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Choosing a Niche

You’ve done some market research and have determined a few markets that might have some potential for profitability. What now? Ideally the next step in the process involves choosing a niche. Now if you’ve done a little bit of snooping around our warehouse you’ve probably found a few things that tweak your interest. You’ve also probably got a million and one ideas about how you’re going to sell 101 different things and it’s going to be a huge success and you’ll make millions. So why on earth would you want a niche? The fact of the matter is that while there is a lot of opportunity out there, you can’t do everything, and while you may fear narrowing your market or reducing your opportunity to make a profit, you’ll have a lot better chance of building a successful business if you focus your product offering. It’s not to say you can’t grow with time, but start small and then build on it. Besides, too broad of an offering will put you in direct competition with not only the Wal-Mart’s of the world but also the majority of other individuals who are looking to sell on the internet. As the old adage goes “Jack of all trades, master of none”; far better to carve out a manageable piece of the market and offer a specialized set of products to a specific group of people. To learn more about the rationale behind the niche strategy, read up on “The Long Tail”, a term coined by Chris Anderson to describe the benefits of entering into niche markets. A simple Google or Wikipedia search will bring up a list of articles on the topic.

Brainstorming Ideas for a Niche

So how do you go around picking a niche? Well first and foremost sit down and assess what you already know. Your market and product research has probably highlighted a few areas that aren’t overly saturated (where there are few people competing for a finite number of buyers), you’ve considered the competition and have tried to see if there are any up and coming trends that you can jump on. So, realistically you’ve probably already targeted a few categories that might have some potential. Let’s take that research one step further. Brainstorm some lower level categories within these areas that may fall in line with your own personal interests and expertise. If there’s a fair amount of demand within the market for on-line shoes and the market still seems to be growing despite some big players vying for the top spot, drill down and see if there’s room for you somewhere special. Maybe you’ve got a penchant for groovy running shoes; perhaps you worked in a shoe store in your youth and have liked them ever since. Not only do you have a fair understanding of some of the challenges involved in owning a shoe business, but you also have a passion for the industry. This is important because if you’re doing something day in and day out, you do want to enjoy it. Moving forward with this particular example, you might consider targeting men’s retro running shoes and focus on several specific brands lines. The big players in the industry like Zappos.com may discount this offering because they aren’t necessarily going to want to get this focused and some smaller retailers might not have thought of it. Do this with each one of your researched categories and see if you can come up with a list of potential niches.

Niche Research

Now that you’ve developed a few ideas, go back and do some more research. Try and determine if your niche really stands a chance of being successful. The assumption is that there aren’t a lot of small retailers in the retro running shoe space, but before you get too deep into planning and building this business, you’d better make sure that that’s really the case. Also double check that there is a sufficient demand for retro running shoes. Search out competitors and see what they’re doing on their site, is there anything that they’re doing particularly well that you can incorporate into your business model? Take note of their selling techniques and the messaging they use to entice their consumers. It may give you some ideas if they’re successful. Also when looking at the niche, consider ideas of how you can deliver your products and services to this target market better than the competitors, be it through bundling packages, enhanced service offerings, or some other solution that you’ve come up with. Basically, examine the strategic advantages that you can employ to set you apart from the competition.

Research Tools

A couple websites that are useful when doing research are Google Trends and Compete.com. Both are free sites that you can check out and they’re a good starting point for some of your research. Compete.com is a competitive analysis site which allows you to enter in potential competitors names (up to three) and compare and contrast the web traffic that they receive to their site. It is quite useful as it allows you to make an assessment on the viability of the market, based on traffic levels to these companies’ sites. For example if you compare a big player in the market versus a smaller company that may be doing something similar to yourself, you can gauge approximate market size and whether or not the demand is healthy enough to sustain your business. Beyond that you can also examine how the smaller company is performing in comparison (to the larger one) and make assumptions as to whether they are capitalizing on the market (or not) by the volume of their site traffic. Google Trends on the other hand, is a good tool to assist you in evaluating market interest in items or topics. It assesses search volumes over time and allows for you to compare up to five terms in a graphic representation. It also monitors news releases on the subject and lets you break down your search volumes by region. The power of this tool is three-fold; firstly you can assess seasonality and determine the potential peaks and valleys in sales times (so you could hedge your product offering with something else that has opposite high times). It allows you to examine what’s hot in the market and perhaps lead the charge on a new trend, and finally by comparing multiple products with similar curves you can make assumptions about complimentary product lines and potential service offerings that would work well in conjunction with one another.

Assess the Potential for Profit

One final thought for you to consider, is that once you’ve found a niche that you think is promising; determine if you can make an acceptable profit. Notice the use of the word acceptable, you need to assess realistically what you think you need to make in profits in order to stay in this particular niche market (this is a highly subjective decision, what may be acceptable to you may not be to another individual). If you don’t think the market can support that, then you have either one of two choices, 1. Don’t enter into that niche 2. Try and see if you can broaden your offering slightly. Perhaps men’s retro running shoes are too narrow of a category, maybe you need to open that up and include women’s retro running shoes too. Research it, find it, love it. Good luck Niche hunting!