tread.
As the competition intensifies, business coaches have emphasized the importance of building a brand. Building a brand and commanding loyalty for that brand is the only way to excel in the globalized, competitive business environment.
How can you do this as a financial advisor? With every financial advisor offering identical services, how can you position yourself above the competition?
The case for niching down
A simple way to build a brand in the competitive market is to focus on a niche.
“One of the outstanding tragedies of this age of struggle and money-madness is the fact that so few people are engaged in the effort which they like best,” said Napoleon Hill, author, Think and Grow Rich. “Everyone should find his or her particular niche in the world’s work, where both material prosperity and happiness in abundance may be found.”
Ralph Waldo Emerson defined successful people in these words: “Successful people live well, laugh often, and love much. They’ve filled a niche and accomplished tasks so as to leave the world better than they found it, while looking for the best in others, and giving the best they have.”
What does it mean to find a niche?
Remember that if you position yourself as a financial advisor, you compete with every financial advisor in the world. If you position yourself as a financial advisor in California, you are competing with every financial advisor in California and every financial advisor outside California that targets people in California.
Competing in such a market is difficult. To stay above that level of competition, you need a massive marketing budget, technology, and personnel. Even if you have all those, you need to compete with the big guns that have saturated the market and have the financial muscle to outdo your efforts.
Carving a niche means you are competing with fewer people, and your chances of becoming a leader in your market and commanding brand loyalty are higher.
Consider a financial advisor (AAA Financial Advisory Services) who decided to focus on dentists and medical doctors in California rather than everyone who may need financial planning services in California- which ideally is every adult.
Instead of competing with a large pool of local and virtual advisors targeting Californians, AAA is only competing directly with other financial advisors who target dentists and medical doctors in California.
Focus on the conversion or close rate
The immediate reaction of many is that carving a niche out of the bigger market limits your potential clients.
However, a few reflections will show that is not necessarily true. Let’s consider two financial advisors, AAA and BBB. Say BBB targets 1,000,000 Californians but can get one client every month. On the other hand, AAA targets 200,000 dentists and doctors in California and gets five clients every month.
The conversion or close rate of BBB is 0.0001, while that of AAA is 0.0025.
The point here is that a niche might have lesser potential customers than the bigger market, but the focus is on how many of those potential customers you are converting.
A high conversion rate with a lower-sized market is better than a low conversion rate with a big-sized market.
Even if AAA is only closing one dentist or doctor every month, the conversion rate is still better (0.0005) than BBB.
Similarly, the marketing cost to reach 1 million people is not the same as reaching 200,000. Even if you keep your marketing budget constant, you can reach the latter group with more frequency and increase the chances of increasing your conversion rate.
The size of the river where you fish won’t matter if you find it difficult to pick a fish. Won’t you fish in the smaller river where you kill more fishes with less stress than spend all day and night fishing in a bigger river where you hardly get any fish? Is the feel of fishing in a bigger pond better than the fish on the table?
Charlie Munger, the vice-chairman of Berkshire Hathaway, said, “I find it quite useful to think of a free-market economy – or partly free market economy – as sort of the equivalent of an ecosystem. Just as animals flourish in niches, people who specialize in some narrow niche can do very well.”
Niching down is not wholly about reducing competition; it is about your ability to “do very well.”
Benefits of niching down
So what are the advantages of niching down?
As said above, when you focus on a niche, you either spend fewer dollars in marketing or you get more frequency with the same dollar spent.
When you niche down, you compete with fewer people. The advantage of that is that you can quickly and easily become the leader of that niche. Becoming a leader in a niche market is better than scraping the bottom in a larger market. A leader is a leader.
Brand identity and loyalty
The primary goal of branding is to make your command attention and interest. Over time, attention and interest lead to brand loyalty.
However, if you do what everyone does, your brand won’t stand out-it won’t command attention and interest. There is no brand loyalty if your brand is not jumping at people.
Branding is more than having a well-thought name or the best logo. All those brand elements mean nothing if your business is generic and does not generate the attention and interest needed for loyalty.
By identifying your brand with a particular niche market, you can generate the attention and interest that leads to brand loyalty.
“I am a financial advisor” won’t jump at anyone. However, while “I am a financial advisor for teachers” won’t jump at the architect, it will jump at the teachers and their friends and families. You may not excite everyone, but you really excite those you excite. It’s far better than being too generic to excite anyone.
With the attention and interest comes brand loyalty down the line.
People are willing to pay the specialist more than the generalist. The services of a specialist doctor are more expensive than the generalist.
