Are micro brands the way of the future?

The ease with which creative entrepreneurs can start up a business, produce goods and services, and market themselves has led to a proliferation of micro brands, which target very narrow demographic profiles with often surprisingly profitable results.

Smart entrepreneurs are using digital tools and the internet to target highly defined segments at global scale. Can big brands withstand this death by a thousand cuts inflicted by micro brands? Or will micro brands continue to proliferate as niche offerings that give consumers alternatives and complements to big brands?

Investor and entrepreneur Scott Belsky raised some of these questions in a very interesting post about micro brands on Medium. Belsky had noted how many more micro brands he had been seeing, especially on Instagram, and that some of these brands have developed into highly profitable businesses with lean overheads and highly targeted marketing strategies.

“I think this mass of micro brands with massively efficient marketing are, in aggregate, having a much bigger impact than anyone thinks. Using hyper-targeted marketing, just-in-time manufacturing, and social media, these brands find and engage their audience wherever they may be,” says Belsky.

“Now I’m hearing about more and more of these brands with tiny teams generating over $10m in sales, with higher-than-normal-retail profit margins.”

I have noted this phenomenon more frequently over the past couple of years, both in my work with Bendalls and as a consumer. In fact, starting up The Female Social Network has exposed me to ever more creative, ingenious and profitable micro brands across all sorts of industries and sectors, from B2C goods through to B2B services. Entrepreneurs are spotting market gaps and using the tools at their disposal to solve problems and satisfy needs and wants.

As an example, I plugged “ethical vegan high heels” into Google and received plenty of shopping options in return:

Interestingly, when I clicked on that first link for the Ethical Elephant website, the article had a couple of comments that, in effect, suggested there should be more affordable and hard-to-fit options listed too. These options would further narrow the product category. You would go from the search term “ethical vegan high heels” to “affordable ethical vegan high heels for narrow/wide feet”.

The demand for ethically sourced and made products has increased over the past decade, as has interest in vegan products. Both of these identifiers would have been considered marginal to marketing efforts not so long ago, but they are now sufficiently crucial to enough consumers as to make it viable for lots of brands (big, small and micro) to compete in this space.

This is happening across all sorts of sectors and is part of what has been called the “long tail theory”, an idea first developed by Chris Anderson to talk about how the internet was changing distribution methods and consumer tastes:

“The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of “hits” (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare.”

A number of factors have facilitated the continued growth of micro brands as they ride the long tail of internet search to profitability. As Anderson says, the fall in costs of production and distribution is the key driving factor. Almost anyone can come up with a product idea and outsource its production, for example, to factories in China or software developers in India. These products can then be cheaply and quickly distributed through methods like drop shipping for physical goods or download for digital products.

Some of the other factors are:

• Development of international markets allowing micro brands to target the same or similar demographic profiles across several markets, giving them scale to reduce per item/transactional costs;
• Consumer desire for more choice, greater individuality, and more customised options;
• Development of “tribal“ online communities sharing information and recommendations, with influencers and effective advocates driving relatively small but high-participation communities of interest bonded by a shared passion or interest;
• The growth and proliferation of ecosystems and subcultures encouraging the creation of more micro businesses and brands that identify gaps to be plugged; and
• Smart keyword search strategies that help micro brands become prominent for certain key search terms that they can dominate ahead of big brands.

Another factor in all of this is that entrepreneurs who keep things lean and agile can quickly spin off new brands as they spot emerging niches. That gives them an advantage over big brands, which generally have a lag time in getting new products to market, especially in niche categories. As consumer tastes become more specialised and refined, big businesses will either have to accept that a chunk of their potential market is going to go for micro brands, or try to play the game by spinning off their own micro brands when viable — a game they might find hard to win.

It’s unlikely we’ll see big brands with mass consumer cut-through entirely disappear, but the businesses behind these brands definitely have to factor into their strategies how they will deal with the piranha bites micro brands are taking out of their brand value and profits.

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