Market Niches; Gimme One! Now! But How?

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Last issue I took most of this space to discuss some tactical measures businesses could take to respond to the extremely difficult competitive conditions in the snowboard industry. I went on to say in what may have seemed like an after thought that none of those measures mattered if you didn’t have a way to compete. That is, a market niche you can succeed  in.

Then I ran out of space.
 
So it’s a month later and time to talk about market niches as part of your business’  strategy.
 
What’s a Niche?
 
Well, for one thing, it’s a term that’s thrown around a lot without much specificity. A market niche exists when you can offer features and benefits in your product or service that appeal to a specific customer group. These features and benefits have to be ones that your competitors are unable or unwilling to offer. Put another way, it’s  a portion of the market where growth prospects are acceptable and competitive pressures are manageable.
 
Niches can also be very difficult to identify, and your success in identifying them will ultimately determine your company’s success.   Is snowboard boots a market niche? How about women’s’ boots? Maybe women’s’ step-in boots? Perhaps women’s step-in boots with heel/toe lockdown. Let’s go one more step further and say that they can only be made of leather.
 
I suppose those are all niches,  but all or none of them may be a niche in which a successful business can be built. That depends not only on identifying the product characteristics and customer base, but the specific resources and capabilities of the company trying to succeed in the niche. And that, I suppose is why defining market niches is so difficult. They don’t actually exist until somebody has succeeded in creating or exploiting them.
 
Market niches are very dynamic. They change in response to economic conditions and the actions of all the players in the industry. What was the most popular highback binding three years ago would be tough to sell today.
 
Even the strongest niche doesn’t necessarily last forever.    When was the last time you sent a Western Union telegram? Okay, how many of you have even heard of a telegram? Visi Calc was the first computer spreadsheet program and was an incredible advance. But Lotus ate it for lunch and, in its turn Lotus, is being munched on by Excel. 
 
To companies that aren’t already industry leaders in snowboarding, a niche strategy means reduced expectations and cutting back operations. This is consistent with the general concept of market niches representing a small part of a market.   But that’s not always the case. The best market niches in the world are those in which the product is identified with the product category; Coke in colas, Kleenex in tissues. Maybe Burton in snowboards?
 
Burton’s market image is based on brand recognition built up over a period of years. They spent a lot of money on dealer brochures, riders, ads, and promotions when most other players didn’t have the resources to match them. Switch and K2 are trying to establish the technical standard for the step in binding as a market niche. Mervin Manufacturing’s market niche is based on their consistent appeal to a clearly defined group of young consumers. Sims seems to be focusing on being pure to the roots of snowboarding as a way to distinguish their products.
 
A market niche isn’t enough to insure a successful company. Beta was a better technical format for videotapes than VHS, but guess which one we all rent? Switch and K2 know that being first into the market and having the best technology (if they do) by itself does  not guarantee  their products will be adopted as industry standards. They are both involved in licensing programs to expand their market penetration.
 
Why Do Niches Exist?
 
A niche strategy is viable because smaller companies can take advantage of the compromises that larger players have to make as they expand their reach. As they expand their reach into more and more segments, over performance for some customers and under performance for others is inevitable.
 
In the snowboard business, we’ve seen some industry leaders increase minimum orders and impose other terms and conditions that all retailers can’t meet. Those leaders have found that it doesn’t pay to do business with an account if it can’t do a minimum amount of business with them. This perfectly rational business decision may create a niche opportunity for other players.
 
Community banks have survived the ongoing consolidation in banking (or have positioned themselves to be bought out at high multiples) by offering better service and being part of their community.
 
Continued growth means an inevitable reliance on larger accounts. Look at the numbers. Let’s say you are a five million-dollar company looking to grow ten percent. That means you have to sell another five hundred thousand dollars in merchandise. If you were to accomplish it all in new accounts, that would mean fifty accounts each buying ten thousand dollars of merchandise- not easy, but theoretically possible.
 
