Scale, niche or tailored

Broadly speaking there are three types of business:

  • Scale: a business which is competitive because it gets the benefits of being large. For example, it is able to negotiate better rates with suppliers because the suppliers are highly dependent on the business. The tour operators are examples of scale operators within travel
  • Niche: a business which is competitive because it caters specifically for a relatively small part if the market. If successful, for the customers in the niche, the specialist is able to offer something of more value than the scale businesses. The specialised tour organisers or specialised travel agents are examples
  • Tailoring: a business which is competitive as it can tailor its product or service in a way which is attractive to the market. As with niche, success relies on the tailoring to add value over and above the scale service

Sometimes the distinction between niche and tailoring becomes blurred. Taking the example of a hypothetical ski tour organiser:

If the ski tour organiser specialises in say, off piste adventure skiing, then it is appealing to a specific section of skiing customers and so is a niche business. Its success is based on those advanced skiers being willing to pay more for the off piste element of the holiday. The rest of the package may well be a standard package.

Another hypothetical ski tour organiser specialises in say adapting the ski holiday around families. For example catering for those, like my parents, that want to travel with skiers and not ski. The key to the success of this business is adapting the standard elements of the package around skiers and non skiers.

Nothing new is added, but the access to the non ski elements needs to be better presented and organised. The success of this is having consumers who are willing to pay more for standard package elements and options pulled together in a very specific way. This is a tailored business.

In both of these examples, the majority of the holiday is offered by the larger scale businesses but in a less flexible way. The reason for putting you through that distinction is that start-ups have to compete with the established large companies. Much of the established market will be catered for by scale companies like TUI and Thomas Cook. While you can compete head on, having a niche or tailored proposition can help you compete more effectively.