2.2 Identifying Product Market Niches

Market Niche

A market niche is a section of a larger market for which a product has been specifically designed. Medium to small business usually focus on a market niche as larger companies usually don't exploit them. Therefore, smaller businesses try to customise their products to meet the needs of such groups.

For example, a niche within telecommunications could be designing games apps for smartphones.

In order to exploit the niche, entrepreneurs need to do market research in order to meet the consumers needs and find out how to make it available to them. They then set out to make the products which have been identified by the market research as required. 

It is important to note that there is the demand in the market which the major competitors are catering for. However, the hidden demand of consumers needs requires new products and services to be applied that would meet this untapped demand. The sales revenue might be lower as the market is usually relatively small. For a new business, this could be perfect to start generating revenue and fuel the growth of your business.

Activity 7 - What is a market niche?

A market niche is a section of a larger market which larger companies are not targeting. It involves untapped areas which entrepreneurs can access through new products and services specifically designed to meet the needs of the customers in that market. For example, a major company who offers a web design portal for new business could be charging a large fee for a custom domain (www.yourdomain.com). An entrepreneur could exploit this niche by offering a service where they could link a domain purchased from the entrepreneur for a price considerably cheaper. This would be meeting the small demand of many customers.


Spotting the market gap

The gap in the market can be spotted in several ways, some very simple and others more complex.

Simple ways of spotting market gaps:

• Size - producing goods in different sizes at various intervals can reveal prospective markets not previously discovered
• Location - consumers like the idea of having the choice where to shop, whether it is over the counter in a local shop or online
• Timing - flexibility in business hours can see a flow of new potential opportunities that would have otherwise remained unknown
• Adaptation - different cultures and practices are practised across the globe. It's always worth exploring new cultures to see the local reaction. 

Here are some more complex ways to identify market gaps:

• Making use of the internet - this gives products a greater competitive edge and uniqueness. Regardless of whether the idea is new or not, the internet will open up a web of opportunity and help identify new markets
• Adapting and modifying ideas from other sources - this is accomplished by exploring magazines, journals and other literature that provides tips and possible business ideas
• Having a USP - this is a 'unique selling point'. This is essential shows how you can differentiate your idea from your competitors. If your USP is s a strong one, it will prompt consumers to buy from you rather than your competition
• Meeting clients needs - the quicker the needs of the consumer can be identified, and solved, the better the chances you will be able to pay attention to the individual needs of the clients. Big organisations might not be able to do this - they simply lack the flexibility. This is an excellent opportunity for spotting a gap in the market and filling it
• Re-invention of past ideas - whether national, regional or international. There are ideas that thrived at one point but for one reason or another, they are now extinct. This is the perfect opportunity for the entrepreneur to discover the elixir for this product that would give it renewed life. 
• Inventing fresh ideas - these ideas are usually thought of to solve an individuals requirements and afterwards it's realised they have a broader appeal. It's different from the common route of identifying a niche and creating a product for the niche, it is the opposite. From nothing, something is created; essentially, a niche is created to accept a product.

Activity 8 - In your own words, describe how to spot a gap in an existing market.

2.1 Sources/Opportunities for Finding Business Ideas

Human creativity and innovation is at the core of what we are. Larger organisations tend to have research and development departments, whereas with smaller companies it really relies on the individual. 

Internal methods of generating business ideas can stem from members of staff, or brainstorming sessions. External methods involve getting feedback from customers. 

Another method is purchasing a franchise which gives the business the rights to sell a product or provide a service under the trading name of another, already established business. This way you don't need a new idea or even to develop it, you take on an existing business model.

With a franchise arrangement, the person that buys the franchise (the franchisee) pays the owner of the franchise (the franchisor) a fee, and probably a percentage of future profits or turnover. Turnover is the total amount generating in sales in one financial year.

As older ideas are replaced with better ideas, there is a constant need for innovation. In fact, if a business only generates new ideas and does not have innovativeness, it would eventually fall behind its competitors. 

Innovation takes into account the importance of finding new ways to use an old idea. It also explores various ways to make products more efficient, affordable and beneficial to the consumers and the business.

But:
                   "Why are there so many good ideas which end up in the dustbin?"

The answer is simple, because many seemingly good ideas are impractical in reality. For example, the product may be too expensive to be viable. Other ideas simply don't have the expected broad demand as first anticipated.

