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Niche Market Targeting and Expansion Strategies

13 min read

From: alexhormozi

This article summarizes 13 years of marketing advice, focusing on actionable strategies for business growth, scaling advertising, and expanding market reach. The core principles revolve around understanding customer value, optimizing marketing efforts, and strategically identifying and serving niche markets.

Starting with Low Prices or Free Services

When launching a new product or division, or even a new business, it is often beneficial to start with low prices or offer services for free [00:00:13]. This approach allows for upward price adjustments later, whereas decreasing prices can be challenging [00:00:19]. The primary goal in the beginning is to generate “flow through the system” [00:00:23].

Examples of this strategy include:

  • Online Personal Training: The speaker’s first business offered 12 weeks of training in exchange for a donation to a charity of the client’s choice, securing 13 initial customers without feeling awkward about charging [00:00:50]. After the initial period, many clients were willing to pay and refer others [00:01:21].
  • Gym Launch: For his second business, the speaker offered gym turnarounds for free, only making money if sales were generated and fronting the marketing costs [00:01:42]. This allowed rapid testing in over 30 markets, leading to a system licensed to 5,000+ locations and a $46.2 million company sale [00:02:05].
  • Software Company (Allen): Initially offered free services to acquire case studies, testimonials, and success stories [00:02:19].

Why Offer Free/Low-Cost Services?

Even for established businesses launching new offerings, starting with free customers makes sense for four key reasons [00:02:29]:

  1. Conversion to Paying Customers: Free customers often convert to paying customers after the initial period if a good job is done [00:02:38].
  2. Referrals: Satisfied free customers will refer new paying customers [00:02:45].
  3. Testimonials and Reviews: Free customers provide valuable testimonials and reviews, which can be leveraged for advertising to attract more customers [00:02:52].
  4. Feedback: Providing services for free in exchange for feedback helps improve the product or service, accelerating iterative development [00:03:00].

Tactical Price Escalation

After securing an initial batch of 10-20 test cases, prices can be increased by 20% for every subsequent five customers [00:04:11]. This gradual increase continues until the conversion rate multiplied by the price begins to decrease, indicating the optimal price point for maximum total revenue [00:04:27].

It is crucial to communicate to early customers the intention to raise prices later, stating that the current offer is a discount in exchange for feedback and testimonials [00:05:12]. This ensures expectations are managed and provides leverage for obtaining reviews and referrals [00:05:24].

Scaling Advertising and Marketing: The More, Better, New Framework

The framework for scaling advertising and marketing in any niche involves three stages: More, Better, and New [00:06:24].

1. More: Volume is Key

In the initial stages, increasing volume is almost always the answer [00:06:33]. This applies to content creation, sales calls, or advertising spend [00:07:09]. Many entrepreneurs underestimate the sheer volume required to achieve significant growth [00:10:43]. “Volume negates luck” – by producing more, the chances of finding what works increase, reducing reliance on a single “amazing” ad or piece of content [00:10:27].

This concept extends to paid advertising; often, perceived “saturation” in a niche is simply a lack of sufficient ad spend compared to the overall market [00:08:27]. If a business can achieve a higher Customer Lifetime Value (LTV), it can outbid competitors for attention, creating an “ethical monopoly” [00:09:28].

2. Better: Optimizing the Front End

Once sufficient volume is established, the focus shifts to “better” – optimizing performance. This transition occurs when the return on effort for improving existing processes exceeds adding incremental volume [00:12:12].

Optimization should be “front to back” [00:17:15], with disproportionate effort placed on the initial touchpoints, such as headlines, hooks, and packaging [00:17:20].

  • Headlines and Hooks: David Ogilvy’s principle states that “after you’ve ridden your headline you’ve spent 80 cents of your advertising dollar” [00:17:20]. The first 5 seconds, headlines, and packaging are paramount, setting the frame through which all subsequent information is consumed [00:17:38]. A small change in a headline can lead to significant increases in booking rates (e.g., 62% increase from a headline change on a landing page) [00:21:36].
  • Clarity and Simplicity: Assume the audience has no prior knowledge, is in a rush, and has a third-grade education [00:22:11]. “Clear beats clever, deletion beats explanation” [00:22:17]. Aim for the shortest, clearest language possible to maximize accessibility [00:22:24].
  • Call Outs: Make call outs (the element that grabs attention) as specific as possible to attract the right audience, while still being broad enough to capture sufficient volume [00:24:40]. This often means starting with a problem, a question, or a direct statement to identify the target demographic [00:25:04].

3. New: Strategic Diversification

Only introduce “new” strategies when “more” and “better” efforts have been exhausted or hit a significant constraint [00:14:11]. The cost of change for new initiatives is guaranteed, while the return is uncertain [00:13:52]. Most entrepreneurs err by spending too much time on “new” before fully exploiting “more” and “better” [00:14:02].

