Experts in e-commerce know exactly: Trading within a market niche offers extensive advantages compared to serving mass markets: First of all, the reduced competitive pressure leads to stable and profitable price structures and thus to sustainably high profits. Despite its niche position, the Internet offers optimal opportunities to reach a large number of interested consumers.
The positive positioning of own offers with the search engines is much easier in a niche area than in a mass market. Ultimately, specialisation in a clearly defined specialist area ensures increased trust between customer and dealer. Any newcomer who is inspired by the idea of developing his company from newcomer to market leader within a manageable period of time can generally only achieve this in a niche area. The established suppliers on the mass markets have already been expanding their market position for a long time and are usually no longer able to catch up with newcomers.
One of the main reasons for the failure of young companies in the online trading sector is the inadequate capitalisation of newly established companies. Clever founders strive from the outset to achieve a manageable cost structure and a realistic assessment of the initial course of business. The DropShipping business model has proven to be particularly promising. By eliminating the need to purchase goods at one’s own risk and dispensing with storage space and logistics personnel, both start-up and operating costs are comparatively low.
In the following, we would like to introduce you to the advantages of trading in niche markets and explain to you why a combination with the purchasing and settlement system DropShipping is so advantageous in this trading area. We will discuss the great potential in e-commerce of our time, identify the main reasons for the failure of young online companies and explain how to find market niches and fill them with promising concepts.
You will learn why trading in niches helps to build trust between your customers and you, how you can place your own offers advantageously with search engines and how you can benefit from the comparatively high profit margins in niche trading. Using concrete examples, we will finally report on why niche trade and drop shipping complement each other ideally and how you can optimally combine the advantages of both systems.
Online trade in Germany is booming and achieves excellent forecasts
Online commerce has emerged as one of the winners of the global economic crisis. Like hardly any other sector, it was able to show moderate growth rates even in the main crisis year of 2009 and to expand further in 2010. One of the main reasons for this is the growing willingness of German consumers to buy their goods via the Internet. While more and more citizens are taking advantage of the opportunities offered by the new media, mistrust of shopping by click has decreased significantly. Following this trend, more and more online retailers are pushing their diverse business ideas into the markets and presenting products and services online.
A distinction can be made here between companies that have extended their originally classically oriented business to the World Wide Web and those whose companies were founded specifically for online trading. An entry into the sale of goods on the Web is nowadays almost barrier-free possible. The required resources and technologies are available to any interested founder free of charge or for a small fee. Modern trading models such as drop shipping make it possible to set up a trading company even with limited financial resources.
While the situation on the labour markets motivates many people in Germany to think about self-employment as an alternative to dependent wage labour, the entry into online trading is becoming increasingly attractive. Any attentive observer will quickly realise that the diverse areas of e-commerce are far from saturated. Many experts expect that the actual boom in online trading is still ahead of us. Accordingly, there is great interest in setting up one’s own business in this area. As positive as the possibilities and forecasts are: Independence in online trading also entails risks that must be taken into account.
The reasons for the failure of young online businesses
If we look at the market for start-ups in the e-commerce sector and follow the results of young companies during the first years of their existence, we see that around a quarter of the companies concerned do not survive the third financial year. The reasons for premature failure can be divided into different groups. On the one hand, many young entrepreneurs cease self-employment after some time because the daily workload, the stress and effort associated with the work or the profits that can be achieved do not correspond to their original expectations.
Before setting up a business, young entrepreneurs should endeavour to gain as accurate a picture as possible of what they can expect from self-employment in e-commerce. On the other hand, the failure is linked to the lack of viability of corporate financing. Even if entrepreneurs opt for a comparatively inexpensive start-up, the start-up costs are often underestimated and the attainable revenues during the first months of self-employment are often overestimated.
Every founder has to deal comprehensively with the preparation of a reliable and practice-oriented financial plan before the actual initiative takes place. This is the only way to prevent deficits from arising due to misconceptions, which can quickly bring a young company to its knees. If you have only limited capital at your disposal and still want to start your own business as an online trader, you should take a detailed look at the possibilities of drop shipping in order to keep your start-up costs and risks as low as possible.
Practice shows that the chances of survival of young companies with strong specialisation in a clearly defined product area increase significantly. If a niche market with few competitors is chosen, the prospects for business success are further improved. Combining both models, i.e. drop shipping and niche trading, significantly reduces the risk of failure for newly founded companies. As a result, start-up costs are kept as low as possible and market opportunities are increased right from the start by selecting a suitable niche for particularly interesting products.
Niche trading instead of mass market: especially recommended for beginners
It is much easier for newcomers to e-commerce to establish an existence within a market niche than to venture into one of the flourishing but already strongly occupied mass markets. One of the main reasons for this is the reduced competitive pressure, which above all facilitates the entry into online trading. If you are dealing with only a few competitors, it is not so difficult to analyze and understand their trading structures, strategies and pricing policies and to position yourself accordingly rich in opportunities.
