Niche Markets and the Digital Age

In an emerging global economy, the concept of niche is becoming increasingly relevant in the way we think about business and culture. There are three relevant ways of thinking about Niche; Niche as a culture, as a business to consumer marketing strategy and Niche as a business-to-business manufacturing and service strategy.

The Digital Age and take over of niche markets has completely changed how consumers purchase digital content, and niche companies are becoming more apparent as the world becomes more complex and dependent on technology.

Today, our culture is moving from a “hit culture” towards a “niche culture.” Society’s purchases are no longer driven by top hits or the popularity of a product. Songs, movies, bloggers, video-makers, and other content that is not at the top of the charts are breaking the market into mini markets and micro stars. The mass market, essentially, is turning into a mass of niches. The take over of niche markets in the digital content business is extremely visible in “The Long Tail,” a term Chris Anderson, editor-in-chief of Wired Magazine, derived from long tail distribution curves. Long tail curves are very long relative to the head, and demonstrate how less of more are being sold.

The Internet has given people unlimited and unfiltered access to culture and content, and audiences have begun to buy content that isn’t necessarily best selling. The take over of digital has banished storage limitations, geography, delivery costs and ultimately made shopping convenient for consumers because they can do it online. At Wal-Mart, 20% of Wal-Mart’s CDs account for 80% of the sales; many CD’s at the low-end of the curve do not even sell one copy in a three-month period. At Rhapsody, 98% of the albums will sell at least one track. 

How was Rhapsody able to sell one copy of albums and continue to reap success? First, by being a digital or online company, there is virtually no delivery cost. Additionally, there is an endless amount of content available, so there is no storage cost. For Rhapsody, most of their sales come from music that are not popular, or the long tail of the distribution curve. The immense amount of content makes the millions of songs easy to browse and enabled unpopular music to become discoverable and purchased. The 98% rule has shown that if a company can market and sell more items, even just one copy, they will be successful. 

Amazon has also dominated through digital. About a quarter of Amazon’s book sales come from outside its top 100,000 titles. Amazon is destructive to small companies because they offer more content and convenience to the consumer. Amazon’s massive product availability has shown that you can dominate by selling one unit of two million different things, instead of trying to sell two million copies on one item. 

As the demand shifts toward niches, the economics providing for niches improve, and create a positive feedback loop. Bricks-and-mortar retailers such as Wal-Mart, Home Depot and Best Buy have “[felt] the ground give way beneath them.” 

Cultural consumption is incredibly variable, and sales are no longer driven by top hits. Moving to digital retailing has eliminated delivery costs, made content easier to browse and purchase for consumers, and caused companies to sell less of more products, but still turn a massive profit.

So what is next? Niche companies in the sliver sector that have been long established and successful in both manufacturing and the service sector. The companies that have are already experienced in the world of slivers will formulate the shape of the new industries, and niche companies will likely be incredibly successful in the emerging global economy.







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