That reality is becoming mainstream in the business world.
A specialist generates expertise through his experience doing one thing over and over. He knows the ins and outs, what works and doesn’t, and he can use that knowledge and experience to deliver a better output in less time.
A financial advisor known for his expertise among dentists and doctors can command a higher fee than the specialist. Niche-based knowledge and experience is a competitive advantage.
Once you become the leader of a niche and command brand loyalty, you can multiply your product or service offerings.
You can use your creativity to develop more products and services to serve your niche market’s needs. The advantage of dealing with a reduced audience is the ease with which you can know them-their goals and challenges.
Use that knowledge to create more products for them.
Warren Ellis, a British novelist, and screenwriter is right, “I think one of the bigger lessons the Internet has taught us is that ‘niche’ or ‘subculture’ are a lot bigger than anyone ever thought.”
Deciding on a niche
Niching down, like everything else, can be done right or wrong. Carving out a niche is not a good luck charm or a piece of magic. Do it right, and your business prospers; do it wrong, and you may be worse off.
How do you niche down profitably and successfully?
Do what interests or delights you
The generalist has one advantage – he gets to work with different types of clients. If planning for a pharmacist is boring to him, the next customer may be a teacher who brings a load of excitement.
On the other hand, if he were a generalist and the next client (and every next one) is a pharmacist, he won’t last in that business. Put simply, you are stuck with your niche. And changing your niche every year is bad for your brand image, more so for your reputation.
Therefore, find what interests and delights you and create a niche around that.
Is your niche profitable?
Here is where you ensure that what interests and delights you is also profitable. Without a positive cash flow, your business may not survive.
Is there a need for your financial planning services in that niche? Do some keyword research to see if people are searching for the solution you provide (e.g., financial services for doctors). Use Google Trends to see if there is a growing or declining interest in that keyword.
The existence of some competitors can also be evidence that a niche is profitable. Niching down never means zero competition. However, if you can get a profitable niche with zero competition, why not.
You can also conduct surveys among your niche-market to measure their interest in your service.
Can you solve the problems of this niche market?
Before jumping on a niche, ensure you are well-positioned to meet the needs in that niche. To do that, you must identify those needs. Interest and profitability are never enough. Can you serve this niche? That’s the question.
Do a SWOT analysis of your advisory business to see if you have what it takes to enter into this niche and build a successful business.
Niching down the right way
Niche down by product or market
You can decide to niche down by product or by market. The examples we have considered so far relate to niching down by market.
An example of niching down by product is positioning yourself as an estate planner. Instead of offering every kind of financial planning for the larger market, you focus on one service or product.
However, with the nature of the advisory business, it is better to niche down by market than product. The former provides you with more business opportunities down the line. Once you have a market, you can keep creating new products as you discover new needs. Brand loyalty gives you an unfair advantage.
Furthermore, many people won’t hire a financial advisor who offers full-service planning and then go out of the way to hire another estate planner. Having a single advisor handle their business gives them more confidence.
A niche does not have to be extremely small
Niching down does not mean your target market should be too narrow.
“We are in niche consumption mode, but ‘niche’ doesn’t mean ‘small’ anymore,” said Chris Hardwick, American writer, podcast host, and producer. “Niche can mean focused, and particularly with the Web, which is a global audience you can have something niche and still get 10 to 15 million views.”
While niching down is great, don’t overdo it to the point where it hurts your profitability and business growth.
The market should be small enough that you can become a leader with consistent efforts and branding. However, don’t play the loser’s game and make it so small you can dominate it without lifting a finger.
Expansion is allowed
Niching down is not an inhibitor of growth. When you are ready, you can grow considerably. However, such growth must be consistent with your brand identity and your competitive advantage.
An example of a good way to grow is for AAA to expand its advisory business-targeted towards dentists and doctors- to Texas. The branding remains. The niche remains. It’s the size of the niche-market that expands.
Financial advisors can always explore such growth opportunities as the business progresses.
As the competition intensifies, finding customers, commanding brand loyalty, and staying above the fray has become more difficult. Many financial advisors rely on price wars and ever-growing marketing budgets to stay afloat. The result is increased cost without increased revenue and a continuous loss of market share to the bottom feeders.
To stay above the competition, a financial advisor can benefit from niching down. Carving a niche reduces your marketing cost, leads to higher fees, helps you build brand identity and loyalty, and stay above the competition.
Find a profitable niche that aligns with your interests and strengths, and you will be flying high above the fray.
Next week, we will consider some advisors who are successfully niching down.
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