Why a niche is important for your online store
New entrepreneurs, especially those that gravitate towards dropshipping, all seem to have a common question: Should I choose a niche, or is a general store a better option?
For those not familiar, dropshipping is a business model wherein the merchant, or the entrepreneur, does not hold any physical inventory. Instead, the products are shipped from the manufacturer, supplier, or warehouse, directly to the customer.
The low up front costs of dropshipping makes it an attractive option for businesses of all sizes, however those low costs also lower the barrier to entry too, making it especially interesting for new entrepreneurs, that might not have as much disposable income to purchase inventory as an established business.
Typically, new entrepreneurs building these businesses group them into two categories: niche or general stores.
The categories are exact opposites of each other. One focuses on a specific target or niche. The other is without focus, carrying a general, and usually wide assortment of products. Some examples of a general store would be Amazon, or Wal-Mart. On the other hand, Apple, or Indigo would examples of a business focusing on a niche.
No niche, no problem. Right?
The potential benefits of the general store model are clear: a wide variety of products — something for everyone. And that’s true, but general stores aren’t without their own unique set of challenges.
Before anyone makes a purchase on your website, you’ll need to drive some traffic there — to get those potential customers to show up in the first place. Even if you build it, there’s a chance that they won’t come. This is a common oversight of many new online business owners. Unlike a brick-and-mortar retail store, your potential customer’s won’t see your sign in the window, on the drive home, or walking by with their dog. If you don’t market your business, there’s a good chance that no one will find it.
So, how do you market your business and drive traffic? With ads.
But that’s where things start to get a bit tricky. With most advertising platforms, each individual advertisement can contain only a few products, sometimes as many as ten. The more products you have, the more advertisements you’ll need to run to sell those products.
When you run an ad, on most platforms, for the first few days, the advertisement is spent in a learning phase. The platform will learn about your ad, keeping a close eye on behaviour, and how the users you are targeting are engaging with it. The platform will then use that data moving forward, to help show your advertisement to users within your audience that are most likely to engage with that particular ad, or complete the goal you have specified, like clicks, or purchases. That’s really great for ads that you’ll be running for a longer period of time, but the learning phase can sometimes take up to 14 days.
What about ad spend? It’s going to cost money to serve all these ads to your potential customers. How much needs to be spent on each ad? There’s a good chance that the customers you want to show an ad to have other companies that want to show them ads as well. So what happens if two companies want to show the same user an ad at the same time? Most ad platforms, like Facebook or Google, use a bidding system. When you’re creating your ad, and are determining your ad spend, you will likely see something about a bidding limit, or the maximum cost that you’re willing to pay to serve that ad.
Suppose that you and a competitor want to show your ad to the same user, at the same time. You have capped your maximum bid at $3. Your competitor has capped their maximum bid at $4. The competitors ad is what will be shown. They may not pay the full $4 (assuming there aren’t other competitors too), they just need to pay more than your $3.
Who are your competitors, anyways? Well, if you’re selling everything under the sun, you’re competing directly with giants like Amazon — a platform that actually does have a budget big enough to advertise all of their products, any time they’d like.
Especially as a new entrepreneur, Amazon is not a brand that you want to directly compete with.
Hold that thought, and let’s jump back to ad spend. Facebook typically recommends a minimum of $5 — $10 each day, for each ad. However, with more information about the bidding system in mind, you can see how it’s possible to chew through a $5 or $10 budget very quickly. Now consider that each product usually needs its own ad, and that each ad must go through a learning phase before you really know if your ad is working or not. The costs start to add up pretty quickly. And so does the data you’ll have to review too.
That low barrier to entrepreneurship that first made dropshipping so attractive has now been replaced by increased advertising costs, and more behaviour data than you know what to do with. I’m not saying the general store business model can’t work, but it has some significant challenges.
Honing in on a niche won’t be the answer to your problems, either, but it does have some serious benefits.
First off, you won’t need to compete with Amazon. You might think that you’ll be competing with Amazon no matter what you sell, and that’s partially true, but it’s deeper than that. Amazon’s value to customers comes from their massive product catalog, and fast shipping. When your business is focused on a niche, you won’t have a massive product catalog — not a wide assortment of one, anyways. Can you ship as fast as Amazon? Maybe, but we’ll get to that later.
Fewer products, and slower shipping. Can you tell me again, why this is going to work?
