Bridging the niche

Published: June 28, 2010
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International brands rethink traditional business models to meet demand

International brands rethink traditional business models to meet demand

KARACHI: The world’s population has more than doubled in the past fifty years while the global economy has shrunk. Niche markets are now not only lucrative but they are also central to many businesses.

Mass market is the domain of multinationals and corporations whose mass produced products are marketed to millions. However, anyone with a size 13 shoe will attest to the limited selection in that size. The problem for businesses is compounded by the fact that niche markets are fragmented – people needing a size 13 shoe are spread out in very small bunches all across the country. Addressing niche markets may therefore not be a feasible business model. A solution to the problem comes in two parts.

Forecasting and logistics

The first step is to improve supply-chain logistics. Getting each store to keep a size 13 shoe in every design requires valuable storage space for a shoe that may not even sell. And if the limited supply of shoes runs out in any store, new inventory might not arrive for a while – depending on the turnover. Behemoths like WalMart use IT enabled supply-chain solutions to develop “just-in-time” inventory management solutions. These solutions allow warehouses to know exactly how much inventory is available in each store, forecast the demand in each region and factor-in seasonal trends based on deep historical analysis.

United Parcel Service (UPS), historically just a package delivery company has increasingly taken to providing logistics and supply-chain outsourcing services to businesses, and continues to facilitate the largest market places such as eBay and Amazon.

Online Stores

The second part of the solution comes from circumventing brick-and-mortar stores altogether. Online merchants don’t incur the cost of running dozens of stores and orders are shipped from a central location. A size 13 shoe can be stored at the very back of the warehouse and since it can be shipped throughout the country, the demand for this size quickly adds up.

Amazon is a classic example of a company that has disrupted the retail book store business by centralising its inventory and trivializing the retail sales experience. Not only is Amazon a market leader but it is often the only place to get niche book titles. Conventional book stores often don’t have enough shelf space to carry such titles. Many avid readers even in Pakistan use Amazon for this very reason.

The cost effectiveness of Amazon’s online retail model allows it offer more affordable prices which offset any shipping costs. NetFlix is another market leader that has disrupted conventional movie stores by delivering DVDs through post across all of United States.

Pakistan

Pakistan is going through a tremendous growth spurt in the internet space and all the big telecoms are entering this market. Online transaction processing and credit card use continue to remain problematic but this problem is partially overcome through the use of Cash on Delivery services provided by local courier companies.

Business forecasting, supply-chain logistics and online retailing not only help companies corner niche markets and expand the customer base in hard to reach areas, but also allow cheaper  operations and scaling business globally.

Published in The Express Tribune,June 28th, 2010.

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