Prices on niche products continue to rise while other prices fall

Symptom: Prices on niche products, those not subject to competition, have continued to rise at or above the rate of inflation.

Implications for the market:

  • Eventually, prices in these currently attractive product segments will fall.

    • For the time being, the new entrants are leaving these markets alone because they have ample opportunity for further penetration of the markets they are currently serving. They have not faced the need to add lower volume products–yet.

    • When opportunities become more limited in their current markets, these new entrants will have ample opportunity to shift profitably into other markets with lower volume but higher returns.

  • Margin pressure in the overall market is liable to last a very long time because of these high margin niche sources of refuge and growth. These niches allow companies to survive in the market and they encourage competitors to enter–increasing competition in the niche and extending the period of the industry's hostility.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Hostility in a Differentiated Market"
    A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.

  • "Can We Raise Margins With A Price Increase?"
    Before a company commits itself to a price increase, it should check marginal costs in the industry and the ability of low cost producers to expand.

  • "The Grasshopper and the Ant"
    Leaders of industries coming out of hostility would do well to remember the grasshopper and the ant. Hostility, like winter, always returns.

  • "The Wisdom of Salomon"
    In the late 80s', the investment banking firm of Salomon Inc. decided to leave the municipal bond market – a market the firm had lead. This withdrawal showed just how limited management's options are when a market goes into overcapacity and how the best choice under such conditions may be the painful decision to leave the industry.