Target Market Analysis: What It Is & How to Analyze It?
To be successful in just about any business, you have to have a good customer base. A strong core customer base can keep a business afloat for years to come. For restaurants, you’ve got your regulars. In fashion, you have your enthusiasts. Every niche market has core customers that will stand by a business for a number of reasons. But how do you identify those customers?
If you’re just starting a business, you’ll need to identify the ideal customer, as well as all of your potential customers. Finding them and learning how to attract them can make or break your company. To do that, you’ll need to find your target market, and do a target market analysis. Keep reading to find out more.
Here’s What We’ll Cover:
What Is a Target Market?
A target market is the group of individuals you want to sell your products to. Sometimes, a target market is referred to as a target audience. These people are the ideal customer for your business. While you may believe that your business’s target market should be based on proximity, you’d be wrong.
Not all people in the area will be ideal customers for your business. They may not have a want or a need for your products. They may not require your services. As such, advertising to all of the population is ineffective. You don’t want to cast a wide net when selling yourself, you want to use targeted marketing strategies.
Why Is Casting a Wide Net a Bad Idea?
Not every potential customer will be your ideal customer. For example, you wouldn’t want to pitch a product or service for car care to a cyclist. It wouldn’t make sense. The ideal client in that case is an automotive enthusiast.
By being able to pitch to an ideal market, you ensure that you’re not wasting money on an ineffective advertising campaign. Mass advertising efforts are okay for general retail, but most businesses are specialized.
The Importance of Knowing Your Target Market
Knowing your target market does a few things for your business. As discussed prior, it helps to prevent you from spending any money unnecessarily. This is massive, especially for small businesses. Every dollar counts when you’re trying to get on your feet.
However, it also helps generate more income. When you know who is in need of your products, you know exactly who to sell to. Breaking down who your customers are, and where you can find them, is a must. This is called target market segmentation.
What is Target Market Analysis?
As the name implies, target market analysis analyzes your target market. This is done by focusing on the 6 Ws. This method is used in all sorts of endeavours, but it can be especially useful when identifying your potential clients. Ask yourself each of the following questions in regard to your market segment:
- Who are my potential customers? You want to know everything about them. Their age range, gender, education level, and income level are all relevant. You can dig deeper here, as well.
- What do they want or need? Marketing a product to your target audience isn’t helpful if they don’t want or need the product. Know what they’re looking for.
- When are they going to buy this? Are you selling a seasonal service or product? Make sure that you’re marketing to them at the right time. If you want to mow lawns, you shouldn't advertise to them in the winter.
- Where are my customers? This can make a big difference in terms of your product. You may need to sell products suited for different climates. You may also find that most of your customer base is online. It may surprise you.
- Why would or should they purchase from me? This is information that you can find out from your current customers. When you can pinpoint why they buy from you, you can target that reason and enhance it.
- How will they make their purchases? This ties into every other aspect listed prior. How do your customers behave? Find out how to make buying from you more appealing.
These are all of the things that your target market analysis will be looking for. Once they’ve been determined, the hard part begins. This is the data collection portion of the analysis.
What a Target Market Analysis Includes
Using some of the information above, you’re ready to start making your target market analysis. Before it can be performed, however, you’ll need to know what to include in the target market analysis. The following categories should be present.
- Industry Description: This is a description of the industry you’ll be doing business in. It includes industry size, growth potential, and outlook.
- Target Market: This is the information that you’ve begun to collect already.
- Market Testing: When you’re pitching a new product or service, market testing should be conducted. This may include product testing, or survey information.
- Lead Time: How long it will take to process and ship products to customers.
- Competitive Analysis: A writeup on how competing businesses are appealing to your target market. This can be used to gain a competitive advantage when reviewing your target market analysis.
Performing a Target Market Analysis
Performing a target market analysis takes six basic steps. The only part that’s difficult is finding the data to fill in the gaps. As such, we’re going to discuss the six steps below, and how they should be performed. This is a target market analysis at the most general level.
- Conduct market research. If you’ve already started a business, or have a business idea, you know what industry you belong to. Review competitors and who they are marketing to. This gives you an idea of the ideal market for your business.
- Identify the entire market. This may also be called the overall market. These are all of the customers that buy products in your industry.
- Segment your target market. When you look at the overall market, it’s likely that you’ll find several distinct groups that are making purchases. These groups can be identified based on specific demographics. Segment the market into specific groups that fit together.
- Pick your ideal market. From the segments you’ve chosen, pick the ideal market for your product. This can be done by doing product testing, or conducting surveys about the product. These are the people that will be most likely to purchase your goods or services.
- Start making projections. You should be able to project lead time, sales, and marketing costs. All of these things need to be compiled and written up.
- Create your target market analysis. This is the document that identifies your target market. It will drive the marketing strategies and advertising strategy that you put into the product in question.
An Example of a Target Market Analysis
Let’s say a company is selling headphones meant for online gaming. When they do their product testing or surveys, they’ll collect information about the people most interested. Using this, alongside all of the information collected in the analysis, they can come up with their document. In general, a target market analysis is small, and will look something like this:
Target Market for Gaming Headphones
Age: 15 to 28
Income: Less than $30,000 annually
Lifestyle: In high school or college, hangs out with friends electronically
Geographic Location: Urban or suburban areas
Preferences: Cares about audio quality, prefers to pay more for a longer-lasting product
By identifying all of this information, you can determine exactly how to advertise to your ideal customers. This is what makes target market analysis effective.
The best way to make more sales is by knowing your customers. This is especially true of small businesses. By knowing exactly who to market to, you can drive sales and see more income. Doing a target market analysis can help with that. If you’re looking for more small business strategies, take a look at our resource hub. We have plenty of helpful information there for your small business!