Business

Urban Outfitters started out by selling its unique offerings, which were not available anywhere else. The brand focuses on a small and neglected segment that is of college students, of a large market. Its stores provided a unique experience. All of its stores and unique products have been adapted to cater to local market needs. In spite of competition from larger firms, Urban Outfitters has managed to build a strong customer base in a niche market due to its differentiated offerings.

Identify at least three challenges when setting up a business. Explain why they are challenges
Setting up a new business is like diving into a sea full of obstacles and risks. It is plagued with uncertainty and challenges. Some of the common problems faced by new businesses are lack of capital, inexperience of the management and tough competition from existing firms.

Lack of finances is a problem because new businesses mostly require an immense amount of startup capital which they find difficult to borrow from the bank due to lack of collateral and nonexistent reputation. Personal incomes and borrowings from friends and family do not suffice, and more often than not, firms do not have an option but to borrow from banks. Even if banks lend money to these businesses to fund their startup capital, they charge very high interest rates based on the amount of risk prevalent. Thus new firms get caught up in a vicious cycle of debt that often leads to their bankruptcy (Aspatore, 2002).

Inexperience of management is yet another problem with new businesses. The firm does not have a tried and tested way of conducting business hence all operations are based on trial and error. Some new businesses try to copy their competitors in their style of management. However there is not set way of conducting business and it must be kept in mind that policies and procedures that work well for one firm may not necessarily work for another. Hasty decision-making, short-term goals, inaccurate demand forecasting and inventory mismanagement often lead to business failures (Aspatore, 2002).

Yet another problem faced by new firms is the threat of competition. Large, well-established firms usually make it impossible for smaller and newer firms to survive. Existing companies are well-reputed and have loyal customers. To break through this barrier, build a good reputation and win over customers is a huge challenge for new businesses (Aspatore, 2002).

Define what a niche product is. Give at least three examples of niche products
A niche product is one that serves a small segment of a large market one that is overlooked by larger firms. Niche markets have unique needs and are often difficult to cater to. Urban Outfitters opened up with the concept of unique stores (Brown, 2004). All of its outlets were different in their own way, offering products that were unavailable elsewhere.

The Jaipur Foot organization in India for instance, caters to a niche market. It produces artificial limbs for the physically impaired people. There are very few customers, but they have highly specialized needs. Rolls Royce is another product serving a niche market. It is a highly customized car only for the very elite members of society. Another example of a company that served a niche market is the personal care brand Burts Bees. However its customer base has now expanded to include many more people. Initially it was created to appeal to the very few customers who were concerned about the earth.

Other examples of niche products include Diet Coke and Seven Up Free for the diabetic or weight conscious people, Milk with extra calcium in it, Skimmed Milk and Hearing Aids.

Explain why a niche company might have an advantage in a market. Would price necessarily be an advantage Explain why or why not

A niche company has the advantage of fulfilling a unique consumer need that is not being met by larger companies. It often offers customized products and deals in a smaller market, hence making it less costly and easier to predict sales and manage inventory. Advertising and production costs are low. Niche firms enjoy market leadership, the ability to focus and eliminate threat of competition. They have a small but highly profitable market (Grant, 1988).

All these lead to the niche company acting as a monopoly. Likewise, Urban Outfitters never faced threat from competition. It can exploit consumers because of lack of substitutes. For the same reason, it can charge premium prices for its products. For example, skimmed milk is more expensive than regular milk even if it costs less to produce, because it serves a smaller market. The volume sold is low. Hence the only incentive firms have of producing this product for a small segment is the large profit margins it offers (Aspatore, 2002).

Identify and explain three reasons why customers would pay more for exclusivity
 Nowadays most products are mass produced and customers are developing individuality and a desire to be different. Those who can afford it are opting for products that are unique. For example, instead of buying t-shirts from a wholesale market, people now prefer to buy one of a kind designer wear. They are willing to pay more to support an exclusive lifestyle.

Another reason why people pay more for exclusivity is that there is a lack of substitutes available for most of the niche products. Customers do not have a choice but to purchase the required item at a higher price. Yet another reason is the perception customers have of the niche product. They tend to believe in qualities of the product that may not even exist at times. Such customers are very loyal to the niche company and this loyalty makes them want to pay more to acquire the products.

Explain how a niche player chips away at a larger competitors base. Give three examples of retailers who have done this

In the age of mass production, customers are increasingly moving away from large stores and towards smaller, personalized ones. Niche companies provide products that accurately meet customers needs, serve them in a warm and special manner and are comfortable to deal with. Instead of visiting large departmental stores where they feel lost and unwelcomed, customers prefer to build relationships with smaller store owners (Aspatore, 2002).

Big Box Stores are large retail shops. Wal-Mart for instance has its big box stores. However, even if these stores offer the same products as the niche stores, they mass market it, thus making it less appealing to customers wanting special attention.

There is a lot of overlap between the personal care products offered by Johnson  Johnson and The Body Shop, yet many people prefer the latter. This is because they know that if they enter The Body Shop, its sales people will solve their problem by helping them out with the product they are looking for. On the other hand if they were to visit a supermarket, they would have to help themselves from the wide variety of products displayed.

Google is a large company. Its search engine is very thorough and can be used globally. However in China, Baidu is the leading search engine, not Google. This is because the former caters to the Chinese interests better. The management at Baidu has studied the market and understood its needs. Hence Google is facing tough competition in the most populous country of the world.

Metro, Wal-Mart and Sears are large stores. Due to their immense size they have large bargaining power with suppliers and enjoy economies of scale. They all offer a wide variety of goods under one roof, making it convenient for customers to shop at. However they seem to have become too large to offer personalized services to their customers. Small retailers such as dollar stores have taken advantage of this and spotted a niche in the market that they now successfully fill.

Metro, Wal-Mart and Sears however have responded by customizing parts of their businesses to cater to customers needs. For example, Wal-Mart analyzed the Chinese market and realized that people prefer to choose their own seafood. In order to cater to this niche, the store now has fish tanks containing live fish in China.

Conclusion
Urban Outfitters, founded by Richard Hayne, is a unique brand serving the niche market. Its products cater to a small and neglected segment of a large retail market, that is, college students. The lack of competitors gives the company an edge. Besides the niche products it offers, it also provides consumers with an experience that is lasting and personalized. Urban Outfitters has thus managed to build a loyal customer base (Brown 2004). Its stores have products and interior adapted to suit the local market. Even if big box shops offer similar products, customers will still prefer to visit Urban Outfitters for the warm and comfort it offers (Grant, 1988). At times, they will even pay a higher price in return for something that more closely meets their interests.

Large stores enjoy economies of scale and many other advantages that often serve as a barrier to entry for small and new firms. However these new firms, catering to niche markets, are a source of threat to the larger firms as well because of their customized products and services  something the larger stores lack. Despite problems like lack of finance and management inexperience, smaller firms are more focused, have smaller production scales, less inventory to manage and differentiated product.