Profitable Niche Market Anatomy

Anatomy of a Profitable Niche Market

If someone wants it, needs it or has to get rid of it, you can make money from it. The real question is, what is “it”?

While it’s possible to make money at almost anything, this guide will focus on the problem of picking a profitable niche for an online eCommerce website. So in this article, when I say “eCommerce,” I mean a website that sells and ships physical products to customers. You may not stock the products yourself, i.e. you may use a dropshipper, but you will promote, sell and arrange for delivery of the product via your website. In other words, the person buying is YOUR customer. You are not passing them to another company as in the case of affiliate marketing.

• For a niche market definition see, What is niche marketing?

So, just what is the anatomy of a profitable niche?

Find a Niche with Added Value

Firstly, consider what you are NOT doing with your online shop! You are not giving your customer that all important TACTTILE feel for the product you are selling. All products sold online, even physical goods, are really information products.

Secondly, if you are not the manufacturer of the product, you are selling a commodity. This means, your customer can probably buy the very same product from many other suppliers. So why should they buy from you?

• A word of warning: If you’re intending to compete with the likes of Amazon on price, quit now. You are almost certainly doomed to failure.

So how can you sell a commodity online and make a decent profit? The answer is, find a niche with added value where your can add value to the sale of the product. The best way to find a niche with added value, is to pick a niche where you can solve your customers pre and post purchase problems by educating them with superior information and content.

• Pre-purchase: Provide the information they need to make the purchase.
• Post-purchase: Provide the information they need to buy those all important add-ons and get repeat custom.

Ever tried to buy a high end car radio or “in car entertainment system” as they are now known that you can fit yourself? A search on the Internet will result in thousands trying to sell you the product but I only found two sites who also had instruction and a video demonstrating how the task could be accomplished.

The vast majority of retailers (on or off line) only address the problem of supplying a radio. The ones I research had the equipment, many with highly competitive prices, but most had terrible descriptions, poor pictures, no audio/video demos of the product and they never even considered how the unit was to be installed let alone provide any form of instruction.

• So, find a niche with added value, by understanding your customers problems and by providing the resources to help resolve those problems.

Premium Prices

Answer this conundrum: Two restaurants provide the same menu selections. One restaurant has consistently, twice as many customer as the other, even though it charges three times the price. The food is the same. So why would someone pay premium prices for the same product? Could it be the décor, the presentation, the service or all of the above?

• By providing value to your customers you accumulate lots of goodwill. People WANT to repay those who helped them. They will be happy to pay premium prices.
• By providing informative content, you establish yourself as an expert in the field – and people like dealing with experts.
• Find a niche with added value and you will also be able to charge premium prices.

To charge premium prices for your products, you need to offer added value to your customers. That added value is your expertise, clarity and the product information you provide to your customers to help them make an informed decision.

To maximize the added value we want to look for niches that:

• Confuse customers.
• Require multiple components.
• Require complex installations.
• Have confusing products lines (if you want to see a confusing product line try, Adobe).

The more complex the product the greater the chance you have to show your expertise and answer your customers questions. Expound the virtues of the product to your customers, show how the product meets their needs. If the product has a weakness, tell them. The more they perceive your expertise, the more likely they are to pay premium prices.

Complex and Confusing Products

Any product requiring multiple components, permutations or solutions is invariably confusing, especially for new customers in particular. Once again, if you can clarify the needed solution you’ll be adding significant value to the product.

Products with multiple components might include:

• Accounting packages. Explain which components may be required: sales, purchasing, invoicing, payroll, multiple bank accounts, cash books, job costing, etc.
• Car components: Explain the difference between manufacturers body panels, sensors, braking systems, fuel systems, air conditioning units, etc.

Require Complex Installations

How many people (not computer geeks) do you know who could install a Sage Accounting package on their computer? How many people know how to install a Patio Window? How many people know the best and simplest way to remove fleas from their animals?

Complex products requiring specific procedures for installation or usage by the purchaser are ideal for adding value. Even something as simple a dying ones hair if not completed as per instructions have dramatic ramifications.

