Finding your niche

Finding your niche

The mantra du jour being chanted by business gurus from Parramatta to Perth is "get big, get niche or get out". Like tinnitus, the phrase constantly rings in the ears of small to midsized resellers. Caught in the rat race of shrinking margins and expanding competition, they wonder if now is the time to look for an escape hatch and, if so, which of the three exits on offer is best. Peter Young investigatesGetting out appeals only if you've got somewhere else to go. That leaves the niche or specialist role as the most alluring of the three above options, at least in theory. But niche resellers have their own portfolio of pitfalls and challenges. Some niche product marketing suffers from an inbuilt self-destruct button. For example, specialist resellers can invest time, energy and money creating market awareness for a new product. Then, just as the market matures to the point where they're ready to start cashing in on their investment, the supplier goes to a mainstream market strategy and margins go south.

"The suppliers beat a path to your door when you are the experts in an area where they want you to pioneer a market," complained one veteran reseller of specialised graphics equipment. "But the minute you prove the market, they knock on the doors of Tech Pacific and suddenly you have 3000 competitors out there."

The trick for a specialist reseller is to keep looking ahead for the next product, so that "basically, every two or three years you jump from one running horse to another and hang on like hell".

One trend gaining momentum among niche players is a shift toward greater co-operation and sharing of resources. In a sense, the trend is an example of how a company can simultaneously get big and get niche.

"We have struck more partnerships and relationships with other specialist companies in the past 12 months than we did in the previous six years," says CAD Group director John Preston. Headquartered in Sydney, CAD Group is a nine-year-old consulting and systems integration company employing 20 staff in five specialist divisions from publishing to web development.

Stand-alone bid

Like most specialist organisations, CAD Group's spread of in-house skills doesn't allow it to make a stand-alone bid on enterprise-wide solutions. But that drawback disappears when it combines its skill sets with those of complementary companies.

"We are forming a significant number of partnerships with similar companies who each offer part of an enterprise solution," says Preston. "It is helping us in a big way. It introduces us to opportunities, courtesy of our new partners, and gives us the appearance of a much larger organisation."

The trend has emerged in the past two or three years but has accelerated markedly in the past 12 months, Preston said. It allows smaller specialist companies to buck the globalisation trend and compete on a more equal footing with industry giants such as IBM Global Services.

It also fits well with the preference of corporate customers to deal with a one-stop shop supplier of IT services.

The mainstream world has no monopoly on margin squeezing, according to Barry Grant, managing director of printer specialist Southern Graphtec Systems.

Dwindling margins are just as serious a fact of life for specialist resellers who are under the same pressure as their mainstream cousins to generate more volume to make the same profits.

Additional pressure

But niche resellers face additional pressure because suppliers of specialty equipment find it hard to get a realistic fix on Australian expectations and sometimes over-estimate the volumes the market here can support, Grant said.

The fact that the Australian market is an early adopter of new technology adds yet another twist to that equation. "We find we can sell a product for 12 months before the rest of the world comes online," said Grant.

But a year further on, with demand ramping up in other geographical markets, suppliers expect to see their Australian sales increase in step with the overall rise. The problem is, their heightened expectations neatly coincide with a tapering off in demand in Australia where the product is already coming off its life cycle.

The mismatch often leads to friction with suppliers, Grant said. Southern Graphtec Systems, a 10-year-old business headquartered in Sydney, is the agent for Encad's NovaJet Pro inkjet printers. It plays in the computer aided design and geographic information systems markets, plus computer graphics.

"Every year brings different kinds of pressures," said Grant. "We are continually looking for new opportunities within the field of print specialisation. In the past decade we have diversified from CAD into signage into graphics and now we are going into other markets like textiles."

Its core NovaJet product is coming under attack from Hewlett-Packard, which is pushing into the poster printer market. The scenario of a mainstream competitor muscling into a niche market is one that Grant is only too familiar with. He doesn't take it lightly, but argues that niche resellers have a few strengths of their own.

"HP must be respected because when they put their minds to owning a market, they are very aggressive. As time goes on, they will buy their way into a greater market share.

"However, we have significant advantages. We have speed, we have market penetration and we have a lot more expertise than anyone in Australia. We also have a very good channel that has stayed loyal to us."

But a fresh flow of new products is a vital ingredient for specialist resellers and Grant believes the rush of innovation is slowing down in his niche, making it more difficult to come up with the next great thing. "We bring in an exclusive range of products so I go overseas to source product brands that are not represented in Australia and which give us something new to offer the channel.

"But where I used to find three or four exciting new products a few years ago, now I can go over and find nothing much new."

Niche marketers like Southern Graphtec probably put more emphasis on having good staff than general resellers. "We pride ourselves on the way we respond to our customer base. But I have to look for exceptionally good staff to cope with the downturn in the economy and the upturn in competition," Grant said.

Graphtec's business model calls for it to act as an importer as well as a distributor and reseller so exchange rate fluctuations create a major headache for Grant. "Over the years, the variation in the exchange rate between the Aussie dollar and the US dollar or the yen has been horrific.

"Because of the competitive nature of our product, we can't be seen to be changing prices every week so the exchange rate affects our business considerably.

"We have always acted as an importer/distributor and it gives us more control over our pricing but you need to manage a very complex formula that includes the economy, the exchange rate and some forward planning."

One key to longevity for a specialised reseller is to provide an exclusive range of products which are safe from serious competition by the low-price, high-volume brigade.

Another is to enjoy a steady demand for consumables or another revenue-generator that guarantees a steady cash stream between sales of big-ticket items. But for niche businesses that don't compete on price, customer loyalty is the ultimate ace-in-the-hole.

"Most people selling on volume-based price discounts don't provide installation or training," said Daryl Eames, general manager of colour printer specialist Colorplus Australia. "If you provide those services, the majority of customers will stay with you instead of buying on price and we find about 60 to 70 per cent of our business is repeat trade.

"You can never stop people from shopping around and price comes into it but we have found that if you have given service and built loyalty when you first introduce a product into a business, the customer won't go elsewhere."

Like Southern Graphtec, Colorplus has been in business for about a decade. In that time, it has grown as the demand for colour printing by business has grown. Eames expects competition to keep building and prices to keep dropping but believes the structure of his business will keep his company relatively safe in its specialised niche.

In the high end, the more a customer spends, the more questions he asks and more detailed are the answers he expects. "We quite often find people who bought on price and then come to us after six or 12 months because what they bought was not appropriate for their application in terms of speed or print volumes or whatever.

Customer education

"When it comes to colour printers, customer education is still a vital necessity. These days the technology is making certain types of colour printers more flexible and a number of people are selling similar products. "But there are big differences in the way they perform and our edge lies in knowing those differences."

Besides providing expert knowledge and services, Colorplus gleans significant revenues from selling consumables for which it has built a national distribution system. "I would like to think there will always be a role for the specialist," Eames said.

"We provide more services than someone selling on price alone so in that respect we are more elite (than a general reseller). But it is not as specialised as you might think because very few of us concentrate on just one product anymore."

Follow Us

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Brand Post

Show Comments