It's often the case that an idea is perfectly viable but the entrepreneur is limited on funds, or his marketing fails to take of as it should, or maybe his competitors marketing is superior and hence, more effective.

Ideas for products and services need to be practical, reproducible and economical. They need to have the right appeal.


Launching a product

From the time a business idea is conceived, to the time the product hits the market, a considerable amount of planning and investment needs to be implemented. After spotting a gap in the market, this idea can then be developed. This is where it becomes a design process that outlines all its functions, properties and characteristics. New and innovative ideas must pass various test phases and be screened further by various categories of people in order to make sure it's perfect and ready to hit the market in grand style.

When a product or service has passed various test stages, it's ready for production and manufacture (implementation). Assuming it's a product, the business then decides on:

• The amount of units to be produced
• Where the raw materials needed can be acquired and produced
• Who is actually going to produce the item? Perhaps 'in-house' or sub-contacted.
• How much will the item cost to produce?
• How much can we sell it for?

Full-scale production only commences when the above points have been decided by the business.



Activity 6 - What is a franchise and what do you think are the advantages and disadvantages of running one?

A franchise is a business model, which has proven to be successful, that you can purchase from a franchisor in order to operate under their brand. There are numerous advantages as well as disadvantages. Obviously, the main advantage is that you don't have to do any testing, planning or developing, as this is done for you. Another is that success has a;ready been proven, otherwise they wouldn't be offering it as a franchise. On top of this, with most franchises, you will receive profit and loss account, balance sheets and other financial projections with your targets set out for you. Also, you will usually get access to the companies supplier which offers competitive pricing, and sometimes a proven successful marketing strategy.

Of course there are disadvantages. These include the fact that you must work extra hard to ensure you can access the correct part of the market as there are other business exactly the same as yours competing. Also, there is a serious amount of starting capital needed as you will have to pay the franchisor a significant sum, as well as a healthy dividend out of your profits each year.

Section 2

Introduction

In this unit we will look at the generation of ideas and the ways in which you can protect them. 

Research and development is the most prominent way of creating ideas, then comes the need for invention and innovation which enhances the previously invented idea.

It is key to test your idea and establish whether it's suitable for the market you wish to enter and determine whether you will meet the goals and objectives. With this comes the ability to sell. 

Your product or service must be appealing to the consumer in terms of price, appearance, functionality and production, without these, it's likely to fail. Therefore, before launching a product, it's logical to test and try numerous times to make certain that it would be a market success.

Every product or idea needs a market that is willing to accept it, this is more commonly known as a niche. Entrepreneurs must ensure to target the correct niche within which their product will fit perfectly.

The ability to spot a niche in the market is very important to the success of a business. Different factors are essential for spotting gaps in the market which includes; correct timing, adapting services and products to different conditions and changes in size and the location.

These factors will attract different customers and then it becomes easier to select which consumers would benefit the most and which would make the business more profitable. 

We will look later at the concept of owning a franchise. These provide tremendous opportunities as you will have direct links to an established market player. 

Copyright, patents and trademarks are all essential in the world of business today, and we will cover these too. 

Activity 5 - What is a niche and why are they important to entrepreneurs?

A niche is essentially a gap in the market that an entrepreneur feels they can exploit. They consist of a relevant need of a product or service due to lack of such product/service, or simply bad execution from competition. They are important to an entrepreneur as they are perfect for testing their ideas and establishing their potential customers, as well as determining the financial prospects of the business idea.

Self - Assessment Questions - 1

1. Identify the potential risks and rewards in establishing a business enterprise.

As with any business enterprise, there are many risks, but with these also comes reward. Some of the risks an entrepreneur might face when starting a business is they may have access to limited resources, limited funds and also the fact that their idea might fail and fall down around them. There is the obvious risk of loosing the capital they have put into the business which could've been savings, or a load or grant. On the other hand, if they manage to run things efficiently and effectively, they will embark upon great reward. They will feel fulfilled and ooze in self-confidence. As well as the vast array personal development rewards, they will also be rewarded financially. Success at business allows for financial independence. 

2. Explain how you might spot a gap in the market.

To spot a gap in the market, you must first establish a need. Once you establish something that people need, or something that solves a particular common problem, you then follow a certain number of steps. Firstly, you do some market research to determine whether somebody else has came up with your brilliant idea. Based on your findings you must look at things like:

• Is there a lack of this certain product that you could fill?
• Is there a huge demand from consumers?
• Could you differentiate yourself from competitors to fit into the market?