Offering an exclusive step-by-step illustrated guide for your niche (available only with purchase, of course) is an incredible way to add value and justify charging a premium. For ongoing tutorials you may wish to consider installing a membership site such as Wishlist Member. Get this right and you will make lots of money.

• Premium pricing for membership with recurring payments can be very lucrative.

Target the Right Customers

• All customers are not created equal.

Targeting the right customer is of paramount importance. So who is your target customer?

Passionate

It’s incredible how much people will spend on things they are passionate about.

• Car aficionados will think nothing of spending £20K on restoring a car they bought for £50.
• Yachtsmen will upgrade their crafts with the latest equipment every year.
• Gaming fans always want the latest and best equipment and games.

If you can find a customer base that’s passionate about their hobby and then offer products and value to those enthusiasts, you’ve got a great chance for success.

Desperation

Can you help someone with a serious problem? A multi-millionaire recently spent everything he had trying to cure his terminal condition. Those in desperation don’t care about the costs involved in resolving their problem. If you can provide viable solutions for those who have a pressing problem you’ll definitely be able to make money.

Demographics

Sex, age and location. All three of these are important to consider and can have a dramatic impact on your profits. Men and women have very different shopping habits. A persons age determines their spending power. Location, is important, domestic is best. Do your research, use Google Insights.

Target the Right Products

When it comes to selling products online, certain characteristics will increase your chances of success.

Price Point

Selling at the right price point will determine your best profit margin. Is making 10% on a £100 item better than 50% on a £20 item? It all depends upon the quantities sold, the repeat orders and the after sales support required.

• Note: the higher the price the greater the requirement to speak to a “real” person prior to purchase and the greater the need for after sales support.

Sales Volume

In most cases, you’ll sell significantly more items priced at £10 than £1000.

• In general, as the price of an item increases, the conversion rate decreases.

Marketing

Loyal Customers

If customers do not visit your store you may as well pack-up and leave.

• No customers means no business.

One of the best marketing strategies available for any store, is a sterling reputation. No marketing tool is as effective as a happy, vocal, loyal customer. Word-of-mouth referrals are the most powerful form of marketing.

Content Creation

Generating good product reviews is one of the pillars of creating a value-packed, information rich website. Customer testimonials are also very important. Just look at the testimonials on Amazon.

An ideal way of providing this information is through a blog, membership site (see Wishlist Member) or via a forum.

Product Accessories

Large-ticket items tend to have much smaller profit margins. A laptop probably has a mark-up of less than 10%. The HDMI cable bought with the laptop probably has a mark-up of 400% or more.

• Accessories, enjoy HUGE mark-ups.

So, which area of the market are you going to enter? High priced, low profit margin products (<10%), low priced high profit margin accessories (100% to 1000%) or both?

Selling products requiring lots of accessories is very lucrative when you’re also selling the accessories. Some retailers sell the high-end product at zero profit just to get repeat orders for the accessories. Look at the retail price of some ink-jet printers compared with the price of the accessories such as ink cartridges. Accessory rich niches are a GREAT way to make money.

Quality Manufacturers

Select a niche that has at least one (preferably more) well-known manufacturer with excellent, quality products.

• Quality manufacturers will provide product specs and pictures.

The better the information you can provide your customer the more likely you are to make a sale. A respected brand name will help drive sales.

Follow Your Passion?

Have you heard the phrase, “Just follow your passion and you’ll be successful”. It’s usually found in literature spewed out by so-called gurus. Unfortunately, the statement is wrong.

• Whilst passion is important, there is no correlation with success?

Do you think millionaires make their money from being passionate about their product or from the amount of effort they put in to the quality and marketing of their product? Always, always, make sound business decisions about you niche based on research, not passion. When you become an expert in your niche you will probably find your motivation and passion for your chosen niche also increases. That’s okay.

• Do you need products for your niche marketing efforts? If so try these recommended dropshipping wholesale suppliers, wholesale liquidators and directories.