IN THIS CHAPTER

Narrowing your product focus

Figuring out which niche market has your name on it

When you start an online business, the Internet offers plenty of untapped markets for you to explore. These markets are segments within existing industries that have a lot of potential because they haven’t yet become saturated by sellers. You can certainly find this potential in niche markets, which are smaller, more defined segments of an existing market. In this chapter, we provide a few basic guidelines for working with a niche product and also show you how you can access these niche markets and sell to their loyal customers.

Deciding to Sell a Niche Product

When thinking about a niche market, imagine the market in terms of a pie. The whole pie represents an entire market — one that’s usually well established. But cut out one piece of that pie, and that piece becomes a smaller market on its own. Instead of concentrating on selling the entire pie, you narrow your focus to that single slice.

The pet industry serves as a real-world example. More than 65 percent of U.S. homes own a pet — that’s more than 69 million homes with at least one pet. As you might imagine, that number adds up to a lot of potential when it comes to pet-related expenditures. Pets do indeed represent a multibillion-dollar industry, with a record-breaking spend of more than $60 billion in 2015, according to the American Pet Products Association (APPA). Of that amount, the fastest growing sub-category is pet services, which includes everything from dog walking and pet sitting to grooming and training. With the largest year over year growth of 12 percent, pet owners spent nearly $5.5 billion on services for pets. The next two subcategories topping charts with the highest spend were pet supplies and medicine, and veterinary services, which combined totaled almost $30 billion. Within that total market is pet insurance, which is a much smaller, but growing, niche.

Pet owners spend more than $1,000 per year, on average, on veterinarian bills. Moreover, surgeries or the need to treat serious illnesses can cost more than $5,000 per procedure. Pet insurance premiums continue to rise sharply, in some cases at more than 15 times the normal inflation rate, often due to a vast amount of technological advancements in the vet industry. Even with the growing expense, insuring pets continues to be a big trend because the costs of surgeries and medicines are rising at an equally startling pace. However, fewer than 2 million pets, a very small percentage of the total pet population in the United States, are insured. These numbers show both a true demand and an opportunity for growth in this niche service offering.

To answer the demands of this customer base, websites such as Healthy Paws Pet Insurance (www.healthypawspetinsurance.com) and Petplan (www.gopetplan.com) offer online quotes and enrollment to pet owners. Pet insurance may be a relatively small piece of the industry, but for companies such as these, it also represents a significant amount of untapped potential. That’s a niche market.

Another example of a niche market inside a larger industry is a product segment within the coffee industry, referred to as cold brew coffee. The slow brew process that it takes to create the liquid, caffeine-infused treat defines this ready-made beverage. The overall retail coffee industry in the United States is nearly $48 billion, with specialty coffee comprising half of that market. Cold brew, originating in only the past five years, is so new that it’s hard to determine the exact market size, but conservative estimates show it growing 115 percent in just one year with sales of nearly $2 million. It continues to expand at record rates, and small brands like Jubilee Cold Brew (www.jubileecoldbrew.com) are among those companies capitalizing on the niche trend by selling their ready-made beverages offline and online (see Figure 1-1). The company got into the market early, but is now competing with national brands, such as Starbucks and Dunkin’ Donuts, that are also trying to jump into the cold brew market. We point this out to demonstrate that a niche market can be the equivalent of liquid gold for an enterprising online entrepreneur, but it can quickly become part of a highly competitive market.

As a small online business, you can enjoy the following advantages in a highly targeted market, especially if you identify the niche market opportunity early:

• Defined customer base: If you do your homework, you usually have no trouble identifying your customers. And because you’re dealing with a narrow focus, you can get to know your customers extremely well. You can respond to their needs and wants much more easily, thereby creating loyal customers.
• Customized messaging: With a narrowly focused customer base and product or service type, creating highly customized content is easy. You can craft website articles, blog posts, videos, e-mails, and ads that have specific and highly relevant content matched to your audience or customer. Creating this type of customized content not only helps in marketing to potential customers but also can pay off with SEO (search engine optimization) because Google displays results with content specific to the search someone conducts. We explain this concept in more detail in Book 6, Chapter 6.
• Bigger bang for your buck: Because you’re selling to a target group of people, you can stretch your marketing dollars further. Rather than invest in mass advertising, you can place less expensive banner ads on smaller websites that attract your particular audience. You also pay less for Google AdWords because you can use specific key phrases that may be less costly than general keywords (for example, expensive vet bills versus pets). Reaching a specific group of people using social media ads on Facebook or Twitter is also easier and less costly. Targeted e-mails and podcasts are definitely budget-friendly for sites of all sizes.
• Pursued specialty: When you provide products that are hard to come by, your customers often seek you out. In niche markets where there is less competition, the likelihood of people finding you online through organic searches increases. In other words, you can spend less in pay per click (PPC) advertising on search engines because your website may rank very high in search engine results.
• Positive word of mouth: Word-of-mouth marketing (WOMM) is powerful, especially in a tight-knit community of customers. When these niche buyers find a quality provider of products or services, you can bet that they will talk to everyone else in their circle of like-minded friends.