When pursuing new channels or products, it’s essential to understand that it takes time and investment to see a return. Expect 3, 6, or even 12 months for new ventures to pay off [00:16:03]. Focus on marking progress (e.g., clicks, opt-ins, qualified leads, conversion events) rather than immediate financial returns [00:16:10].

Key Business Strategy: LTV to CAC Ratio

The most critical metric for any business is the Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio [00:25:45].

  • LTV (Lifetime Value): The total gross profit generated from a customer over their entire relationship with the business [00:27:10]. Gross profit is revenue minus the cost of goods sold (including direct labor for services or product cost + shipping for widgets) [00:30:17].
  • CAC (Customer Acquisition Cost): The all-in cost to acquire a customer, including sales, marketing, and software expenses [00:27:17].

This ratio reveals how much money it costs to make money [00:27:27]. A general rule of thumb is to aim for at least a 3:1 LTV to CAC ratio [00:28:25]. Higher ratios (e.g., 20:1, 30:1, 100:1) indicate significant opportunities for profitable scaling [00:29:10].

Calculating LTV can involve looking at total gross profit from customers over a year and dividing by the number of customers [00:30:11]. It’s often advisable to underestimate LTV to err on the side of caution [00:30:53]. To ensure profitability from the start, aim to recoup the CAC within the first 30 days, possibly through an upfront upcharge [00:31:10].

Ad Creation Process

The ad creation process should be systematic and data-driven [00:32:21]:

  1. Collect Data: Continuously gather interesting ads (swipe files) from various platforms and screenshot/record them [00:32:24].
  2. Review Historical Performance: Analyze past best-performing ads to understand what worked, focusing on hooks, angles, and opening seconds [00:33:14].
  3. Hook Creation (80/20 Rule): When creating new ads, dedicate 80% of effort to tried-and-true hooks that have historically performed well. The remaining 20% is for experimentation with new ideas and inspiration [00:34:06]. This ensures consistent performance while allowing for innovation.
  4. Kaleidoscope Process for Winners: When an ad is a “mega-winner,” extract maximum value by creating many variations [00:35:10]. This includes:

The Four Ways to Advertise Your Business

All advertising falls into one of four categories, based on communication style (one-to-one or one-to-many) and audience familiarity (known or strangers) [00:37:47]:

  1. One-to-One to Known People: Warm Outreach (e.g., direct messages to existing contacts) [00:38:15].
  2. One-to-One to Strangers: Cold Outreach (e.g., cold calling, cold email) [00:38:16].
  3. One-to-Many to Known People: Content creation (e.g., social media posts for followers) [00:38:17].
  4. One-to-Many to Strangers: Running Ads (e.g., paid social media campaigns, search ads) [00:38:19].

If you are not actively engaging in one of these four activities, you are not marketing your business [00:38:27]. Small businesses should dedicate a significant portion of their day (e.g., the first four hours) to promoting their business [00:39:12].

Marketing Principle: State the Facts and Tell the Truth

Tracking results is crucial because “if you don’t track, you don’t care” [00:43:37]. Tracking inherently improves performance by focusing attention on metrics [00:43:50].

To present data compellingly, include four variables [00:46:17]:

  1. Percentage of people: (e.g., median, average, overall percentage) [00:46:20].
  2. Achieve X outcome: The specific result (e.g., $100,000 added profit) [00:46:27].
  3. In Y time or after X attempts: The timeframe or number of attempts [00:46:29].
  4. Under Z conditions: The specific circumstances or program (e.g., “after their first 12 months in Gym Launch”) [00:46:30].

The fewer conditions, the more compelling the data [00:47:01].

Marketing Principle: Say What Only You Can Say, Show What Only You Can Show

The core idea is to “do epic stuff, then talk about what you did” [00:48:02]. Focus on “how I” achieved results rather than “how to” advise others, allowing your actions and outcomes to speak for themselves [00:47:53].

This also relates to providing “value per second” [00:49:17]. Rather than simply giving more information, curate and distill it into a tight, easily digestible package that offers significant value for the time invested [00:49:24].

Demonstrating results rather than just telling about them is highly effective. Examples include playing a live lead call for an agency, showing a software demo in real-time, or a salesperson cleaning a stain to prove product effectiveness [00:50:18]. This allows prospects to vicariously experience the future result [00:50:38].

Market Selection and Opportunity Evaluation: How and When to Expand

Most businesses should first maximize their current market by striving to be the best within a specific niche [00:53:35]. Even a very narrow niche can yield tens of millions in revenue if dominated [00:54:49].

Once a business has “solved being the best” in its niche, there are five ways to expand [00:55:08]:

  1. Up-Market: Targeting higher-value customers (e.g., health clubs instead of micro-gyms) [00:55:20].
  2. Down-Market: Targeting lower-value, higher-volume customers (e.g., personal trainers) [00:55:33].
  3. Adjacent: Serving similar avatars with slightly different business models (e.g., chiropractors, med spas for a gym business) [00:55:45].
  4. Narrower: Further specializing the existing niche (e.g., only boot camps within micro-gyms) [00:55:59].
  5. Broader: Expanding to a wider market (e.g., all health and wellness, not just gyms) [00:56:19].