Now let’s say you’re doing twenty five million in business and want to grow ten percent, or two and a half million dollars. Finding two hundred and fifty new shops to buy ten thousand dollars each is probably not in the cards- especially in an environment where most of the possible customers are already carrying your product or your competitor’s. Larger dollar sales increases usually have to come from bigger customers.
 
Can You Create Your Own Niche?
 
Four things seem clear from the discussion above. First, even the most powerful niches don’t guarantee a company’s financial success. You have to do all the other things well, if not quite as well as your competitors.
 
Let’s say your new snowboard jacket hits the season’s colors and style dead on.  It’s got the latest fabric and the technical features everybody is lusting for. Maybe you can price it a little higher than the competition; but not double. You can be a week or two late delivering; but not a month or two. You’ll still have to finance your production. 
 
Second, market niches don’t spring forth fully articulated in a blaze of customer acclaim. Fred Smith, the founder of Federal Express, identified a powerful, distinct market niche but it still took time, work, money, faith and some good timing to make his idea into an industry leading company.
 
“The concept is interesting and well-formed, but in order to earn better than a ‘C,’ the idea must be feasible,” said a Yale University management professor in response to Mr. Smith’s paper proposing reliable overnight delivery service.
 
Burton didn’t exactly spring to the top of the pack over night either. I recall the story about Jake being unwilling to leave his trade show booth for a bathroom break because he was the only one in the booth and was afraid he’d miss a sale. It would be going too far to say that having a stronger bladder than your competition represents a market niche, but it’s indicative of how tough it can be to define one.
 
Third, the customer must perceive and accept the qualities of the product or company that you are offering, or there is no niche. If 300,000 1996-97 snowboards from Japan of almost any brand you can imagine show up in various chain stores this summer/fall for prices not too far over $100 (“Attention shoppers, we have a K-Mart Blue Light Special today on snowboards…….”) you are going to need a hell of a niche to sell many for north of 300 dollars. I have, by the way, no information that is going to happen, but I am concerned.
 
Finally, if too many companies pursue the same market niche, it’s no market niche at all. There’s no room in the snowboard market for another brand that wants to be “the high end board sold to core shops.”
 
Now What?
 
If you don’t have a market niche now, it’s probably too late to create one in the snowboard business. That’s not to say that somebody won’t succeed in doing it, but because of where we are in the business cycle, the odds against you are long indeed.
 
Just because you’re already in business doesn’t mean you have a market niche; just a customer base. Whether that base is sufficient to make you successful in creating a niche in a maturing market is another question. Make a start on figuring that out by asking: Who are my customers? Why do they buy my products?
 
Hunches don’t count. The usual glib and imprecise answers that seemed adequate when you could sell all the product you could get won’t be any help. Answering these questions is hard work. It takes time, planning and effort. The answer may never be “right” but it can keep getting better.
 
With that information in hand, stand in front of a full-length mirror. With the most serious demeanor you can muster (difficult, granted when you’re talking to yourself in a mirror) repeat the following, one at a time, with firm conviction
 
·         I can compete based on price.
·         I can compete based on image.
·         I can provide better customer service.
·         My technology differentiates me.
·         I’m king in one geographic area.
·         My graphics are better than anybody else’s.
·         We’re closer to the market than the competition.
 
The list above is by no means complete, and you should modify it to fit your situation. The ones that don’t leave you feeling ridiculous or laughing hysterically are probably worth exploring if you really understand your customers.
 
The above exercise may appear goofy, but the business of determining your market niche and basis of competition is deadly serious whether you’re a materials supplier, brand, or retailer. If you can’t annunciate it clearly and quantitatively in no more than a paragraph, you’ve got work to do. Don’t put it off any longer.
 

 

 

Orders; I Got to Get Some Orders! The View From Las Vegas

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Many snowboard companies came to Las Vegas this year knowing in their heads it could be tough to get orders, but hoping in their hearts that oversupply in all product areas wouldn’t stifle retailers’ demand for new, branded product. There are prominent exceptions, but a month after the show, it looks like some heads were right and some hearts broken. Companies at all levels of the sport have experienced disappointing preseason orders and face the hard decision of whether to order on faith or reduce their projections for the year.