Not to burst your bubble, but you should consider these few disadvantages, too:

• Limited customer base: You’re marketing to a much smaller group of potential customers. If the number of prospective buyers is too small, you can quickly reach market saturation, in which the pool of sellers is enough to satisfy the pool of buyers. Reaching market saturation levels is especially risky if you have a product or service that is likely to result in a one-time purchase.
• Restricted product expansion: Finding new products to sell that complement your niche can be challenging. In a specialty market, you may find yourself stuck with the same product, even as sales begin to taper.
• Dreadful word of mouth: Suppose that you make a few mistakes as you start growing your niche business. The same word-of-mouth marketing that could have been quite advantageous now becomes a killer. Because your customer base is small, negative comments can do a lot of damage to your site’s sales. And the widespread use of blogs and community boards makes it especially easy to spread the negative online word to a connected community of buyers.

To offset bad word-of-mouth marketing, be even more aggressive in quickly resolving customer complaints. Follow up every order with a personalized e-mail. Invite customers to share the results of their online shopping experience with you. Become active on social media and engage with and respond to followers to create positive (and public) customer interactions. If a customer has a problem, your attention to him or her (even after the fact) mitigates the damage, and this attention often redeems you in the eyes of your customers.

The disadvantages shouldn’t deter your plans for a niche business. The benefits far outweigh any of the minor risks involved. But those risks give you all the more reason to be thorough in selecting the right niche to pursue. After all, if the interest hadn’t been there, pet insurance could have bombed. Instead, the timing was right, and this niche has left animal lovers begging for more.

Finding Your Niche

Almost every established industry has a single piece of pie waiting to be divvied up. When searching out your online niche, here are some general guidelines to follow (to help you remember them, notice that the first letter in each term spells out the word niche):

• Notice: All too often, niche markets are in plain sight — ripe for the picking. Some people see them, and others walk right by. So, stop and pay attention to your personal interests and those of your friends and family. After all, you’re consumers. Take a look at which services or products you want or need that larger companies aren’t providing. Watch for new trends, too. Find out what people are talking about, and determine what’s hot and different right now. Trends are often predecessors to an emerging niche.
• Investigate: If you think you’ve hit on a great idea, it deserves an adequate level of attention. Research the larger market from which your niche originates, and determine whether it’s a growing market. Check annual sales and identify top performers (the large companies) in that market. Find out what analysts and researchers are saying about possible spin-off segments of the market, and determine whether these industry experts have spotted the same niche that you noticed.

• Competition and customers: As with any other market, you have competitors in a niche. Do a little digging to uncover how many others are already servicing the market. If you have zero competition, you may want to reevaluate the demand.

  Put your prospective customers under the microscope, too, and find out who they are. Be specific. Note whether they’re single men with dogs, for example, or working mothers with young children. Figure out their preferences, current buying habits, and available income. The more you know about the people you’re serving in this niche, the better chance you have of successfully marketing to them down the road.

  Find out whether your competitors are catering to only that particular niche or whether it’s just one more piece of their overall businesses. If your niche is only a piece of the competitors’ pie, you have a possible advantage. You can specialize in the niche and become the expert.

• Hypothesize: Before you launch your niche-focused site, you need to test your theory. Maybe you developed the perfect product. It answers a definite need, and research shows that there’s money to be made. To be sure, you have to test, test, test. Conduct small samples to find out whether people are truly interested. You have to know whether they’re willing to pay for it, whether it answers their needs, and whether they’re ready to buy from a new online resource.
• Execute: Create a solid plan for selling to your niche market. Sometimes, reaching this type of customer proves to be more difficult than marketing to a broader customer base. After all, you’re talking about highly targeted and specific customers. Not only do you have to work harder to locate them, but one misstep in your marketing efforts can also destroy your credibility. An effective selling strategy clearly communicates how your product answers a specific or unique need for that niche customer.

Niche customers are often quite knowledgeable and passionate about the niche that your product or service addresses. Can you speak their language? Talking the talk means being up to speed on current terminology, hot topics, and issues of importance.

Draw in your customers by providing timely, informative content on your website that supports the products and services you offer for that particular niche.

The Internet definitely provides an exciting opportunity to sell to a niche market, and often the opportunity is right under your nose. Many online entrepreneurs stumbled onto a niche market out of sheer necessity. In some cases, the market lacked a product that provided a much-needed solution. In other instances, a niche market started because an existing industry or market changed as the Internet matured. To stay ahead of the game, entrepreneurs identified smaller segments within their markets that weren’t being served.

Tutor (www.tutor.com) is a shining example of how a need for a product can carve a healthy niche from a larger existing market. The e-learning, or online, self-paced learning market is expected to experience 18 percent year-over-year growth. Within that larger online learning market are lots of subcategories, including the kindergarten through 12th grade (K through 12) market. Both consumers and governments spend billions of dollars for products and services that focus on K through 12 students. And within that category is another emerging niche — online tutoring. Given the market size, the rising cost of college, and an increased emphasis on students obtaining academic scholarships to offset tuition, there are lots of reasons to be in this segment of the educational market. Tutor is a company taking advantage of that niche demand by providing online tutoring services for students. The website sells its online learning and tutoring services, in blocks of time, to parents and students all over the United States. Students aren’t the only ones benefitting: Tutor has learned the value of launching an online business in a lucrative niche market!

How can you follow the example of companies like Tutor and Jubilee Cold Brew and identify early emerging market trends? The following companies offer e-newsletters and other online resources that track trends and future niches to help get you started carving a nook for yourself:

• CEB Iconculture Consumer Insights: www.iconoculture.com
• Pew Research Center: www.pewresearch.org
• TrendHunter: www.trendhunter.com
• Small Business Trends: www.smallbiztrends.com
• TrendWatching: www.trendwatching.com