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Understanding the growth of niche markets

Published on October 26, 2016

Commerce rarely stands still. And e-commerce is a beast that’s in perpetual motion. We’ve all become accustomed to the idea that disruption is the new norm and that change is the only constant.

However, beneath the seeming chaos of commerce in the internet age we can still recognise patterns which help us as entrepreneurs create new businesses that create value. Increasingly, the patterns are there for us to see in the mountains of data being made available through analytics. But they are also there in our own observations.

One of the most fascinating patterns to watch for is the growth of niche markets. At Marketplacer, we spend a lot of time looking at data and thinking about the way specific segments of a market grow, looking for the seeds of growth and the tipping points that indicate scale and maturity in segments.

This is the process that led us to develop our first online marketplace: BikeExchange. We could observe for ourselves the growing number of cyclists on the roads. We could also see these particular cyclists were spending serious money on their two-wheeled habit. That money was going on bikes that cost thousands of dollars and increasingly on the associated equipment such as clothing and tools that went with the sport.

Interestingly, when we looked at the broad figures for cycling participation in Australia, they somewhat contradicted what we had observed and perceived as a boom in cycling.

In their study on Australian cycling participation rates, Professor Chris Rissel and journalist Chris Gillham compared data for participation rates between 1985-86 and 2011 and found that while there was an increase in the total number of people riding bikes, the per capita rate had actually declined.

Results such as this did not deter us from thinking BikeExchange was an idea whose time had come. Our tribe wasn’t kids riding bikes to school (though you can buy that kind of bike on the marketplace); our tribe was the growing numbers of middle aged people with disposable income who were serious about cycling as a sport and recreation activity.

By looking beyond the broad participation figures and seeking further data and information from sources such as retailers themselves, we were able to confidently surmise that the category of cycling was growing in demographic segments that would make it a strong niche market. The right people were spending money on a wide range of bike-related products and services for an online marketplace to thrive – which is what BikeExchange did and continues to do.

We’ve applied the same methods to setting up other marketplaces as well, such as House of Home, TiniTrader and Outdoria. We’ve made our own observations about niche segments and then looked at a range of data to test our hypothesis.

It’s a process we keep applying to other segments as well and sometimes the data and information we get tells us that a niche is not strong enough yet to sustain a marketplace.

However, there are other segments that show immense promise, which we think provide incredible opportunities to entrepreneurs who are willing to see the patterns beneath the chaos.

It comes back to not being everything to everyone, but being something to someone. Identify your tribe and you’ll find your marketplace.

Marketplacer
Published on October 26, 2016

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