Anybody who had hoped that the worst of the consolidation was behind the industry unfortunately knows better now. Even as retail sales climb and snowboarding becomes more mainstream and better established, some industry participants seem to be facing hard times.
 
The Numbers
 
SIA’s numbers on the show for 1997 and the three preceding years appear to validate industry conditions and suggest why some companies have been disappointed by their preseason order numbers. The total number of show exhibitors grew from 705 in 1994 to 897 in 1996. In 1997, the number declined a little more than eight percent to 823.
 
Total show square footage grew almost twenty-one percent from 427,000 in 1994 to 515,960 in 1996. In 1997, total square feet fell to a little over 504,000. That decline was reflected by the fact that no companies were exhibiting in the upstairs meeting rooms like they had the previous year.
 
The total number of buyers attending the show and shops represented also dropped. After growing thirty-one percent between 1994 and 1996, from 2,854 to 3,738, the number of shops attending dropped by over seventeen percent to 3,101. The number of buyers grew twenty percent during the same three year period from 7,761 to 9,333. It fell five percent in 1997 to 8,867.
 
My conjecture is that the decline in the number of shops and buyers attending the show is to some extent a function of an increase in orders being written at regional shows. As a result, I don’t see it as being a significant negative for the industry.
 
The Feeling
 
Comparing the mood at Vegas this year to last year was initially difficult. In past years, the peaks of excitement in the snowboard area were balanced by the valleys of the ski side. This year, with both major ski and snowboard players in the main hall, the energy level seemed more even, the peaks and valleys having leveled off somewhat.
 
Perhaps this was the result of the show reorganization. More likely, it followed from the larger booth and more business-like atmosphere, a continuation of trends from last year. The product, not the booth, was definitely the focal point. Ride and Sims must have been thrilled by that, since it appeared that the same designer using the same materials had created both their booths.
 
There were more people with ties than purple hair. Nobody was thrown out for having drugs in their booth and I heard fewer stories (only one) of product theft. There didn’t seem to be a keg in a booth anywhere. It’s possible I just wasn’t in the right place at the right time, but I’m usually pretty good at sniffing them out.   
 
My other observation about booths is that many companies were using the same booth materials they used the previous year, though the materials were assembled in a different way. I took that as one confirmation that maturing industry conditions are leading companies to be a little more careful how they spend money.
 
The booths of the leading snowboard companies seemed busy most of the time. Salomon and Bonfire shared a booth, with the boards along the back and the clothing on both sides. To keep things from getting too businesslike, Mervyn Manufacturing featured big white boards on which they listed and ranked the leading marketing gimmicks as reported by people walking the show. These included three dimensional top sheets and a bunch of others I can’t remember. Mervyn also had some women (I think they were women) walking around dressed as nuns.
 
It occurred to me that the best marketing gimmick at the show was Mervyn making fun of everybody else’s marketing gimmicks as a way of attracting attention to their booth. Thank God we’ve got Mervyn to keep us from taking ourselves too seriously.
 
The Other Hall
 
Back across the lobby, in what use to be the snowboard ghetto, it was, well, kind of a ghetto. Though traffic picked up as the week progressed, there were few larger companies to serve as a draw for the smaller players there. West Beach was the largest snowboard related company in that hall, and they seemed to be having a good show. The moral of the story may be that if you have good product, programs, financing, management, industry history and your reps do their jobs, show location may not be as big an issue for you.
 
In the corner of the hall, as far from the main entrance as you can get, was the Reef Brazil booth. I have absolutely no recollection what the booth looked like. I don’t even remember what products they were selling. But(t) till the day I die I will carry with me the memory of the Reef Brazil models standing there and signing posters. My own theory is that SIA intentionally put the Reef booth in that location to draw traffic into and through that hall in response to some of the complaints from companies who didn’t get into the other hall. I think it worked and I hope Reef took the same approach at ISPO.
 
