What Are Gaps in the Market and How Do You Identify Them?

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Definition
A gap in the market is an opportunity to offer something that customers want but that businesses aren't currently providing. The term "gap" refers to the difference between supply and demand for that offering.

Key Takeaways

  • A gap in the market is an opportunity to offer something that customers want but that businesses aren't currently providing.
  • The term "gap" refers to the difference between supply and demand for that offering.
  • For example, Netflix filled a market gap with its DVD mail-order rental business, competing with Blockbuster Video. By 2010, Netflix streaming eventually bankrupted Blockbuster.

Examples of Market Gaps

Market gaps are opportunities disguised as voids. A gap in the market is a place or area that current businesses aren’t serving.

Netflix

Netflix has filled multiple market gaps over the years. In 1997, the company began by renting out DVD movies by mail for a monthly fee. In 1998, the company had a DVD rental website competing with Blockbuster Video, which had brick-and-mortar stores.

The company was one of the first successful DVD rental companies online and surpassed one million customers by 2003. The company introduced its streaming platform, and by 2009, had 10 million customers, while in 2010, Blockbuster filed for bankruptcy. As of 2022, Netflix is in 190 countries with 200 million customers globally.

Whole Foods

Whole Foods fills the market gap that occurred when health-conscious consumers wanted a central, convenient place to shop for organic, healthy, and natural food products. In 1980, the first Whole Foods Market opened in Texas, while the U.S. had only a few natural food supermarkets at that time.

By 1984, the company expanded throughout Texas and the southern U.S. By the 1990s, the company was acquiring other natural food stores on the West Coast and the Northeast. As of 2022, Amazon.com owns Whole Foods, which it acquired in 2017.

How To Find Market Gaps

Whether you are starting a small business or looking for growth opportunities in your current business, market gaps can be amazing sources of inspiration for your next big idea.

Assess Your Strengths

It’s not just the right idea you are looking for—you must find the right idea for the right person. It doesn’t do you any good to find a gap in the market that you can’t take advantage of. So before you start to look for market gaps, it only makes sense for you to know exactly where your strengths lie.
Start by making a list of your perceived strengths. Use past experiences to guide you.

Think about what you’re most happy doing. Think about what you have the most success doing. Revisit old critiques or performance reviews to pick out anything that might give you some insight. Reach out to colleagues for honest feedback that can help you figure out what specific strengths you could bring to the table. Consider taking a professional aptitude test, which could identify areas of strengths you can explore in a small business environment. 

Consider Niche Markets

Small business owners often think too broadly when it comes to the market. However, it is always better to think small when it comes to gaps in the market. The more specific your market, the more likely you’ll be able to target them effectively.

How niche is too niche? Well, you want to make sure that the market is big enough to sustain growth. It should have many existing products because that shows you that there is demand in the market. There should also be an easily identifiable customer base. Without those things, your niche market is not big enough to support a small business.

Niches markets are also great places to copy a market gap. If you see that someone has successfully filled a gap in the market in one industry, you could recreate that success in a similar one. For example, if something has worked in women's clothing, consider applying that to tweens' or children’s clothing. If something has been successful in one subset of medical supplies, try it in another one. 

Follow Pending Legislation

Sometimes, an industry can go through big changes because of legal reasons. Local, state, or federal legislation can create market gaps because it can force an entire industry to make changes it wouldn’t have done otherwise. If you can successfully forecast those changes, you can identify market gaps early and do it in time to take advantage of them.

Keep up with proposed legislation by staying abreast of industry laws. You can also sign up for updates from trade organizations, which often track pending legislation and send out analyses to subscribers. At the very least, you can create Google alerts for certain keywords. You’ll get emails each time they appear in the news. 

Identify Unsolved Problems

When you boil a market gap down to its very essence, it is an answer to a problem that’s not currently being solved. Solving an existing problem will endear you to consumers and cause your products to practically sell themselves. 

Customers Can Identify Market Gaps

A straightforward way to find those hidden gaps is to ask your potential customers what they are missing in the current market. You can do that by researching industry trends.

Customer surveys may provide a lead in the right direction. You could also do some research into current customer gripes by simply going over the worst reviews of the competitors. That can give you some insight into what your competitors aren’t doing right and give you the chance to do it better. 

Focusing on a market gap also helps you make sure you avoid diving into a market that is already oversaturated. After all, a saturated market is often a dead-end for new businesses. So with these tips, make sure you identify and describe your target market and reasons for choosing it in your business plan.

Frequently Asked Questions (FAQs)

Why do gaps happen in the market?

Market gaps can occur due to technological advances or changing consumer behaviors and tastes. Also, established companies may fail to see changes within their market.

For example, Netflix filled a market gap by offering DVD rentals via mail-order, competing with Blockbuster Video, which failed to see the demand for online DVD rentals. In 2010, Blockbuster filed for bankruptcy, while as of 2022, Netflix streaming has 200 million customers globally.

What is a gap analysis?

A gap analysis is a needs assessment to ascertain if a company's business or performance objectives are being met. If the company is failing to meet its goals, the analysis provides clarity as to where the issues or gaps are located and outlines the steps needed to close the gaps, putting the company back on track to meeting its performance objectives.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. United States Securities and Exchange Commission. "Form 10-K, Blockbuster Inc.," Page 3.

  2. Netflix Inc. "About Netflix."

  3. Whole Foods Market. "Whole Foods Market History."

  4. Whole Foods Market. "Amazon To Acquire Whole Foods Market."

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