For example, the price war between market participants in a niche market is usually less pronounced than in a mass market. For individual traders, this is associated with higher profit margins, which help to overcome financing gaps, especially at the beginning of a professional career. It is also easier to develop a market-oriented product range in the niche trade, since it is easier to identify and take into account the target groups and their needs.
Especially important for the initial success in online trading is the best possible positioning of your own offers in the search engines. Here everyone can imagine that a good ranking at Google & Co. can be realized all the better, the less competitors are involved in the fight for the top places. Ultimately, prospective and new online merchants will be quicker to forgive their starting mistakes in a niche market than they are in a mass market. This is mainly due to the lower level of public attention, which allows those involved to make the one or other mistake without the good reputation having been immediately compromised.
Niche markets are less hectic, less stressful and less under pressure to perform than the well-known mass markets. Beginners in online trading will discover a platform here where they can try out concepts and test strategies in order to significantly increase their performance through their own experiences.
Discover market niches and fill them cleverly
The prerequisite for trading within a market niche is to identify product areas that have so far been poorly represented. For many prospective traders the reflection on their own interests, hobbies or previous knowledge helps. Those who use their personal preferences to derive a sales area in online trading from them will benefit in several ways.
Initially, founders are quicker to recognise the potential that lies in a niche area to which they themselves belong. Here they benefit from the experiences and impressions that they themselves have been able to gather as consumers. If, for example, you are interested in a special music genre, pursue an unusual hobby or belong to a certain scene, you also know the associated markets quite well and can estimate more quickly which types of offers can be placed advantageously in the corresponding environment. Furthermore, members of niche areas usually have a very clear and above all accurate idea of the potential target group. They know the needs of the respective consumers, are familiar with the factors that cause annoyance or frustration and know where to find their target group on the Internet.
Also with regard to the conception of attractive assortments, people who cultivate a corresponding interest themselves usually have it easier. This makes it much easier to track down current trends and select the best and most sensible products possible. Ultimately, members of an interest group also find it easier to present products and communicate with their customers. Those who deal with products that interest them themselves have better prospects of reaching and convincing their target group with their product presentation. Of course, it is also easier to answer consumer questions when you are at home in your own range.
Once you have discovered a potential market niche, however, you should first check how strongly it is already represented in the markets. Research via the Internet helps considerably in this respect. Which suppliers are already active on the corresponding market, at which prices and conditions do they offer their products and which possibilities do you have to sell the corresponding articles at comparable or even cheaper prices? If such a research leads to a positive result, then one should not hesitate long to put the business idea into practice.
Step by step to become an expert in your own trading area
Those who offer their products within a promising market niche present themselves to their potential customers from the outset as experts in their own trading area. Manageable and clearly defined product ranges, which have been consistently geared to special consumer wishes, offer a wide range of possibilities for documenting competence, expertise and expert knowledge.
This already starts on the start page of the online shop. Here, niche dealers can address their clearly defined target group from the outset in such a way that it becomes clear that they are dealing with a specialist who knows what he is talking about. In addition to general information in the start area, the structure of the product navigation also shows that you are dealing with an expert who does not find it difficult to define meaningful categories and subcategories that are exactly tailored to the selected product area. In addition, the concrete product presentation offers ideal opportunities to position oneself as an expert.
Anyone who answers numerous questions about the properties of the products, their technical data or their compatibility with other products in the product description clearly shows that they are familiar with an assortment. At this point, competence creates trust and ensures that new dealers also have a good chance of convincing their potential customers of their own capabilities.
Use in the trade within a niche but not only the standardized elements of shopping sites on the Internet. Rather, offer your visitors clear added value by offering general information, advice, specialist articles and practical tips. These strengthen the perception of your competence and serve a consistent building of trust between your customers and you. In this context, always make it clear that service and advice do not end with the conclusion of a sales transaction. Instead, offer your buyers the option of contacting you with questions and problems at any time after they have made their purchase. Remember that followers of special hobbies and interests are usually in close contact with each other. If you are recommended here as an online trader, this will bring you more customers and therefore more sales.
Google & Co. like market niches very special
An essential success factor in online trading is the position of shopping offers in the relevant search engines. Most consumers start a product search on Google & Co. and choose their favorites for a purchase among the first search results that are displayed to them. To place one’s own offers here as well as possible has therefore the highest priority for success-oriented beginners in the online trade. Here one can easily imagine that it is much easier to achieve a good ranking if the number of competitors and competitors is rather manageable.