From here you can go a little further with questions like:

• Is this a short-term or long-term opportunity?
• What are the potential risks involved?
• Do the potential risks satisfy the potential reward?

Once you have sufficiently explored each of these questions and obtained positive results, I think it's safe to say you have spotted a gap in the market.

3. How might you seek help and advice, and from what sources?

There are a number of ways you could seek help and advice for your business. There are countless government schemes designed to help start-up companies with advice on sales, marketing, launch, IT skills, financial help and many other topics. Just some of these sources would be:

• Business Link
• The Princes Trust
• The Chamber of Commerce
• High-Street Banks

1.8 How to get Support



All busiensses, especially new ones, must operate at peek efficiency in order to reduce costs and rule out significant risk.

A good first step for an entrepreneur is to have an action play, more commonly known as a business plan.

This document will outline the purpose and intentions of the business and the future goals which it aims to achieve. Such plans give the enterprise clarity of purpose and a solid set of goals and objectives. The can easily identify the target market, products and services to be offered, the information on the competition plus financial information such as forcasts, profit and loss and balance sheets.

The following organisations can provide good advice to entrepreneurs:

• Business Link
• The Chamber of Commerce
• High-Street Banks

They provide support, advice, grants and development funds in particular parts of the country. For instance, where funding is concerned, banks can provide business overdraft facilities and low interest-rate loans.

There is also the provision of mentoring services for businesses through organisations such as Business Link. Accounting, computing, communications, financial services and legal services are also available for new businesses.

1.7 Government Support for Enterprise and Entrepreneurs

Business enterprises have a positive effect on the economy in several ways:

• New business start-ups provide new products and services to the economy
• The alleviate the unemployment problem and create new jobs
• They reduce the welfare budget by reducing unemployment
• These businesses generate revenue for the government through the payment of tax
• They improve our exports
• They encourage the best minds from around the world to come to the UK and work

Governments are always keen to offer help and advice to entrepreneurs as it benefits the economy by reducing unemployment and receiving tax from the business.

There are several organisations set up to assist the needs of various businesses by providing information, funding, support and advice and also trachings on how to be more competive.

In 2007, the departments for Business, Enterprise and Regulatory Reform (DBERR) was established which is responsible for the creation of conditions for businesses to succeed. Since the formation of this department, new laws have been implemented which aim to simplify the process of starting up and running a business.

This department has now replaced the Department for Trade and Industry (DTI). Prior to its establishment, DTI was responsible for business enterprise and innovation.

At its inception, DBERR included a number of renowned entrepreneurs including Sir Alan Sugar, Sir Richard Branson, the executive of Tesco and others.

The Department of Innovation, Universities and Skills (DIUS) is also another major initiative specifically designed to promote business research, propelling enterprise and efficiency, and the creation of new products and services.

Regional Development Agencies (RDA) were established with statutory objectives which they are required to provide by law. Their requirements are:

• The enhancement of business competitiveness and efficiency
• Promote employment
• Constitute to significant economic development
• Foster the development and applicstion of skills which are relevant to employment
• Promote economic development and regeneration

With the above initiatives established, the governement still strives to promote entrepreneurial capablities through several organisations which offer profound support for new businesses. One of such is Business Link which works in conjunction with businesses on a local, regional and national level, in the provision of practical advice and support for various business types.

Government departments and agencies

The government is also responsible to ensure that enterprises are well regulated and informed as to the best business actions that would derive the best results to both the business and the economy. For example, it's in no one's best interest to create products or services which increase pollution or can endanger lives and the environment in any form.

Hence in order to achieve the optimum benefits of businesses, the government provides:

• Specific business support for enterprises involved in the exportation of products and services
• Training programmes which provide enlightenment and information on a wide variety of business issues
• Grants aimed at promoting development, especially in deprived regions with high unemployment rates

Activity - Why do you think governments seek to support entrepreneurs?

Governments seek to support entrepreneurs for a number of important reasons. Entrepreneurs and business enterprises have many beneficial factors to the economy, such as creating jobs which helps reduce unemployment, they also generate revenue for the government through paying tax. On top of that, the more entrepreneurial minds there are in an economy, the more their attitudes will brush of on others, which in turn will create more business and more jobs. It's essential for entrepreneurs to surface and start businesses as without them, the economy can't continue to climb.