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