When you focus on a niche, you’ll have a much easier time connecting with your customers — building a relationship, which is really what business is all about.
Take Indigo, a Canadian bookstore, as an example. Sure, they have a few other products that you might use around the home, but books are their main focus. And, because of that, it’s the first place that comes to mind when I consider purchasing a new novel. Everything they do reolves around reading. It’s synonymous with their name, and defines who they are.
When you focus on a niche, and let your product define your brand, you have an opportunity to become an authority figure within that niche. A big fish, in a small pond.
Ads? It gets even better.
Let’s use a bookstore like Indigo as an example again. Suppose that you run an ad for a hot new mystery novel that has just come out. And, let’s suppose that a user clicks on your ad, but decides they aren’t going to buy that new mystery novel. Unlike a general store, there is a much higher probability that your customer might be interested in other books.
You might think, with a general store, there must be other items in the store that the customer will be interested in. And that’s true. But how will you know which other products to show them before they leave? The lines between your ideal customer and someone who has no interest in purchasing have been blurred. With so many products your customer won’t be interested in, it’s going to be challenging to show them the few that they will be.
Especially as a new entrepreneur, Amazon is not a brand that you want to directly compete with.
That’s where Amazon’s Prime membership really shines. With Prime, Amazon gets to collect data on each customer, building a detailed profile of them — even when they’re just browsing. But, unless you have a unique subscription or membership model in mind, it’s likely you won’t be able to collect such extensive data from your customers. Instead, the best way to do sell more effectively is to ensure that all your products already work together, no matter which ones the customer is looking at.
If you sell books, sell bookmarks, and reading lights. If you sell TVs, sell HDMI cables, BluRay players, and consoles. If you sell phones, sell cases, and chargers. You get the idea.
Why would a customer choose to buy from me over Amazon?
We still haven’t answered why anyone would choose to buy from your niche store over Amazon. Remember how we discussed becoming an authority figure within your niche? A big fish in a small pond? That’s the secret sauce.
I subscribe to a number of marketing newsletters from brands that I purchase from, or are considering purchasing from. But, I do not subscribe to any marketing material from Amazon, Wal-Mart, or any other giant.
The reason? I just don’t care what they have to say. And quite frankly, I don’t think they care much about what I think either. Their marketing — their voice — is so watered down to appeal to the masses that they aren’t really talking to anyone directly anymore.
Conversely, when I receive an email from Yeti, a cooler and outdoor drink-ware brand I’ve become quite fond of, I often read through it. I’m usually not disappointed either, and end up clicking a few of their links, and sometimes make an unexpected purchase.
How do they do it? They make sure I care about what they have to say. Their product is high quality. Their content is too. Quality has become part of their brand. It is now synonymous with who they are, and everything they do.
Now, when someone asks me about a high quality cooler, I recommend Yeti right away. I’m sure there are other brands making high quality coolers, and I’m sure plenty of them are on Amazon too. But Yeti grabbed my attention and kept it.
That’s what you need to do with your customers. Choose a niche, and really, I mean really build a brand around it. A brand that your customers want to build a relationship with. Become that authority figure.
Think of some of your favourite hobbies, or things that you purchase frequently. Where you do buy from? Why? If you are thinking Amazon, consider that maybe you aren’t in the same category as your target customer, which is an important possibility to be aware of.
You were saying something about fast shipping?
As entrepreneurs who aren’t totally in control of their fulfillment process, shipping can be a challenging aspect for dropshippers. There are a few things to bear in mind.
No matter what you’re selling, niche or general store, setting the right expectations with your customers is key. If customers know what they’re getting into before placing their order, then a few extra days of shipping time is rarely an issue. If shipping takes 2 days, customers want to know it takes 2 days. If it takes 2 weeks, they want to know that too.
Remember, business is all about building a relationship with your customers. When a customer places an order with your business, your business is essentially making a promise to that customer to deliver the specified products, by a specified time. Keep your promises, your customer’s won’t forget it.
Virtually none of the brands that I purchase from are able to provide the equivalent of 2 day Prime shipping. And that’s all right! I know I can turn to them for high quality products and next level support. They are experts in their industry, and have become an authority in their space. They know and do best. Fast shipping is just one of many avenues that can be taken to provide value to your customers. If your business is taking those other avenues to provide value as well, then shipping speeds are rarely as challenging as you might expect.