In "Multichannel Selling a Necessity," I addressed the need for ecommerce merchants to utilize multiple selling channels because that is where the customers are. In this article, I will focus on matching your product strategy to the appropriate channel.
Niche vs. Mass Market
In marketing, there is a product continuum from "niche" to "mass market." If you have a large market share selling niche products, you likely realize good margins and have a viable business model. Your volume of sales is probably less than a mass market reseller, who likely sells more products in higher quantities. But your gross margins are likely higher.
The mass market reseller has a much larger target market. The drawback to the mass market segment is that gross margins tend to be very slim. Nonetheless, mass market retailers with a high market share also have a very viable business model.
The companies that typically struggle fall somewhere in the middle. They end up in feature and price competition with mass market resellers. At the height of a product lifecycle, when the demand is highest, all retailers — niche and mass market — promote the same item. You see this every day on Amazon, where the price competition is intense. There are many price changes done on Amazon.com every hour by thousands of vendors on mass market items.
Retailers of niche products tend to target a smaller market segment and frequently offer features that are not found in a mass market product. They tend to be higher priced, sold in more limited distribution, and branded. Niche products lend themselves to specialized stores that understand their customers and are able to develop loyalty to their store brands.
Travel Products: Niche vs. Mass Market
Consider travel products as an example. RedOxx.com is a fast growing retailer that manufactures its own line of rugged, high end travel bags. It sells a carry-on bag for $185 called "Safari-Beanos Bag PR5." It’s rated five stars by roughly 85 reviews on the Red Oxx site, which promotes it with excellent content — including videos, images, FAQs, warranties, and more. The store provides this information to differentiate that niche product from more mass market offerings. Safari-Beanos Bag PR5 is not at the high-end of the price range for duffels. That is probably because Red Oxx manufactures and distributes it. Hence, it can sell at a more moderate price and still make a high margin. That’s an effective strategy.
Now, consider similar carry-on bags at Ebags.com, which is more of a mass market retailer, but still fairly niche in that it only carries bags. In fact, when search at Ebags.com for "carry-on luggage," you receive more than 1,000 results, ranging from niche bags to mass market ones. Prices range from $14.99 to $1,600. A middle-range bag that is similar to Safari-Beanos Bag is "Victorinox Avolve Carry-all Duffel." Its suggested price is $239, but it's listed on Ebags for $119. Ebags sells it own brand of bags, too. Like Red Oxx, that allows Ebags to sell goods for a more moderate price and retain high margins.
Finally, look at Walmart.com. It carries a few more niche oriented bags, but most of them are clearly mass market. It offers 1,000 carry-on bags, ranging from $10 to $450. A carry-on duffel similar Red Oxx's Safari-Beanos Bag and Ebags' Victorinox Avolve Carry-all Duffel is called "Protege Expandable Duffel Bag." It sells for $10. This is clearly a mass market item. It's low margin, low cost, and, in this case, probably not terribly durable or well made.
I found Victorinox Avolve Carry-all Duffel also available at Amazon from four vendors priced identically at $119. The market is clearly dictating the price. We will see more of that, as automated pricing systems begin to manage multi-channel selling.
What Is Your Strategy?
The reason I list this level of detail is to encourage you to consider various product strategies. A true niche store like Redoxx.com can be competitive because it manufactures a high quality product that is differentiated from competitive offerings. It also does not have to support a distribution channel, allowing it to sell at lower costs. That strategy is effective if you can afford the marketing expense required to garner traffic.
Ebags.com is successful as the destination for people shopping for bags of any type. It has a wide product strategy to meet all needs and to price-match other online stores. It also manufactures its own brand of bags to help increase its margins. I consider Ebags mainly a niche store because it is focused on bags.
Walmart.com is as mass market as it gets. It assumes it will sell more of a particular item than anyone else. It buys cheap, sells cheap, and targets the frugal buyer — at all income levels. It carries few niche products, largely because the makers of those products likely do not want to be associated with selling in Walmart.
Finally, Amazon.com is a true marketplace. It buys and sells its own inventory, but the fastest growth within Amazon is from its marketplace resellers. Amazon's own item sales are growing at a much slower rate. As an Amazon seller, you certainly can be successful selling niche products there. But, your volume will likely be low since there are so many similar mass market products there. If you sell on Amazon, you’ll likely need to buy cheap and sell cheap to garner any volume.
Think about where your products fit overall. If you sell mass market items, be prepared to price accordingly. If you have a niche store, seek out niche products so that you can maintain a higher margin and appeal to buyers who differentiate themselves by the products they buy, wear, and use.