There is a school of thought that people don’t actually want to buy things or spend their money. You, the entrepreneur, trick them into doing that with your marketing magic. What is your opinion on this?
The goal of selling products or services in any small business is to arrive at consistent streams of revenue, or income. It’s no surprise then that entrepreneurs put a lot of effort into uncovering the secrets behind completing a sale. I’m just here to tell you that Michael Porter already solved all your problems. It’s up to you to implement his theories right.
One of the things he touched on is strategy. He concluded that there are three broad categories of small business strategy. Focusing on the cost of what you sell, to the customer, can be your strategy. The truth is that all businesses give importance to cost. What you find is that most small businesses in Kenya opt for one of the two remaining strategies. We defined them but under what circumstances are each of them most useful to your business goal of making more sales?
The first of these two is niche (or focus) strategy. It’s like having very few friends but ones you can rely on pretty much all the time. Does this describe your lifestyle? The second, differentiation is basically standing out from the crowd. Does this describe your sense of fashion?
Niche vs Differentiation
Why do people in Nairobi go to tea houses or a coffee shops where, practically, the same menu items are priced multiple times more than your regular restaurant? Before you rant about “fake” middle class just know that I’m giving an example of niche strategy. The kinds of consumers targeted by these businesses are driven by factors ahead of price. The most important of these factors is quality and they are willing to pay a premium for it. After all, there are few entrepreneurs meeting their needs.
You have a good chance of enjoying high profit margins if you choose the niche strategy. The high price you may end up charging is not only because of your marketing magic but also because of necessity. Niche category usually means small markets so you have to do that to make up for lack of numbers. One industry in Kenya that appears to be like this is cosmetics – and there are opportunities in cosmetics business.
Niche does sound like a jackpot. How do you get in? Since there’s a big focus on quality by your prospective customers, your technical skills must be good. Key, you have to share some attributes with your intended customers as well so that you see things from their perspective. The attribute can be spending (income), social background or whatever you can think of. You want to appreciate the factors that make them spend on what they spend – beyond utility.
Differentiation strategy is easier for picking out your prospective customers but quite challenging in dealing with competition. All you need is to observe your environment (business) and decide what products or services need to be improved. It’s like criticising things on the internet, except that we expect you to do something about it. Think of how it is quickly becoming popular to make ready-to-cook or ready-to-eat foodstuff in Kenya ever since we stopped getting married. What these businesses are doing is improving things and consumers decide what price value to attach to said improvements.
Verdict
Differentiation requires that your management skills be on-point. There’s nothing stopping your competitors from coming up with even better improvements. Worse, nothing stops them from copying you. How would you respond? It’s very easy to lose a lot of time and money trying to be the best in your crowded market. It’s also possible that you engage in a sort of race-to-the-bottom where everyone loses. We see this all the time in Kenya where small businesses force prices in their field to go down such that nobody makes any profit anymore.
Niche strategy also has it’s faults. Your market will be loyal but small. This means your exposure to risk is high. You can only grow so much in size so you’ll never enjoy getting all those buying-in-bulk discounts your entrepreneur friends boast about. You also have to think about what will happen if your customers preferences change or some new business ruins it for you after discovering your niche market.
But if you’re intention is to remain a small business then choosing a niche strategy is your best call. Don’t listen to them, a small business is not a bad thing. This also works for side-hustlers. It can be hands-off when need be. A business owner that chooses to stand out in a competitive field has no choice but to be hands on and pursue growth. Growth allows you to undercut competition (it’s legal).