Competition and Defining Your Dropshipping Niche
The biggest advantage of dropshipping — its low barrier to entry — is also its biggest disadvantage. Because it’s easy to setup a dropshipping business, there’s huge amounts of competition out there. If you want to compete effectively, there are a few different ways to do so. This chapter shows you how.
Outmarketing Your Dropshipping Competition
Outspending your competition requires big bucks. Advertising, online promotion, social media marketing, and more all take significant expenditure of time, energy, and money.
For almost all new businesses, outmarketing your competition isn’t going to be an option.
Creating a Unique Brand and Value Proposition
A unique brand is important — it helps you position yourself in the market and makes you memorable to consumers. Having a distinctive value proposition is vital too — what can you do that your competitors don’t?
Your brand and value proposition can come most easily when you’re in a specialist niche.
Competing on Quality, Speed, Price, or Service
There are four main areas where retailers compete, they are:
- Quality — providing a higher-quality product than others.
- Speed — getting that product to your customers, fast.
- Price — providing excellent value for money.
- Service — providing exceptional customer service.
Like marketing, these are all going to be difficult for new businesses to compete on. Established businesses will have stronger cost controls, better supplier relationships, well-developed customer service, and more. That’s not to say you can’t compete, but as a new business it’s going to be tough.
Finding a Dropshipping Niche
A niche is a place in the market where one or more of the following is true:
- There’s a need for unique, specialised products.
- There are particular types of consumers who need those products.
- You have experience or expertise in those types of products or a specific sector or industry related to the product or the audience.
- This part of the market is currently underserved by existing ecommerce solutions.
In fact, the more of these that are true, the easier you will find it to compete in these spaces. It’s this fourth area, finding your niche, that we’re going to focus on next.
Why Focus on Finding a Niche?
Finding and dominating a particular niche is the easiest way to beat your competitors. If you can find an underserved market segment with consumers who need unique products you can provide, you’ve got fertile ground for growing a thriving business.
The narrower you can make your niche, the better (assuming there’s demand.) It’s much easier to position yourself and get a good reputation in a small niche, and you can use the lessons you’ve learned there as you expand your business.
Establishing Your Dropshipping Niche
There are several ways to find and establish your niche — the more of these areas you can bring together, the greater your chances for success. We’ll cover how to research and establish your niche for each topic:
Using Your Niche Sector or Industry Experience
No matter your background, you have experiences that give you insight into specific areas. Whether that comes from previous entrepreneurial ventures, your academic studies, your working life, or your hobbies and passions, you have expertise you can use to find your niche. Your background can help you identify the products you should sell, the marketplace for them, and the consumers who might be interested.
Here’s how to go about it:
- Think about your key skills and interests — Think carefully about the key skills you use in your work and life.
- List your skills and interests — write your skills and interests down. Aim for a good cross-section across life and work.
- Capture your skills and interests accurately — be precise in how you note things down. Instead of saying “engineering” you might say “combustion engine repair” or instead of “developer” you might say “Ruby and Python back-end programmer.”
List skills and interests in each of the following areas:
- Formal education and qualifications (e.g. academic studies, courses, further education).
- Vocational skills (e.g. plumbing, carpentry, car mechanics).
- Career and business skills (e.g. marketing, HR, finances).
- Soft skills (e.g. conversation, communications, research, social skills).
- Hobbies and interests (e.g. windsurfing, embroidery, wood carving, playing an instrument).
- Life skills (e.g. home maintenance, cooking, child care).
- Other skills (anything else you can think of; talents and skills that you use or practice on a semi-regular basis.
- Entertainment (e.g. reading, films, music, drama, theatre, dance)
- Technology (e.g. gadgets, computers, internet, popular science)
- Home (e.g. gardening, experimental cooking, woodworking)
- Hobbies and pastimes (e.g. sports, crafts, arts, fashion)
- Other (e.g. travel, ‘green’ issues, dog shows)
- Books on your bookshelf
Expand your skills and interests list by looking at the following areas:
- Your CV, resume, or LinkedIn profile.
- Jobs you’ve had and the skills you needed.
- Extra-curricular activities.
- Things you do on a day to day basis.
- Talk to your friends and ask them what skills they think you have.
- Facebook groups you belong to.
- Books you own.
Look through your list of skills and interests and prioritise the five or six areas where you have most experience, expertise, and passion.
That’s the shortlist of niches that are worth investigating.
Identifying Niche Consumers
Finding niche consumers is essential — it’s easier to market to smaller groups, you can differentiate yourself better, and get an excellent understanding of their needs. You can research niche consumers in several areas:
- Demographics of niche customers
This means defining the main common areas of the customers you understand best. This could be their age, gender, politics, hobbies, outlook on life, nationality, location, or any one of dozens of different areas. You’re looking for commonalities that they all share. Think of the ideal customer for your dropshipping business and define them as clearly as possible.
- Needs of niche customers
People buy products because they need them. Those needs come from several different areas:
- Solving a problem — the consumer has an issue, problem or challenge they need to solve, and the product helps them do that.
- Changing their perspective — they may be curious about the product, be developing a new interest or pastime, or are doing research.
- Convenience — the product makes their life or work easier.
- Expanding their competence — the product will help them get better at doing something. It gives them an advantage in life or work. The more you can identify the type of consumer you’re appealing to and their reasons behind buying something, the more successful your dropshipping business will be.
Understanding the Marketplace and Competition
Now you know the areas where you have skills and interests, and you’re aware of consumer needs, you need to understand the current state of the market. You can do that as follows:
- Spend some time in relevant forums and discussion groups where your potential customers gather.
- Find out exactly what their problems, questions, and concerns are.
- Talk to your potential consumers, do some market research.
- Read industry blogs and articles to get an understanding of common issues.
- Think about the types of products and solutions that could meet customer needs.
- Establish who is already selling those products to consumers.
- See what sort of demand there is for products.
- Look at the quality, pricing, and other aspects of businesses already selling into that marketplace.
- Put together a list of the main competitors that you would be going up against.
Finding a Niche Product
Now you know where your skills and interests are, and what’s driving the purchasing decisions of your niche customers, you can source and locate products that can bring those areas together. You are looking for products that:
- You understand — based on your skills and interests, you know what the product is, what it does, how it can help people, and what the benefits are.
- Your consumers need — there’s a demand for the products and solutions you’re offering, based on the needs of your consumers.
- Don’t have much competition — there are not already hundreds of competitors in the marketplace that you would be going up against.
This will take time to do — finding a great product isn’t easy. It will require extensive research and legwork. But, it’s worth it. Identifying the right product, that you can market to the right people, in the right way, will give your dropshipping business an enormous competitive advantage.
What You Will Find in the Next Guide…
Sourcing Your Products and Finding Suppliers
- General Principles for Choosing the Right Products
- Establish There’s a Demand for Your Product
- Research, Research, and Research Again
- Avoid Produce and Perishable Goods
- A Step-by-Step Guide to Sourcing Products and Suppliers
- Create a Shortlist of Products You Want to Sell
- Search for Suppliers Online
- Locate Suppliers That Will Both Manufacture and Distribute Products on Your Behalf
- Understand All the Costs of Manufacturing and Distribution
- Understand Extra Costs Like Business Costs, Tariffs, Customs Fees, Taxes, and Currency Exchange
- Understand Return Policies and Complete Due Diligence
- Get a Sample of the Product So You Can Check Quality and Other Factors
- Set up a Formal Dropshipping Agreement With the Supplier