If, for example, one tries to reach a good position under such general terms as “television” or “mobile phone”, this is not possible without the use of considerable means of communication. If you instead offer a special aquarium pump, a special diving accessory or a spare part for a special technical device, the low competitive pressure immediately helps you to a better position. Although a good Google ranking is easier to achieve in niche areas than in mass markets, it is not without effort. If you don’t optimize your product pages for the search engines, you have little chance of being found here later.
Use the Internet to research the most important search terms and search phrases for your product area and focus above all on your product texts when implementing advantageous search engine optimisation. These are decisive for the search engines when it comes to assessing how relevant your information and offers can be for interested consumers. Limit your search to a maximum of one or two keywords per product page, otherwise the search engines will rate their relevance lower. Do not only work with internal measures and methods but also make an effort to ensure a good link structure. If you manage to link recognized and well positioned websites directly to your products and your shop, then you have already achieved a lot in terms of search engine optimization and will immediately see the results of your efforts in the form of higher visitor numbers on your pages.
From beginner to market leader: a good opportunity for niche trading
No matter how small you start your own online trading: The objective of almost all Internet salespeople is to obtain the most advantageous market position possible or even to become the market leader in their own product area. The less your product area is represented on the market so far, the better your chances are of achieving a good market position within a comparatively short period of time.
Anyone who tries this in a mass market is exposed to extreme competition from the major suppliers in the industry, which is almost impossible to win with normal means. The big traders on the Internet do not only have the opportunity to invest considerable financial resources in an optimal online marketing. Most of them have been present in the relevant markets for years and have a clear advantage over new market participants and newcomers.
If you opt instead for a niche area in online trading, your chances of market leadership are much higher from the outset. Here you can get an overview of your key competitors within a very short time. Observe your competitors and get an idea of the strategies, concepts and techniques with which the individual providers work. Let yourself be inspired by the methods of your competitors and strive to improve what you have observed and recognised within your own work.
Remember that market leadership is not possible without an excellent reputation with your customers. Against this background, optimal customer service must always be the focus of your efforts. Only if your customers are so enthusiastic about your offers and your service that they would like to return to you for further purchases and actively recommend your services in their own environment do you have the opportunity to work your way step by step to the top of the market.
ext-align: left;”>A further prerequisite for a leading position in your niche market is the permanent maintenance and improvement of your product range. Those who are satisfied with what they have achieved will quickly lose the connection to more active providers. Good product ranges must react quickly and consistently to trends and new developments in your market environment. Those who have accustomed their customers to the fact that they are always provided with the latest information in the respective subject area on the shop pages will generate more repeat visits and correspondingly higher sales rates as a result.
Rich profits through high margins with low competition
Online merchants in mass markets are subject to an extreme price war. Since mass markets are represented by a large number of large suppliers, unbeatable special offers and promotions are the order of the day here. The large retailers purchase considerable quantities of products and often purchase them directly from the international manufacturers. By favourable purchasing conditions but also by mixed calculations and subsidised sales, such suppliers can significantly determine the prices on the market and quickly bring smaller competitors to their knees.
Whoever instead engages in a niche market meets a limited number of competitors and usually has to deal with smaller suppliers. The result is a stable price structure, which enables the retailer to make comparatively high profits. Those who consistently use this potential can realize higher profits per sale and thus achieve an improved business result. The higher the profit per sale, the lower the effort involved in handling the day-to-day business. This has a direct impact on medium and long-term operating expenses. Those who achieve their necessary profits with as few orders as possible can limit the required personnel to a minimum or even completely dispense with employees.
In addition, a stable price structure ensures improved planning capability. If prices fluctuate in one product area, it is almost impossible for the entrepreneur to make accurate forecasts for the near future. If market prices fall and the company’s own price also has to be lowered as a result, the business result also drops. If, on the other hand, prices remain largely stable, accurate forecasts can be made about the further course of business, which help the entrepreneur to steer his company safely and soundly.
DropShipping and niche trade: a special combination
The foundation of an own company is carried out by young founders with a good portion of enthusiasm, ambition and diligence. Although these are all prerequisites for a successful start in self-employment, the early phase after the opening can only be survived and mastered if costs and income are in the best possible relationship to each other. Particularly in the start-up phase, start-up costs and current expenses must be kept as low as possible. At the same time, revenues should flow as early as possible and ensure sufficient profits to finance the company.
If one examines the reasons that lead to the failure of young companies in Germany, an insufficient supply of liquid capital takes first place. Too scarce reserves, especially at the beginning of one’s own independence, ensure that even minor crises or the failure of original forecasts lead to dangerous situations. In order to significantly improve the starting chances, it makes sense to skilfully combine the concepts of drop shipping and niche trading.
Drop-shipping prevents an initial assortment from having to be purchased in advance. Such an advance purchase not only burdens the finances of the young company but also harbours considerable commodity risks. New entrants, in particular, cannot draw on experience in the saleability of certain products and risk remaining in unsaleable positions that create a deep gap in corporate financing.
