Niche vs Commodity in Early Stage Commercialisation

One of the most important take home messages I have found while researching entrepreneurs for this unit, is that those that are successful don’t begin with the goal of making money – they are just doing what they love and the money comes later, once the business is successful.
This could be where niche markets are born, because if you have an idea you think is commercially viable for a specific group of people, that’s a niche market. It is born from people doing what they love, as opposed to trying to flog off a commercial product. The money comes later.
Niche markets are generally undiscovered territory. The people working in them with their ideas and products are going it alone, where as the commodity driven commercial products generally have legacy statistics to back up their business decisions as to when who and how, and so on!

 In Hofstrand’s article he discusses commodities and differentiated products as existing on opposing ends of a spectrum. He explains the differences between the two bluntly without faff, which is helpful! So on the most fundamental level, commodities are identical from others like them, they are “fungible”, and people that produce them are referred to as “price takers”. This is because the producers have no say over what their product is worth. Because it is the same product across the board, the buyers do not care where they get the product from, only how much.

Differentiated products on the other hand are exclusive, which means the producer can charge more for it under the premise that it is better than those that came before it. The producer of the differentiated product is known as the “price maker” as opposed to taker. They make the price because it’s their individual product that the consumer seeks. Hofstrand discusses that perceptions are everything. If the advertising for the product can persuade the consumer that it is better, it may not necessarily be better, but it is successful. He further discusses commodities mimicking niche markets, by merely changing labels, and says this only puts you in a smaller commodity market. While this still does not make you niche, product differentiation is a positive thing.

Hofstrand’s article was interesting and easy to read and understand. It took me quite a few articles to get my head around the subject, even though they both seemed pretty obvious during workshop presentations. When he explained product differentiation he used organic milk as an example, stating that it was only marginally different from the others, but that small margin of difference is product differentiation, which adds to the value. This demonstrates to me that while the production of commodity might not be as rewarding as niche, there is still room to move. This is important especially during early stages of production because why would someone change from a tried and tested product, over to a new one, if it was the same?

Hofstrand, Don (2007) http://www.extension.iastate.edu/agdm/wholefarm/html/c5-203.html