Etsy: Can a company outgrow its Niche?

by Margaret Lawrence

Etsy is often described as the “world’s largest flea market”. Since its beginnings in 2005, the company has created a vibrant on-line community of buyers and sellers of “handmade” and vintage items as well as craft supplies, it’s the online home for hobbyists who want to operate on a small scale.

Etsy’s successful niche strategy began by reaching out specifically to crafters, a group of sellers that are too small to be of interest to on line retailers eBay and Amazon. Founders Robert Kalin, Chris Maguire and Haim Schoppik molded these sellers into a cohesive user community by making buying and selling on Etsy a unique experience. Envisioning a virtual crafts fair, Etsy gives sellers their own storefronts where they can brand themselves by telling their stories and developing a close relationship with their customers. Sellers can express themselves and share their passion for their craft. Originally requiring that everything sold on the site be “handmade”, the company promises its buyers “something real from a real person” according to CEO Chad Dickerson. The vast majority of sellers are hobbyists operating on a small scale. The average sale on Etsy ranges from $15.00-$20.00 dollars.

A beautifully designed website and an ultra-efficient search engine encourage users to browse. Multiple tags identify items, making it easy to find what you want and discover new items in the process. Etsy uses “social marketing” very effectively. Buyers have the opportunity to “like” specific vendors, write reviews and share with friends. Visitors on Etsy linger an astounding eight and a half minutes. The company has defended itself from industry giants Amazon and eBay by keeping prices low. Vendors pay a 3.5% transaction fee and $0.20 per item for each listing. These prices are much lower than eBay’s 10% commission and Amazon’s 10-15%.

Since it began in 2005, the company has grown rapidly and attracted investment capital with an eye to continued growth. Success and rapid growth has, however, brought problems of its own. Etsy craftsmen sometimes need to work long hours to satisfy demand. Some sellers have become so successful that their “hobby” has turned into a small business and they are bumping up against the limits of their own labor. To maintain its “craft fair” image, Etsy originally barred its vendors from using outside labor to produce their wares. Successful vendors had to choose between limiting their growth, or leaving Etsy (or hope not to get caught outsourcing work). Backed by outside capital, and seeking growth of its own, Etsy changed its policy in October, 2013. The site now allows vendors to hire employees, outsource fulfillment and shipping, and manufacture products that they have designed.

Growth has brought Etsy to a crossroads often encountered by successful niche competitors. Can a company dedicated to DIY continue to grow? Has the company outgrown its niche? The company is at the point where it must choose between its core values and the growth their investors seek. They risk alienating their customer base and destroying the culture they have so carefully created. International competitors ezebee, Zibbit and MadeIt and, US based, Artfire are vying for disaffected Etsy vendors. Management hopes to continue as an online market for these solo crafters while also providing a platform for the small businesses that its most successful vendors have become.

The “game’s afoot” and it is too early to tell if Etsy’s shift in strategy will succeed. However, this company’s story offers some valuable lessons in niche marketing.

  • Etsy successfully identified an underserved market: venders too small to succeed on eBay and Amazon.
  • They created an on line site that fostered a sense of community that engaged and inspired participants.
  • They followed up with a well-executed ecommerce strategy: a visually pleasing and user friendly website; opportunities for two-way communication between buyers and sellers to enhance trust and credibility; social marketing through Facebook type “like” buttons and buyer reviews; and excellent customer service.
  • They are offering a new package of services to enhance the business platform they now provide their larger vendors.

The vast amount of information available on the net has made niche marketing cheaper and easier, especially for e-Commerce retailers. Market research can help identify underserved markets. Technology makes it easier to reach them. The ability to engage consumers and have a dialog (social marketing) creates trust and credibility. Niche marketing remains, as always, a viable strategy. However, as technology makes it possible to slice the market into smaller and smaller segments, it is more important than ever to ask the strategic questions:

  • Is your niche sustainable?
  • Can you defend the segment against competitors?
  • Is there an opportunity for profit either in terms of higher margins or lower costs? and finally,
  • Is there enough growth potential to make it worth the investment?

If you are looking for additional ways to tune-up your strategic planning process please download our complimentary ebook: Strategic Planning Tune-up: Ten Great Strategy Tips by clicking on: http://www.cssp.com/strategytips/?blog.

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