If the goods are instead procured by drop shipping, the high costs for the acquisition of the company’s own inventory are eliminated, as the goods sold remain with the respective supplier until they are finally sold. In addition, young entrepreneurs who rely on drop shipping do not have to set up their own warehouse and logistics structures. This not only saves space costs and expenses for the furnishings but also enables operation without or with very limited personnel.
Once the initial conditions have been considerably improved by the decision to opt for drop shipping, concentration on niche markets serves to ensure the fastest possible market entry with numerous advantages. Niches can be quickly identified and checked for their suitability for the market with comparatively little effort. Also the placement of own offers with the authoritative search engines is strongly simplified against the background of the small competition. Within a comparatively short period of time, it is thus possible to direct consumer interest to one’s own offerings and to achieve the first sales at short notice.
Suppliers in niche markets position themselves specifically as experts in their own product areas and thus gain the trust of their potential customers more quickly. Especially for newcomers to online trading, who initially do not have a public reputation and a well-developed clientele, confidence building is an essential factor for business success. It is also advantageous that niche markets are characterised by a stable price structure. In this way, medium- and long-term planning can be made without there being any danger that large providers with extreme special offers will influence prices in the short term.
If DropShipping and sales within niche markets are consistently combined with each other, sustainable and promising companies with good prospects of immediate success emerge as a result.
Examples for reasonable combinations of DropShipping and niche trade
Drop shipping is still much less widespread in Germany than in the USA, for example. Nevertheless, this form of trade is currently on the triumphal march through German e-commerce and is constantly finding new followers. Almost every product can be obtained with some research and negotiation skills via DropShipping. Particularly suitable are products that are rather large, bulky and expensive. Wholesalers and manufacturers are already used to delivering directly to end customers. These suppliers do not need to be convinced of the benefits of drop shipping, as they have been practicing this form of trade for many years anyway.
The more expensive the product, the greater the profit that can be achieved with the sale. Those who manage to cover their running costs by selling just a few products can keep their corporate structure small and manageable in the long term. If the entrepreneur also opts for a niche market, he can also book its advantages for himself and the young company.
A good example of a sensible combination of drop shipping and niche trade is the sale of garden houses via the Internet. Dedicated dealers can offer their customers an enormous range of different models to choose from. By using DropShipping, these do not have to be purchased in advance but remain with the respective supplier in a cost- and stock-saving manner. An own warehouse is as little necessary as an own staff of warehouse and logistics personnel. Whereas garden houses in Germany are generally offered mainly as a by-product of DIY and timber markets, a specialist trade specialising exclusively in small outdoor buildings is inadequately represented.
Against this background, it is comparatively easy to gain a good position in search engines as a provider. Ultimately, a shopping site especially for garden houses offers optimal possibilities to offer the visitor a great added value in the form of information. Here, for example, you can report on the minimum size for which a building permit is required for the construction of a garden house and how this can be easily applied for. Also tips and references for the structure and the care of the garden houses will draw the interest of numerous consumers on itself and have good chances on a high-quality position with Google & Co.
Corresponding information offers convey a great deal of competence and thus ensure a great deal of trust between the dealer and his customers. This example can be applied to many other product areas. One thinks here of the trade with carports, prefabricated garages, whirlpools or also the sale of furniture and other bulky objects. Depending on personal preference, a promising niche area can be quickly identified here.
Our practical tip for niche trading with DropShipping
If you are currently in the planning and start-up phase of an online trading company, you should think about both drop shipping and niche trading. If you want to significantly improve your chances in the market, you can combine both concepts into a promising overall strategy. For the development of a sustainable business idea a promising niche should first be sought. Here, the founder can initially fall back on product areas that are directly related to his own interests, hobbies or previous knowledge. Already at the selection stage it should be taken into account that the planned products can be handled by drop shipping.
Large, bulky and expensive products are particularly suitable. Once the product area has been found and a market analysis has shown good sales prospects, the search for suitable suppliers can begin. First, consider companies that are already active in the field of drop shipping. They do not first have to be convinced of the advantages of the trading model. Negotiate with the selected partners not only the pure purchase prices but also actively address the conditions and the procedure in case of returns, complaints and warranty cases.
Even if the selected product range is not particularly susceptible to returns, it will still happen from time to time that a customer withdraws from the purchase. If no concrete agreements have been made with the supplier in this case, high costs can quickly arise which reduce the profit from the successful sales.
By skilfully combining the concepts of drop shipping and niche trading, you significantly increase your chances of a positive market entry and sustainable good business and benefit from the numerous advantages of both strategies.
DropShipping can play out its strengths particularly well in some trading areas, as can be seen from our comments on niche trading. In our next guidebook you will learn how to become a DropShipper from the Trade with large and bulky products can profit from.