1. Most businesses compete in "Red Oceans," a bloodbath of me-too products targeted at a limited segment.
2. To carve an "in" and to eventually dominate, Blue Ocean Strategy is called for.
3. Less is More. Blue Ocean strategy targets a sub-segment, an under-served segment. Find Blue Oceans by examining every feature of an existing product and how well it serves this sub-segment. Then consciously drop the features that do not matter and refine the ones that do. Dropping features is as important if not more-so than refining or adding features. Think about the iPhone UX and how it targets beginner technology users.
4. If this smells vaguely of "niche market strategy," you are correct. But just because it is a niche market does not make it a small market. By way of a niche market you can then establish your business as a tastemaker. Consider Cirque du Soleil, an adult targeted circus entertainment chain. By dropping the expensive animals in the act, and adding artistry and choreography to their act, they have penetrated the adult circus entertainment business.
5. Make a strategy canvas to figure out the right features to drop, keep and create. See below for an example of Southwest Airlines' strategy canvas:
Try it for your business, you may uncover some interesting directions that gives you fresh blue oceans.