New Brands and Manufacturers
 
I swear I didn’t expect to have to write this section. I thought the recent performance of snowboard company stocks, the publicity about over supply, and the declining prices for hard goods would cause people to be cautious about entering the industry now. Compared to previous years I suppose they were cautious. But there were fifteen or so new brands I hadn’t seen before. Even more interesting was the amount of additional manufacturing capacity associated with these brands.
 
Wolverine Snowboards is apparently owned by a Michigan auto parts manufacturer and expects to do OEM business. I don’t know for whom. Kuusport Mfg. Ltd. has a great looking accessory line but has decided to start making snowboards. They took out a full page color ad in Transworld Snowboard Business advertising what appeared to be good quality boards for between $105 and, I think, $130 dollars. Good luck to them.
 
After a few days of going from booth to booth to booth and being told by everybody that business was great and they were writing lots of orders, I had begun to feel like Diogenese searching for an honest man. At one of the new brands, I finally found one.
 
This booth was manned by an industry veteran who was old enough to have had his rose colored glasses shattered. After a few minutes of conversation, I cautiously approached the subject of his ability to compete and ask him, in the nicest possible way, why his current employer had leaped into snowboarding now and how they expected to succeed. He looked me right in the eye and, with hardly a moment’s hesitation said, “We can afford to lose a lot of money.”
 
It was one of those moments of clarity that happens all too infrequently in business. I don’t know where this guy is now. I have no reason to think he’ll see this article. But if he should, I want him to know that if I was starting a new snowboard company, I’d hire him in a minute.
 
Trends
 
Boards really do seem lighter this year. Significantly; not just by an ounce or two. It’s been suggested to me that this trend will finally run its course when durability declines and there isn’t enough weight to provide adequate dampening. Like pants can get too baggy, boards can get too light.
 
Quicksilver introduced its step in, joining the apparent rush towards that technology. But the waters were muddied a bit by improvements to traditional soft bindings that improved their ease of use and, in some cases, claimed to make them nearly as convenient as a true step in. All I really care about is that somebody makes a step in boot bigger than a (US size) 13 so I can actually try one of them.
 
Maybe a dozen companies showed some form of a three dimensional top sheet. Some claimed various performance benefits, but I see it mostly as a decorative way to reduce weight. Morrow first used this technology in a limited way maybe three years ago. It’s not new, but it’s sure gotten more popular.
 
This year’s Vegas show and the period immediately following it basically validated the changes many of us have seen coming in the industry. I won’t characterize them as good or bad, but as inevitable. Hype and image aren’t enough anymore.   

 

 

How a Brand Makes Money In the Snowboard Business

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Don’t get too comfortable. This is a short article that won’t take long to read. It’s a direct result of that moment in Vegas when I finally decided I wasn’t dreaming and that there actually were a bunch of new snowboard brands and new factory capacity. What makes it even worse is that some of these companies appear to be backed by financially solid parent companies, and can afford to lose money for a really, really long time.

I had thought maybe we were making some progress in getting through the consolidation, but now it looks like we’ve got some new fodder for the irresistible business cycle and we can all be miserable a little longer.
 
To make money, do these things:
 
·         Realize that all you have is your brand name and do everything you can to build and protect it. If you don’t have a recognized one, you probably can’t expect to make any sort of reasonable return by starting to build it now.
 
·         Base your product orders on your preseason.  Don’t kid yourself about reorders. Business people I respect are ordering no more than 10% above their preseason bookings, and some are 5% below. If you have to count on reorders to break even, you might want to ask yourself if your company has a future in snowboarding.
 
·         Be clean at the end of the year. You’re better off agonizing over sales you lost than inventory you have left. Leave your retailers sold through at full margins and anxious to increase their orders next year. You aren’t giving up sales; you are just delaying them a year.
 
·         Don’t chase market share right now. I’m beginning to think market share is a code word for losing money.
 
·         Respect the fact that closed out, brand name product may be among your toughest competitors this year.
 
·         Sharpen your pencil when formulating your advertising and promotional budgets. If you’re ordering product based only on what’s already booked and you aren’t fighting for an increase in market share, aren’t there some things you can do without?
 
