What is a Target Market?
Every business sells its products or services to a particular set of customers. For example, some plumbers focus on residential customers within a certain town, and others focus on large commercial customers which operate in particular industries and are based in a particular city. Even though both businesses offer plumbing services, they target different groups of customers.
It is not enough to simply identify that ‘people’ are likely to want your product. Instead, you need to have a clear picture of who these people are. If there are many types of people who are, or could be, interested in what your business has to offer, it is still very important to decide who your target market will be, or should be.
Knowing who wants to buy your product or service and what motivates their buying decisions is vital to success. It enables you to market your business in a way that will appeal to these people. When you instead try to sell to every possible customer, you will be wasting time and resources. In fact, when you target everyone, there is a risk that your marketing efforts will appeal to no one at all.
The process of finding a target market is reasonably simple. You will not be trying to sell to every single person in the world, so your first job is to divide up the total market into various market segments. There are many ways to divide the total market. For example, some popular ways are shown below.
If you will be targeting businesses instead of individuals, you can segment the market based on factors such as the industry the business operates in, the number of employees it has, where it is based, and how large its turnover is.
When you segment a market, you do so based on a combination of factors. For example, first you may segment it based on the customer’s location, then based on income levels, social groups, and attitudes.
Just as there are a number of ways to slice an apple, there are many different ways to segment a market.
After segmenting a market, the next step is to select which market segment(s) your business wants to target.
It is best to be as specific as possible. For example, it could consist of: women, aged 35 to 65, who are employed in high-income roles (salary of at least $80,000), located nationwide in New Zealand, who have interests in organic and environmentally-responsible products, and are prepared to do most shopping online (even grocery shopping), in order to purchase such products.
The more specific you are, the easier it will be to understand what your customers want, how they buy, where they are, and what marketing messages will appeal to them.
Look at Existing Customers First
If you are in business, you will already have existing customers. Looking carefully at who these customers are can help you understand who your target market could be. Try to identify groups of existing customers. For each group of customers, ask yourself:
- What features do they have in common that might be causing them to buy from you?
- What features do they not have in common? What sort of people are not your customers?
- Where do they come from? Are there any people who come a long way to be your customers? Why?
Once you have made a list of all the features your customers have in common, ask yourself which of these features are the ones that are really motivating customers to come to your business. Be honest and realistic.
For example, it could be the case that a number of your customers have purchased from you simply because you had a pop-up store in a convenient location. Once the shop closes, they are unlikely to continue to be your customers.
Remember that just because your customers have a feature in common, it does not mean this feature is the one that is causing them to come to you. If, for instance, you only serve your delicious food to younger people, this might simply be because older people have not yet heard of your business, or because you have located your business near a tertiary campus. In this case, the fact that your customers are all younger people is accidental. It could be a mistake to then target only young people, because you would be missing out on all the older customers who would love your food, if only it was marketed to them.
Understanding who your current customers are can help you identify strengths and weaknesses of your business. For example, if your customers seem to be coming only because you are local, then you will have a problem if a competitor decides to open new premises nearby.
Who Should You Target?
If you are currently targeting a particular market, it does not necessarily mean that this market is the best one for your business. You might be missing out on sales by targeting the wrong customers. Modifying your target market could cause an increase in sales, so research is vital.
The right target market will allow you to reach your business goals in the most efficient manner. This is usually the target market which will generate the most profit. However, if you have other goals (social, environmental, or cultural), the target market which provides the most profit is not necessarily the best for you.
Sometimes you might be better off targeting a whole new group of customers (maybe in addition to current customers). This could happen if your existing customer base is shrinking – you will need to find a new set of customers before it becomes too small to support your business. For example, fewer children in New Zealand now cycle to school, but the bicycle industry has compensated for this by marketing their product to adults among whom cycling has become more popular.
Alternatively, you may have more than one target market. Sometimes new groups of customers just present themselves to a business for reasons that might initially seem strange. You might already have small groups of customers from a new and potentially lucrative target market. Take the example of the workwear industry: a number of manufacturers have discovered that some young people wear their products for fashion reasons – they therefore choose to also target this group of customers who have little, if anything, in common with their original target market.
When you are trying to decide whom to target, think about factors such as:
- Who purchases the most profitable products?
- Who purchases the most often?
- Who is likely to be more loyal / stable? Is there any group of customers who could sign up to some type of plan to purchase on a regular, ongoing basis?
- Who is easiest to access? What are the costs involved in reaching each group of customers?
For example, if there is a particular kind of person who buys your most expensive products which have the highest profit margins, consider whether you can focus your marketing on reaching others in that group, perhaps those who live elsewhere. Doing so will help increase sales turnover and profits because each sale made will be for a higher value. However, you will need to take into account the costs of reaching people within the particular target market. If they are expensive to promote to, your profit margins will shrink.
You can also look for ‘gaps’ in the market. These are groups of people who are currently not anyone’s customer and who have a need that no business is catering to. There is the potential to build a strong position in the market by getting in first and catering to this need before any other businesses do.
You do not have to have a new and innovative product to take this approach. For instance, if there are no businesses in the area which specialise in installing insulation into homes, a local builder may decide to target this market instead of competing against all other builders for general building work. Even if other builders start to offer the service, the initial builder may be the one who is associated most with insulation services.
A useful way of working out your target market is to visualise your ideal customer. Think about what they look like, how they behave, what they think, and what they do. Creating a ‘buyer persona’ can help you clarify who your customers are.
A buyer persona is a semi-fictional representation of your ideal customer – you are basically creating an imaginary person. Visualisations like this can help you notice things about your target market that you had not noticed before.
Explore Your Market Size
Once you have a detailed picture of your target market, you need to figure out how large it is. That is, you will need to conduct research to see how many people fit your customer profile(s). This is important because you need to be confident there are enough customers within your target market to support your business.
For instance, if you have decided your services will most likely be purchased by businesses within the surrounding 100 kilometres which have 10 to 50 staff, find out how many businesses of that size exist in your area and where they’re located.
You can use data which already exists to estimate the size of your target market. Often, the best source to use is Statistics New Zealand and, in particular, data from the Census which is conducted every five years.
Also conduct research to check whether your ‘ideal customer’ will, in fact, want to purchase your products or services, and whether they will do this as often as you think they will and at the prices you expect them to pay. This is best done through primary research – that is, gathering data directly from potential customers through, for example, surveys or focus groups.
If your intended target market is not large enough, you will need to adjust it. Then you should conduct more research to see how many people fit the profile of the new target market!