Author: Tina

by Margaret Lawrence

Etsy is often described as the “world’s largest flea market”. Since its beginnings in 2005, the company has created a vibrant on-line community of buyers and sellers of “handmade” and vintage items as well as craft supplies, it’s the online home for hobbyists who want to operate on a small scale.

Etsy’s successful niche strategy began by reaching out specifically to crafters, a group of sellers that are too small to be of interest to on line retailers eBay and Amazon. Founders Robert Kalin, Chris Maguire and Haim Schoppik molded these sellers into a cohesive user community by making buying and selling on Etsy a unique experience. Envisioning a virtual crafts fair, Etsy gives sellers their own storefronts where they can brand themselves by telling their stories and developing a close relationship with their customers. Sellers can express themselves and share their passion for their craft. Originally requiring that everything sold on the site be “handmade”, the company promises its buyers “something real from a real person” according to CEO Chad Dickerson. The vast majority of sellers are hobbyists operating on a small scale. The average sale on Etsy ranges from $15.00-$20.00 dollars.

A beautifully designed website and an ultra-efficient search engine encourage users to browse. Multiple tags identify items, making it easy to find what you want and discover new items in the process. Etsy uses “social marketing” very effectively. Buyers have the opportunity to “like” specific vendors, write reviews and share with friends. Visitors on Etsy linger an astounding eight and a half minutes. The company has defended itself from industry giants Amazon and eBay by keeping prices low. Vendors pay a 3.5% transaction fee and $0.20 per item for each listing. These prices are much lower than eBay’s 10% commission and Amazon’s 10-15%.

Since it began in 2005, the company has grown rapidly and attracted investment capital with an eye to continued growth. Success and rapid growth has, however, brought problems of its own. Etsy craftsmen sometimes need to work long hours to satisfy demand. Some sellers have become so successful that their “hobby” has turned into a small business and they are bumping up against the limits of their own labor. To maintain its “craft fair” image, Etsy originally barred its vendors from using outside labor to produce their wares. Successful vendors had to choose between limiting their growth, or leaving Etsy (or hope not to get caught outsourcing work). Backed by outside capital, and seeking growth of its own, Etsy changed its policy in October, 2013. The site now allows vendors to hire employees, outsource fulfillment and shipping, and manufacture products that they have designed.

Growth has brought Etsy to a crossroads often encountered by successful niche competitors. Can a company dedicated to DIY continue to grow? Has the company outgrown its niche? The company is at the point where it must choose between its core values and the growth their investors seek. They risk alienating their customer base and destroying the culture they have so carefully created. International competitors ezebee, Zibbit and MadeIt and, US based, Artfire are vying for disaffected Etsy vendors. Management hopes to continue as an online market for these solo crafters while also providing a platform for the small businesses that its most successful vendors have become.

The “game’s afoot” and it is too early to tell if Etsy’s shift in strategy will succeed. However, this company’s story offers some valuable lessons in niche marketing.

• Etsy successfully identified an underserved market: venders too small to succeed on eBay and Amazon.
• They created an on line site that fostered a sense of community that engaged and inspired participants.
• They followed up with a well-executed ecommerce strategy: a visually pleasing and user friendly website; opportunities for two-way communication between buyers and sellers to enhance trust and credibility; social marketing through Facebook type “like” buttons and buyer reviews; and excellent customer service.
• They are offering a new package of services to enhance the business platform they now provide their larger vendors.

The vast amount of information available on the net has made niche marketing cheaper and easier, especially for e-Commerce retailers. Market research can help identify underserved markets. Technology makes it easier to reach them. The ability to engage consumers and have a dialog (social marketing) creates trust and credibility. Niche marketing remains, as always, a viable strategy. However, as technology makes it possible to slice the market into smaller and smaller segments, it is more important than ever to ask the strategic questions:

• Is your niche sustainable?
• Can you defend the segment against competitors?
• Is there an opportunity for profit either in terms of higher margins or lower costs? and finally,
• Is there enough growth potential to make it worth the investment?

If you are looking for additional ways to tune-up your strategic planning process please download our complimentary ebook: Strategic Planning Tune-up: Ten Great Strategy Tips by clicking on: http://www.cssp.com/strategytips/.

by Margaret Lawrence

Good strategic planning begins with customer focus.  Knowing your market is critical, deciding which segments to pursue is a priority, but the process does not end there.  To compete effectively, you need to create value for your customers in ways your competitors can’t.   Look to your value chain to accomplish this. 

What is the value chain? It’s all of the activities that add value to your product or service.  As first defined by Professor Michael E. Porter, (1985) value chain analysis examines all of  the  resources such as raw materials, labor, capital equipment, etc. used  to create your products or services. Supporting functions such as R&D, information systems, marketing, sales and service are included and evaluated in terms of where and how they also add value.  This analysis can quickly reveal opportunities to produce better products and better serve your customer base.   

To see how well it works, look at Zara, a “fast fashion” retailer that has become the largest clothing retailer in the world. The company’s strategy is to delight its customers with clothing that mimics the latest in fashion at a reasonable price. Unlike their competitors who offer new designs at seasonal intervals, Zara ships clothing to its retail stores in small batches delivered at frequent intervals. Designs change frequently. Zara’s loyal customers know that new items will appear regularly, but also disappear quickly.  As a result, they visit the Zara stores more often and make more frequent purchases than typical shoppers, making parent company Inditex, one of the most profitable companies in its industry.  Zara has been so successful because all of the elements in its value chain, from raw materials to finished products hanging in their retail stores, work in harmony to support Zara’s strategy.

How does Zara do it? Some highlights:

  In this highly centralized company, things are done differently.

• High fashion items are produced at plants located at the company’s headquarters in Spain or nearby countries to guarantee faster response times and better quality control. Basic items that do not need to change quickly are manufactured in China at a lower cost.
• Zara owns or controls more than half its production facilities, considerably more than other clothing manufacturers. They have invested in high tech equipment and extra capacity that enable them to respond quickly to new fashion trends.  They are able to absorb these  higher manufacturing costs because their inventory turn is faster than industry norms, and less of their clothing is sold at a discount,
• Outbound logistics are centralized at headquarters. Finished garments are inspected, tagged and labeled at company headquarters, then delivered within forty eight hours.
•  Product designers get constant feedback from buyers in the store.  New trends are spotted quickly and designs change fast. Sales people are trained to get feedback directly from the customer to send to the designers on a regular basis.
• A sophisticated information system supports the smooth flow of information across all elements of the company’s value chain.

 Value chain analysis is a four step process.

• Identify the activities that form the value chain;
• Look for the ones that add the greatest value to your customer, and focus your attention on these. What resources can you add to improve your competitive position in these activities?  Are these activities aligned with your strategy?
• Look at costs. Where are you spending the most money? Where are your margins highest? Are you spending too much on activities that aren’t really adding value? How will you cut costs in non critical areas?
• Take a good look upstream and downstream, your suppliers and distributors, to look for ways to improve efficiency and add value.

Value chain analysis quickly identifies your competitive strengths and weaknesses. You will know where resources need to be applied either to improve the customer experience or boost margins by cutting costs.  

 To improve performance, optimize the value chain:

• Hire and motivate the right people with the right skills to support your strategy,
• Develop more efficient technologies and systems that support your objectives.
• Eliminate activities that don’t add value.
• Above all, focus on the elements of the value chain that create the most value for your customers.

Interested in more ways to improve your strategic planning process?  Download our Strategic Planning Tune-up book by clicking on http://www.cssp.com/strategytips/?blog.