That’s it.
 

 

 

Who Are Your Customers? And Why Are They Buying From You?

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As a snowboard retailer, you have a position in your market. You own it, and it’s yours to loose. The best way to loose it is to forget who your customers are and what they want.

The other day I was in one of these warehouse stores. There was a snowboard with bindings for, I think, $299.00. The board had a full metal edge, the inserts and finish looked fine and the bindings, while nothing to write home about, seemed perfectly functional. The description said it had a full wood core, and most of the other statements about it could have been out of an ad for a leading brand. The brand? At about the point where the number of brands passed 150 the part of my brain that could remember them all atrophied.
 
It’s enough to strike terror into the heart of a shop owner. If you end up competing on price…. Well, you can’t. 
 
But there’s hope. Recently, a competing publication (I don’t think they’ll let me say Transworld Snowboard Business here) did a survey of 100 snowboard shops. It indicated that brand name and the sales person were the two most important factors determining a purchase. On a local level, how can you get that kind of information; the kind you can act on?
 
Rush to your local library or town hall, or log onto the Internet. Dig up the census data for your county or SMSA (standard metropolitan statistical area). What are the incomes levels? Average age? Population density? Where are most of the people you believe are your likely customers?
 
Are they your customers? Ask questions of every customer that comes in your store whether they buy or not. Get their address, school they attend if appropriate, where they work, what mountains they ride, whatever will help you figure out what they want. This doesn’t mean locking them in a room until they fill in a three page questionnaire. It can be part of an informal conversation between the sales person and customer. The trick is getting it consistently written down immediately after the conversation.
 
One side benefit is that showing that kind of personal interest in a potential customer may actually increase your chance to make a sale. Listen to your customer. Easier said than done.
 
Get a map of the area and tape it to the wall. Put a pin in to show the home and/or job and/or school of each person. Is there a pattern to where your customers are coming from? Is it what you thought it was? Does this tell you anything about how to reach them and where you should be advertising?
 
Pay for gas, food and list tickets for a couple of shop employees on the condition that they come back with information on 50 snowboarders. What kind of riding do they do, how often, where did they buy their gear, and why? Offer to share your data with the mountain if they’ll do the same with you.
 
It isn’t enough to collect this information on slips of paper or three by five cards, read through it, think to yourself, “Isn’t that interesting” and then forget it. Organize it to see the patterns. On a computer, or on some big pieces of paper taped to a wall. The more data you collect and the more ways you look at it, the more you learn. The magic of being this rigorous is that some of your cherished and unquestioned assumptions about who your customers are and why they buy will turn out to be a bunch of fatuous blather (i.e., wrong).
 
Assuming that you go through the procedure I’ve described (or a similar one you believe is more appropriate to your market) what’s in it for you? Now you have some harder data on what kind of people are buying from you, what they are buying and why. Tape some more big pieces of paper on the wall with information about your inventory at different times of the year. Given the kind of people buying from you and their reason for buying at your store, should your product mix be different? Are you carrying too much of some items and not enough of another?
 
How many dollars is it worth to you to have the right inventory at the right time and have as little as possible left over at the end of the year?
 
If you are a little better able to anticipate your customers’ needs, what kind of return and add on sales does that generate? The process is cumulative and never ending. The better you do, the better you do.
 
Scurry to the book store and buy a paperback called Customers For Life, by Carl Sewell. Mr. Sewell is the most successful luxury car dealer in the country. The book is about how he gets and keeps his customers. Before you laugh about using the ideas of a car dealer in a shop that sells snowboards, you might take a look at the consolidation going on in that industry. Price competition is intense, the number of dealers has declined rapidly, the survivors are tending to be much larger, and the customers aren’t as willing to be convinced that there’s a significant difference between brands . Recognize any trends you’re worried about?
 
Your shop is unique. My questions and sources of information may not be the right ones for you, but the concept is right; whether you’re selling cars or snowboards. There’s no more important information than who are your customers and why are they buying from you. In the snowboard industry’s competitive environment, you have to take the time to find out.