Business

1. Identify four challenges when setting up a business. Explain why they are challenges.
Demand A major challenge is ascertaining the demand for the business productservice. If there is no proper market research to find out the viability of introducing its product into the market, then there is a great possibility that the business might fail.

Capital A business needs money to start up and keep running. Acquiring finances is possibly the most difficult thing for a new business as the owners may lack the initial required capital, or they may face difficulties in persuading investors.

Human resource It is hard to find good workers and then retain them.  Hence it is always a challenge to manage employees and enhance their productivity for the benefit of the business.
Marketing Profits are hard to come by if the product does not sell which is why marketing is extremely important. But it is difficult to find the perfect marketing mix that would be cost effective while selling the product.

2. Define what a NICHE product is. Give four examples of niche products.
A Niche product is a specialized product made for a small but profitable market. Examples are
Solar panels
Supercars
Organic food
Designer dresses.

3. Explain why a niche company might have an advantage in a market. Would price necessarily be an advantage Explain why or why not.
An advantage for a niche company might be in the concentration of resources in only a small area for success. It can readily adjust to the demands of its small market to increase profitability.
Price can be advantageous to a niche company, as it can charge more for its specialized products than what big companies can charge for their products targeted at the masses. The high prices can be justified with the specialization, customization and brand name of the niche product. The niche companies would thus increase profits through higher margins.

4. Identify and explain four reasons why customers would pay more for exclusivity.
Differentiation Customers would pay more for a product that they feel is differentiated from the usual lot. The customers see a special value in these specialized products, for which they are willing to pay a premium (Betty Jane Punnett, 2006).

Specialization Niche products specially cater to a particular markets demand hence these customers accept high prices on something that meets their specific requirements.

Power of supplier In a niche market, the power of a supplierproducer is high since their servicesproducts are not widely available, they can charge a higher price. Since niche target wants these products, they would be willing to pay more for something that is not available everywhere.
Brand name A niche company can easily gain strength in a market with few competitors and quickly make a name for itself. Loyal customers pay a premium on the brand name that may be associated with prestige, innovation, exclusivity etc.

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

The niche player has the advantage of providing specialized products, specifically customized to customers needs so that it manages to satisfy the demand of a particular market segment that is neglected by the large competitors. Hence it develops customer loyalty and gains a market share. Since niche players do not spend as much on marketing as large players do, this cost saving allows niche players to even lower prices to the mainstream competitors level. In this way they manage to slowly chip away at the large competitors base.

Examples of such niche retailers are
Toyota Prius hybrid against average petrol-consuming saloon cars
Na Hoku jewelers against Wal-Mart
Corn Huskers moisturizers against lotions by skincare manufacturers
PowerBar against usual snackfoods.