Do You Know Your Customer?
Now that we’ve been through the different types and methods of research, let’s dive into the reason you’re conducting research in the first place—finding answers to key questions about your customer, competitors, and industry.
It’s important to understand who your customer really is. Does your Aunt Carol or college roommate really represent the customer who will make your product or service successful?
By identifying and knowing a broad group of customers, you can assess their needs and consider whether your business concept wiII meet those needs. Research will help you to determine the customer group most likely to purchase your product or service. This group will become your target market.
Let’s start by taking a look at this specific group of customers you’ve identified as the best fit for your product or service.
Tip: Keep in mind your target market may be either businesses or consumers.
Identify Your Target Market
Even if you think your answer was very specific, still dig in, because knowing your target market is an essential part to growing your business.
The reality is that there may be multiple potential markets for your product or service.
For example, if you’re developing running shoes, is your company focused on serving the needs of occasional runners or champion athletes?
While it may be true that both occasional runners and champion athletes can wear the same shoe, the needs of these two groups and the way that you would reach them through marketing is quite different. One day your company may grow to the size of Nike to design shoes for both occasional runners and champion athletes, but in the early stages with limited resources, it is important to focus your efforts.
Although it’s possible to sell products or services to many market segments, you’ll want to be savvy. Design, pricing, positioning, and promotion are easier, more effective, and less costly when the target market is smaller and better defined.
What customer do you most want to reach with your product or service? If your answer starts with “everyone,” take a moment to really dig in to this content on identifying your target market.
How to Determine Your Target Market
So, how do you figure out if you should design your company for champion athletes or occasional runners? Or, put another way, how do you narrow down and define your target market?
Step 1: Determine Your Possible Market Segments
No matter if your business is selling an app, drones, landscaping services, coffee, running shoes, biotechnology—or anything in between—you’ll still need to figure out the main groups of people, or market segments, you could potentially sell to and what features matter to them.
What are the most important benefits of your product to the people that you will be serving?
Wait. Did you really just Ask Yourself that? If so, great! Knowing the benefits will help you narrow down your potential target markets. But how can you be sure you are right—that you know what your customers think are the most important benefits of your product or service?
Asking yourself is a great first step, then you’ve got to get out and talk to them. Figure out what they’re currently using or doing to solve the problem that you solve and what matters to them. Do interviews, surveys, focus groups—whatever makes the most sense for you and your business.
Based on what you find out, determine your market segments. Your market segments should each have a similar need for your product or service.
Step 2: Analyze the Data
Continuing our example of shoes, here’s how analyzing the data might look to a company creating custom running shoes. They figured out the groups of people they could sell to that would have a similar need or want for their product (aka their market segments) and what features mattered most to them, like cost and cushioning.
Step 3: Determine Your Market
Your target market should be focused on a smaller, more profitable customer group within your total market. Divide your market into workable segments (based on demographics, psychographics, behaviors, etc.), if that’s helpful. Keep in mind that for target marketing to be successful, the following objectives must be met:
- You can reach the target market with your available resources
- The market is large enough to provide a sufficient customer base and growth opportunity
- Selling to this target market is profitable for your business
It’s worth talking briefly about niche markets. Niche markets are specific, underserved markets within a larger market. In the running shoe example, a niche market would be the daily runners who all experience the same chronic physical pain.
Although you may want to sell your product or service to the largest possible market, it isn’t always the quickest path to growth and profitability. You will find difficulty marketing to a large number of potential customers. It takes greater resources of time, money, and people to sell to a larger audience than a smaller one.
Many entrepreneurs have found it more cost-effective to focus on specialized or niche markets. Consider the following advantages and disadvantages:
- Fewer competitors
- Market may be underserved
- Possible to charge a higher price
- Customized offering
- Easier to find those interested in niche products/services
- Turn away customers who don’t fit niche
- Marketing messages must be focused on niche prospects
- Niche customers must have higher transaction value or be repeat buyers
Reality Check - PERSONAL LIFESTYLE GOALS
Use this Reality Check to help you identify your potential market segments and think about which segment would be the best fit as your target market.
- Brainstorm potential market segments. Use the spaces provided below to make a list of potential market segments for your product or service, and to articulate why you’ve chosen these segments.
- Example for an Electrical Contracting Business: Commercial construction, residential construction, remodeling, repairs
- I have chosen these market segments because: Customers within these market segments have a similar need for the type of work performed.