Defining Your Target Market for Business
Lisa M. Harding. MBA, BSc
Investment Officer
Private Sector Development Division
Caribbean Development Bank (CDB)
So, now that you have decided to explore entrepreneurship as a viable career option, and are convinced that a business plan is indeed important, let’s tackle a simple but often under-emphasized aspect of your business venture, by asking two simple but profound questions - "who needs your products or services?" and "why?"
If your answer is “Everyone”, unless you are selling oxygen, then you are wrong! You have just committed one of the most prevalent, costly and sometimes irreversible mistakes in business planning, that is, not carefully and thoughtfully defining a target market for your product.
A target market is defined as a specific group of consumers with similar needs at which a company aims its products and services. A well-defined target market is the first element to a marketing strategy. The target market and the marketing mix variables of product, place (distribution), promotion and price are the four elements of a marketing mix strategy that determine the success of a product in the marketplace.
Similarly, target marketing involves tailoring the company's marketing efforts to appeal to a specific group of customers. Selecting target markets is part of the process of market segmentation — dividing an overall market into key customer subsets, or segments, whose members share similar demographic characteristics and needs. Consumer market segments are defined in terms of geographic (place of purchase or use), demographic (age, income, occupation of consumer, ethnicity, marital status, education, interests), and psychographic (buying motives, product usage level, lifestyle) criteria.
So how do you go about identifying your target market?
Step 1: Research Demographics
- Look at the age and gender of the people who use your product. You can do this by surveying the consumers or deciding what age and gender you want to attract to your product.
- Find out your consumers' education and income levels. You may be able to market differently to those who have earned a college degree versus those who haven't and to those who are in a high-income bracket versus those who aren't.
- Notice the marital status and family life cycle of your target consumers. Find out whether they are single, newlyweds, have been married for many years, or have children or grandchildren. Each type spends money differently.
- Look at the ethnic and religious background of the people who use your product. This may make a difference in many cases, and is often good to know.
Put all the demographic information into a customer demographic profile. For example, you may find that your target market includes people in their 30s and 40s who graduated from high school, have a middle class income and are married with young children.
Step 2: Research Psychographics
- Look at the target consumers' lifestyle. See whether they are conservative, trendy, or enjoy traveling. Every little detail can tell you the type of people they are.
- Figure out what social class your consumers belong to, whether lower, middle or upper class. This tells you how much extra money they may have to spend and whether or not they spend it.
- See whether your consumers are opinion leaders or followers. Find out whether they tell others what products they should use or need others to tell them what is trendy and what works.
- Look at their activities, interests, attitudes and beliefs. Find out what they like to do in their spare time, what their hobbies are, what sort of music they listen to and whether they are interested in environmental issues or politics.
Put the psychographic information into a customer profile along with the demographic information to figure out who your market is and how to go about advertising to the market. Once you find this out, you can advertise to the people where they hang out, where they work out or where they shop. Once these distinct customers have been defined, a marketing mix strategy of product, distribution, promotion and price can be built by the business to satisfy the target market.
Target marketing can be a particularly valuable tool for small businesses, which often lack the resources to appeal to large markets or to maintain a wide range of differentiated products for varied markets. By focusing resources on a specific customer base in this way, a small business may be able to carve out a market niche that it can serve better than its larger competitors.
Selecting a target market segment for a product rather than attempting to sell to the entire market can also be a more efficient use of promotion dollars, because a greater market share can be achieved by capturing most or all of a segment via a carefully directed marketing plan that reaches precisely the right people with the right message than by trying to capture market share with a generic approach. It is also a better use of production resources if they can be concentrated on a single product and/or package, thus experiencing economies of scale. For example, a factory that only makes metal bed frames can operate with less equipment, expertise, and materials than a similar size company that makes metal bed frames, sofa beds, dining room tables, and office furniture.
Target marketing keeps a business owner focused on the most important aspect of their business - the customer. Targeting the right customer for your product or service will increase the efficiency of your sales and decrease marketing and operation costs, potentially translating into a larger profit margin.