A market niche is a smaller sub-category of a market segment, where a part of the customers consider only niche products substitutable with one another, but not substitutable with products from the broader market segment.
In the context of Life Cycle Assessment, understanding market niches is particularly important for consequential LCA modelling. When assessing which activities will change in response to a change in demand for a product, practitioners must determine whether the product belongs to a niche market or a broader market segment. This distinction affects which competing products are considered substitutable and therefore which production activities are likely to be displaced.
For example, within the broader market segment of dairy products, organic milk may constitute a market niche. Customers who specifically seek organic milk may not consider conventional milk a suitable substitute, even though both products serve similar functions. This limited substitutability means that changes in demand for organic milk would primarily affect organic dairy production activities rather than conventional dairy production.
The concept of market niches relates closely to the economic principle of imperfect substitutability. When products occupy distinct niches, they face different marginal suppliers and different market dynamics compared to the broader market. This has direct implications for identifying which activities should be included in a consequential product system and which marginal technologies will respond to changes in demand.
Market segmentation analysis helps LCA practitioners identify whether a product operates within a niche market or competes in a broader market segment. This analysis requires understanding customer preferences, price sensitivities, and the specific product characteristics that define substitutability within a given market context. Proper identification of market niches ensures that consequential LCA models accurately represent the activities that will actually change in response to changes in product demand.
