Is Your Niche Profitable? – Part One: Competition

Scrolling through my email, I found an article from a couple years back, written by Derek Gehl (famed Internet Marketing whiz). In it, he outlined a series of questions that Internet Marketers need to ask themselves before pursuing a market niche. As I read on, it became clear that this series of questions applied to any business owner, not just internet marketers. Not every niche is profitable – and not every profitable niche will stay profitable for the long term. What can you do to build a profitable business in a niche strong/big enough to keep you afloat? Here’s my take:

Competition

Competition is a sticky wicket that’s not always easy to discern. When you look at indirect competition (similar product or service, different niche) as well as direct competitors (exactly the same niche, product and/or service), you can pull your hair out trying to determine how you are unique in the marketplace. What it really boils down to is opportunity costs vs. value. Customers have to choose one way or another. You objective is to present a value proposition that makes it easy for the customer to give what I call the affirmative buying decision to YOU, and no one else. Because when it comes to money, there’s more than just your niche competing. There’s the day care, the health club, the tax man, and a host of other people. There’s only so much money to go around, and your client has to decide where every penny goes. Before competitive businesses are even in the picture, they need to know that your offering is a valuable asset and worth the investment of their hard earned cash. In that respect, you are competing with EVERYTHING. On the other hand, what makes you valuable and unique could be so different than anything else that’s out there that you’re really not competing with anything. See how vexing this can be?

A client of mine is building an online herb shop. She has many of the same products that can be bought other places. However, because some of her herbs are wild sourced – and limited in quantity – she can charge substantially more for those products. These herbs become her flagship products – even though they’ve got very limited availability.  So on one hand, she’s competing with every other herbalist online, but on the other, she’s got a unique, hard to find, in demand product with which no one can compete. Either way, her potential clients still need to decide to spend that money on herbs in the first place, which is what complicates the whole “competition” discussion.

Suggestion: Look for ways to be distinctive in the marketplace, but remember that ultimately it comes down to the value your customer sees in making the investment in the first place. Here are my formulas for value and disappointment:

value = (client expectations) + x – (total client investment)

disappointment = client results – client expectation (when the value is negative, the disappointment is greater)

Your job is to keep disappointment low and value high. That’s part of the equation for customer loyalty.

But here’s my big take away: You have to do what moves you. If you want to be the 1,003rd shoe salesman on your block, it may be hard to run a successful business. Then again, your passion and commitment to offering high-quality shoes at with a value proposition that’s second to none may be just the ticket to your success. In my own community, Walgreen’s has a habit of moving in across the street from Rite Aid. Within a few months the Rite Aid closes up shop. I’ve not researched it, but I’m sure Walgreen’s doesn’t do this by accident. They know they’ve got a viable market (or Rite Aid wouldn’t be there in the first place), and they believe they can offer a better value proposition than their “competition” – and they must be doing something right.

Who am I to say you can’t be the Walgreen’s of your niche? You can totally do that. It happens every day.