Starting A New Business: The Ultimate Guide
Chapter 5: Identify your Target Market
Identifying your Target Market
You’ve heard the old cliché that someone could ‘sell ice to the Inuits’ – meaning that someone is so good at selling that they could shift any product into any market. Well guess what, you won’t be able to sell ice to the Inuits, as they have an abundance of it. They are the epitome of the wrong target market for an ice seller.
Getting your target market cracked is a pretty damned important aspect of starting a business. And understanding how to identify your target market and positioning for a small business matters just as much as for a big business. You are on a one way ticket to losing money if you have a great product, solid value proposition, slick processes for getting the job if you are pointing all of this at the wrong people.
If you find yourself answering that almost anyone can use your product or service, then you have a metaphorical warning light going off on the dashboard of business success, because even if that’s true, you need to further identify market segments and specific elements of your proposition that relate to them.
Let’s look at the steps to identify target markets.
What is a Target Market?
You’ve got the world standing in front of you in a big hall. You ask all the people that are going to buy your products to stand to the left and all the people that won’t, to stand on the right. You can now focus all your marketing efforts on the people on the left.
That’s the target market.
Who should move to the left and who should move to the right, though? That’s the tricky part. The target market for your business will be a cohort of people who share some common attributes, typically broken down into 4 primary areas – geographic, demographic, psychographic and behavioural data. You can dig as deep or as shallow into each of these as required for your use case, and you may consider salary, position, lifestyle, location, age etc. The key thing is that the people that form your target market should be the ones most likely to want to buy your product or service.
It may also be the case that you have multiple target markets, B2B and B2C, being an obvious example. And within each of these markets, you may divide things down even further into market segments.
Really nailing your target market can be hard enough, particularly if you have a broad appeal product, so think twice before segmenting markets into too many sections as each market and segment comes with its own set of work to market and secure business in.
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Set Priorities For Your Marketplace
You might set a scale of priorities for your marketplaces. Recruitment gives a helpful example for this. All growing businesses need to recruit staff. If you’re a legal firm, you might be more inclined to use the recruitment company that specialises in recruitment for law firms. Some of the recruitment practises in companies that specialise in law will no doubt be common to other recruitment businesses. For example – posting on job boards and using LinkedIn to find candidates, but they’ve mapped out a target market and as such, positioned their offering to address the specific needs of law firms. This provides greater clarity and reassurance to the prospective customer and helps the recruitment company drill down with precisely whom they should speak, in their marketing efforts.
The same recruitment business may also have some pages on their website that advertise financial recruitment. They might have some form in this area and can certainly handle the work, but they decide to give this market segment less prominence and allocate less resources to it.
Once you have your target market identified, you should describe it very clearly. It will inform everything you do from your marketing, product design and even your packaging. Understanding your target market clearly, at an early stage, positions you to create accurate buyer personas and build out your understanding of the needs you address and the problems you can solve for them.
Getting your target market created accurately is like putting on a pair of glasses that lets you see the people in front of you clearly. You can look and assess their situation, what they like to do and how you can help them.
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Why Identify Target Markets?
Maximising opportunities and minimising risks is the short answer.
Beginning with the risks – many businesses suffer from poorly defined target markets, it can be an absence of understanding how to identify target markets for small business or even a blindspot. And believing that having a broader market definition is better than a narrower one.
This is very rarely the case. In the scenario of broad targets, the answer is usually more detailed market segments until each can be described simply. Take politics as an example. The broad market place is that anyone aged over the age of 18 is eligible to vote, yet you might recall the Cambridge Analytica scandal a few years back where political messages were micro targetted to very specific groups of people, sometimes broken down to into tiny cohorts of people with messaging aimed expressly at their desires, fears and political leanings. Putting the ethics of this to one side, what they were ‘selling’ was the same political party (the product or service in this example) to the entire market, but the messaging and means they used were significantly different for each of the segments within their market.
Be Specific or Lose Money
The risk is that if you leave your market place too broad, or poorly defined, then you will lose money. Your cost of customer acquisition may be larger than it would, if your messages and efforts were pointed at the correct people from the start.
Your gross profit is likely to suffer as you experience greater costs in your business processes and allocation of resources.
