IB Business Management HL 4.2.3 Niche and Mass Markets Questions

ReVolve Ltd (RV)
ReVolve Ltd (RV) manufactures and sells high-quality, high-priced bicycles to high-income earners. Operating in a niche market, its advertising slogan and unique selling point/proposition (USP) is "hand made to order, in the USA, delivered within seven days". Brand loyalty is strong, but brand recognition outside of its customer base is weak. 98 % of its sales are to customers living within 50 miles of the business.

Prior to 2017, RV received an increasing number of customer complaints that phone lines were often engaged and calls not returned. As such, it adopted e-commerce. Its website now allows customers to:
- customize their choice of bicycle
- place orders
- pay for purchases
- have their questions answered.
RV employs 20 highly paid, skilled employees using job production. To retain these workers, RV has raised their wages significantly since 2016.

Increasing competition from imports of hand-made high-quality bikes has forced down prices in this niche market. RV has been making increasingly larger losses since 2017. In 2020, its sales fell by 15 %. Inflation is forecasted at between 2 % and 3 % for the next three years. As such, RV's directors are considering two options to enable it to lower the prices of its bicycles.

Option 1: Offshore production to China, where production costs are significantly lower. The bicycles would be manufactured using batch production. RV would focus only on the design and marketing of its bicycles.

Option 2: Invest in new job production techniques that enable parts to be glued rather than welded, which only requires unskilled labour. Investment would cost $ 3500000 and the forecasted annual net cash flow is $ 600000.

Define the term niche market.