Business formation
Identify at least three challenges when setting up a business. Explain why they are challenges.
One of the challenges is limited funds. New businesses usually have to come up with large amounts of capital to start up their businesses. However they may have limited opportunities to get the amount of funds they need (Entrepreneur Press, 2010). This is a challenge since without enough funds the new businesses may not be able to run as planned. They may get in debt with suppliers or offer goods or services of less quality than they anticipated. This would further ruin their businesses prospects.
Another challenge is lack of essential industry information. Unfortunately some new businesses start without adequate information about the kind of business they are running, or the industry in which they operate (Entrepreneur Press, 2010). This is a challenge since without the information the business will fall into problems they do not anticipate. Knowledge about the industry is important so that a business can plan, execute and compete well with other businesses. By knowing the challenges, trends and developments, the business can stay competent.
Another challenge is inexperience. New business often lack enough experience in skills or management of businesses. Even with training, it is often hard for a new business to navigate the challenges that the daily running of the business entails (Entrepreneur Press, 2010). It is only with time that enough experience may be gained. Lack of experience is a challenge since there are many unwritten rules about business that make its running smooth and which may only be found in the real world and not in books. Adhering to the set plans may not always yield the best results. Therefore there is need for changes and experimentation which is best handled by those with experience. A wrong move might affect the business and have long term consequences including failure.
Define what a ‘niche’ product is. Give at least three examples of niche products.
A product is a product that is geared towards the interest of a specific market (Van Der Hope, 2008). While there may already be a product serving the general need of the market, within that market the niche product offers something that appeal to a part of the market. Examples of niche products are engineered water Penta, air mattresses and Colgate Toothpaste with calcium to rebuild teeth.
Explain why a niche company might have an advantage in a market. Would price necessarily be an advantage? Explain why or why not.
A niche product might have an advantage in the market since they offer something that is particular and is not offered by someone else (Van Der Hope, 2008). As a result, they do not face as much competition as they may with regular products. In addition, a company with a niche product may attract new customers who are interested in their product but were not part of the initial market target. For example people who do not see the need to buy bottled water and drink tap water may decide to buy bottled water that has antioxidants or vitamins. Thus the product is advantageous as it may further expand the market.
Price may not necessarily be an advantage for niche products in the market. This is because customers may not wish to spend more on the niche product, if they are not convinced of the added value. However, according to Van Der Hope (2008), many customers are willing to pay more for niche products. The niche companies can therefore take advantage of this. They can as a result control the prices and increase their profit margin. In addition, they can do this without fearing competition from competitors in the regular product market.
Identify and explain three reasons why customers would be willing to pay for exclusivity.
There are reasons why customers may want to pay more for exclusivity. One of the reasons is perceived higher value. If customers feel that they are getting higher value for something they will be willing to pay more (Van Der Hope, 2008). Therefore, if something is not main stream it is perceived as being more valuable even when this is not necessarily the case and the product or service has regular value (Van Der Hope, 2008). The second reason is to maintain a higher class. Customers will want to feel special and a product or service that is exclusive makes them feel special.
For this feeling they are willing to pay more than they would for an ordinary product or service. The third reason why customers may pay more is response to rules of demand and supply (Van Der Hope, 2008). Customers sometimes pay more for products or services just because they find them hard to acquire. Even without perceived higher value or appeal to high class taste, the customers may want to have something which they find hard to get. For example, parents may buy toys for their children that are scarce to acquire just because they are limited.
Explain how a niche player ‘chips away’ at a larger competitor’s base. Give three examples of retailers who have done this.
One of the ways in which a niche player would reduce a competitor’s base is by specializing in a unique service or product (Otterbourg, 2011). By specializing the niche player may be able to offer the customer more than the competitor who can not devote time and resources to the development of the product or service in high standards. An example of such a company is Timbuk2. Another way is by adding something to service or product. By offering their product this way, the niche player can reach different market segments giving the product or service new status (Otterbourg, 2011).
An example of such a company is Domino’s Pizza which started home delivery as part of sales. Another way is by focusing on a specific market target (Otterbourg, 2011). By starting small and building customer loyalty and then expanding the market. Eventually the niche products or services have power to compete with regular products. An example of such a company is Starbucks which has spread all over America.
References
Entrepreneur Press. (2010). Start your business. Newburgh, New York. Entrepreneur Press.
Otterbourg, R. K. (2011). Big successful companies were once small. Retrieved on 226th January,
2011, from http://www.newsobserver.com/2010/02/14/336054/big-successful-companies-were.html
Van Der Hope, E. V. (2008). Mastering niche marketing: a definitive guide to profiting from
ideas in a competitive market. Los Angelus, CA: Globalnet Publishing.