However, on the opportunity side, if you are clear about who you are aiming your products and services towards, then you can out compete companies with considerably greater resources than you. There are some very large telecommunications companies, BT for example, who provide a lot of services to lots of different businesses and consumers. However, if you are a telephony provider who hangs their hat on being at the end of phone when customers need help, great products and first class support and you aim this service at owner managed businesses who turnover less than 500k, typically with less than 15 staff, then you will bring more to the table than companies who spend more on their marketing budget in a week than you turn over in a year.
Equally, clarity on your buyer personas will mean less drafts for marketing materials, more engagement on your marketing channels, a smaller bounce rate on your website, greater conversions of enquiries and a higher return on your capital investment.
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How to identify your target market?
Fortunately, there are steps you can take to work out how to identify target market demographics.
Start by asking yourself some simple questions:
- How old might your customers be?
- What gender are they?
- Where do they live?
- What do they do for a living?
- What level of income are they on?
- What are their interests?
- What problems do they have?
Just down your notes and see if some trends begin to emerge.
Existing customers
If your business is already up and running, take some time to look at your existing customers. What groups them together? Do they share common interests and characteristics? When you break them down into groups, are there some who generate greater revenue? If so, why is this?
The competition
It’s also worth revisiting your notes on your competition, who do they look to serve? You can save yourself some time by seeing who they focus their efforts (and marketing budget) on. A few quick ways to do this includes having a look at their twitter followers and who they follow. If they receive online reviews, see if there are any trends of what is said and who is saying it. Especially criticism. If they have a LinkedIn company page, check who is engaging in their content. These are all free ways of checking out market positioning of the competition. You can download any marketing materials available on the competitors websites, this is a great way of reverse engineering the marketing messages used as a way of gaining insight into who the messages are aimed at.
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Dig Deeper into your Products or Services
Clearly understanding the benefits of your solution will help you make the link between who benefits from it.
Get a list together of all the benefits of your products and services, whether it’s saving time, saving money, improving processes etc. Once you have the list together, revisit each one and ask yourself who stands to gain the most the benefit being materialised.
Become an Actor
Imagine you’ve been given your first first major acting job. Your role? The person who is using your product or service and is delighted to be doing so.
Become a method actor – lose yourself in the persona of this person by asking yourself:
- What are my values?
- What kind of person am I?
- What is my personality like?
- What do I care about?
- What interests me?
- What motivates and drives me?
If you can answer these questions clearly, you’ll be well on your way to having your target market in place.
Analyse your Target Market
Now you have your target market in place, analyse and evaluate what you have created. Does your product offering and value proposition meet their needs? If not, something needs to change, it could be the market or it could be your solution.
Once you’ve settled on something, you need to go a step further. If everything so far has been answering the question of ‘who’ the market is, you need to dig into what motivates them to take action, when they buy, where they buy and how they do it.
What Motivates your Target Market
It’s a shame to say it, but people are generally more motivated at the prospect of losing out, than gaining something.
Here’s a simple formula you can use to understand what is likely to motivate your buyer into taking action. You need to FUD them. FUD is an acronym that stands for:
- Fear
- Uncertainty
- Doubt
When establishing what is likely to motivate your target audience, look at what they stand to lose by not having your solution. Look at how much better off other people are that have it, sow the seeds of doubt that they may be at a disadvantage by not having it. The FUD factor can be a powerful motivator for people to take action
When and Where They Buy
Unless you have a physical store, the chances are that your website is going to form a big part of your offering. It can be a daunting thought if you are starting up. But getting a handle on who is visiting your site and what’s happening when they are there, is a good idea.
Google analytics is a great tool for this, but can be confusing for people that are new to it. Particularly if your goal is to make systematic changes to your site to improve your conversion rate.
You can also look at adding in tracking pixels to your site. This means if visitors travel across the web to other places, such as twitter, Facebook or LinkedIn, you can retarget them with adverts and later be able to attribute sales as coming through these channels.
If all of that sounds too much at the beginning, then you can go for something more basic, such as a form that asks customers how they found you. It will all help build a profile of when and where your target market takes action.
You’ve come a long way, you know what you’re going to do, why it adds value, who you are going to sell it to, but hold on – how much is it going to cost? That simple sounding question has a few important considerations and that’s what we’ll be looking at in chapter 6.
