Niching down isn't about changing words

Niching down or positioning isn’t about changing a few words in the header of your website.

It’s about redesigning your business model to be centered around a hole in the market nobody else is filling.

Maybe your marketing is niched down to the market sub-set you are going after, but is your operations designed for them? Payment terms? Is your user experience specifically tailored for them?

Or… Are you exactly like your competitors other than the fact that you say you’re for a niched audience?

My favorite example of positioning right now is the battle between AirBnB and VRBO.

How the War Began

VRBO is older than AirBnB, but when AirBnB came on the scene, they outgrew VRBO without giving much holding them back.

Like any great new-leader story, Airbnb took over the scene by taking advantage of developments in technology before VRBO caught on. We see it as a Web 2.0 company disrupting the Web 1.0 leader, but really it’s a story as old as time.

They positioned themselves beautifully at the time by making the user experience app-focused. This meant they got a younger generation that was much more open to using resource-sharing platforms like Uber.

For a while, it looked like VRBO was going to die at the hands of disruption and innovation.

But whoever is running strategy at VRBO wasn’t interested in dying a slow death. They did everything right to retain their place in the market and continue to grow in revenue and profit.

When VRBO was the big dog in the space their positioning was simple. Some people want to make money on their second homes. They are a marketplace that gives these owners a chance to find rentals.

When AirBnB came on the scene, their positioning was more encompassing. To Airbnb, any space was an opportunity for collecting rent. This turned extra rooms into income-producing assets. Including campers, RVs parked in the forest, and tents in the desert. Virtually anything.

AirBnB expanded the market with its positioning bringing more customers to the space than VRBO could have hoped for when they were in the lead. It didn’t take long for all of VRBO’s hosts to start listing their properties on Airbnb as well.

From the outside, it looks like it took VRBO a while to recognize the danger they were in. But when they caught on, they didn’t fuck around.

You can almost sense the conversation the executives were having. Some competitive jack-off probably demanded they start competing on AirBnB’s terms. “If AirBnB wants to step on our turf, we’ll beat them at their own game.”

If someone did say that, they should get rid of them.

Instead, they made a much better decision.

If AirBnB was going to make everything a rental, then we would focus ruthlessly on our core, smaller, customer base.

They went on to redesign the company's branding, messaging, and positioning to prioritize serving owners of 2nd homes who want to build a hospitality business out of the whole property.

How Positioning Guides Their Marketing

In the Title alone, it’s made clear what VRBO stands for.

“VRBO only offers whole vacation homes.”

They’ve taken their position in whole vacation homes. Why?

“So it’s always just you and your people.”

They are calling out the idea of having a “host” be in the house with you on your vacation.

Why are they calling that out? Because that’s exactly what AirBnB is pushing the most right now. If you compare this marketing with where AirBnB is going in their marketing, you see they are pushing themselves in opposite directions to have a stronger position in the marketplace.

Note: Just through watching their ads, you can tell AirBnB is the leader in the market. The non-leaders in the market should always be differentiating themselves from the leader. This means attacking AirBnB’s value prop directly. Meanwhile, AirBnB, being the leader, will virtually never make any reference, direct or indirect, to their competitors.

Here is one of AirBnB’s most recent announcements. Watch this and see if you notice how different their positioning is.

They are staking their position on the idea of smaller rentals. Making renting where there is a host actively living there the strength of their platform, while VRBO is trying to convince people the strength of their platform is getting the whole place to themselves.

How Positioning Guides The Whole Business

So we’ve seen how positioning affects these two companies’ marketing, but how does it affect the rest of the business?

Right out of the gate, you can infer that because VRBO focuses on entire houses, their average price per stay is going to be higher.

That means VRBO can make more money on fewer customers. In a sense, they are the premium provider in the space.

From an accounting perspective, that means they can justify a higher cost-per-host acquisition. It also means they can spend more time and money servicing their fewer hosts than Airbnb can. Airbnb has 7 million stays, while VRBO only has 2 million.

I’m a partner in a company that runs a vacation rental in Indio, California. It’s listed on both AirBnB and VRBO.

Airbnb has automated or outsourced customer service in a way that’s in tune with the fact that they have a much higher volume of hosts and a smaller revenue per transaction.

VRBO has higher-touch customer service that you can rely on to help you solve your problems.

It’s not because AirBnB doesn’t think their customer service for hosts isn’t a priority, but they’ve chosen a higher volume, lower revenue per unit, position. That makes their customer service cost per unit much higher relative cost compared to VRBO.

Where Airbnb charges a commission to the host and the guest for renting, VRBO has an option for hosts to pay $500/year to have their commissions waived.

Airbnb charges its guests 5-20% whereas VRBO only goes up to 15%.

Airbnb has spent years designing its user interface for the variety of accommodations it has, while VRBO has a user interface focused on whole houses and promoting them.

What About You?

Picking a position or niche in the marketplace requires you to design your whole company around that position in the market to be successful.

If VRBO started modeling their company after AirBnB to compete with them, like slimming down the customer service for the sake of volume, adding experiences to their app, etc.. Their core customer base would have felt left behind and their platform loyalty would be in question.

Are you strategically positioning yourself for success? In the online business space, people often refer to this as “niching down.” What they mean is picking a subset of the general audience to focus on. But if niching down doesn’t extend past who you are targeting and the words you put on your website, it’s not going to create an impact on your revenue or bottom line.

Don’t just think about how to change your marketing to “speak to your niche audience.” Ask yourself, how can you change your product to be designed specifically for them? This is going to force you to spend more time getting to know the details of who your customer really is and what they care about. It’s also one of the reasons customer support is so important. Done correctly, it should guide you on how to increase profitability (adding value) by creating focus (reducing costs).

What most people don’t understand is that taking a position is limiting. You’re told that once you conquer your niche you can expand, but that isn’t true at all. Unless you find another position that’s strategically open and relevant to your original, you’re not likely to be profitable in your expansion efforts.

The end result of those limitations is that even know Airbnb is much bigger and creates more absolute profit than VRBO, VRBO is likely more profitable based on a percentage of revenue.