Often, the most effective expansion strategy is to go narrower [00:56:50]. By focusing on the top 20% of customers (who generate 80% of revenue), businesses can become highly efficient at serving that specific demographic, leading to increased LTV and higher profitability [00:57:30]. This involves analyzing customers by psychographics, geographics, demographics, and actions to identify common traits of the most valuable clients [00:58:05]. Many businesses fail to achieve substantial growth because they cannot say “no” to fast money from less ideal clients [00:58:41]. “Better creates bigger, bigger creates bloat” [01:00:25] – focusing on improving the core offering for a specific target audience ultimately leads to more sustainable and profitable growth.

Providing Value: The Value Equation

Providing value means helping customers achieve their desired outcomes while minimizing perceived negatives [01:04:47]. The value equation has four components [01:02:19]:

  1. Dream Outcome: What the customer truly desires to accomplish or avoid [01:02:22].
  2. Perceived Likelihood of Achievement / Risk: How likely the customer believes they will achieve the outcome, and the associated risks. Higher likelihood and lower risk increase value [01:03:20].
  3. Time Delay / Speed: The speed at which the customer can achieve the outcome after purchase. Faster results equate to higher value [01:03:49].
  4. Effort and Sacrifice / Ease: How much effort or sacrifice is required from the customer. Easier solutions are more valuable [01:04:22].

To identify problems to solve, observe comments on content, look for internal implementation struggles within your business, and listen to common complaints from your audience [01:05:37]. Problems never end, and solving one often reveals another, creating an endless content and solution cycle [01:05:46].

Give Away the Secrets, Sell the Implementation

Make your free content better than others’ paid content [01:06:30]. Be willing to charge for what you give away for free, demonstrating its inherent value [01:06:37]. Free content, or “lead magnets,” should offer a complete solution to a narrow problem [01:06:55]. This strategy builds brand awareness and trust, leading to future purchases [01:07:10].

Focus on narrow content that is deep [01:07:24]. A small, highly engaged audience can generate significant profit if the content directly addresses their niche problems [01:07:31]. For example, an Instagram account with less than 6,000 followers generated $1 million in profit by focusing solely on how registered dietitians could bill insurance more accurately [01:07:31]. This deep, niche focus leads to higher quality leads, even if general views are lower [01:09:16].

When giving away free content, include clear calls to action (CTAs) within the content itself and follow up with leads [01:11:09]. Frame CTAs around personalization (“help apply this to your business”) rather than just offering “more stuff” [01:11:25]. Recognize that 99% of people consuming free content will never buy, so the quality of your free offerings significantly impacts your market reputation [01:11:47]. Giving away low-ticket, high-headache products for free can free up resources to focus on serving best customers and go up-market [01:12:40].

All Advertising Works: It’s About Efficiency

Every form of advertising works; the challenge lies in making it efficient for your specific business [01:13:03]. The LTV of your product dictates how much you can afford to spend on customer acquisition [01:13:49]. Businesses should optimize their backend (LTV) first, as this enables greater spending on the frontend (CAC) [01:14:00].

Scaling advertising often requires adapting to different levels of customer awareness, as described by Eugene Schwarz [01:15:53]:

  1. Unaware: No idea who you are, what the problem is, or that a solution exists [01:15:57].
  2. Problem Aware: Knows they have a problem (e.g., back pain) [01:16:02].
  3. Solution Aware: Knows potential solutions exist (e.g., chiropractic care) [01:16:11].
  4. Product Aware: Aware of your specific product as a solution [01:16:18].
  5. Most Aware: Existing or past customers [01:16:25].

Smaller advertisers typically find returns marketing to the “most aware” or “product aware” levels [01:16:30]. To scale to larger audiences (e.g., “problem aware” or “unaware”), ads must be significantly better and more specific to bridge the awareness gap [01:17:14]. The “size of the plane is directly correlated with the length of the runway” [01:17:46]—more expensive products or colder audiences require longer selling processes and better ads to guide them through the stages of awareness.

We Need to Be Reminded More Than We Need to Be Taught

Even if you feel you’ve “said everything,” remember that “the news never changes, just the names” [01:20:50]. Content can be repeated because new audiences haven’t seen it, and existing audiences benefit from reminders to keep concepts top of mind [01:21:20].

To provide variety without constantly creating truly novel content:

  • Tell “Your News”: Share new stories from your own experiences to explain the same core concepts [01:22:30].
  • New Formats, Mediums, and Contexts: Present the same ideas in different ways (e.g., written, audio, video, whiteboard, applied to different industries) [01:23:09].

Avoid becoming fatigued with your own content before your audience even remembers your name [01:24:15]. Audiences consume a small fraction of what’s produced, so consistent volume ensures engagement [01:24:29].

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