Choosing a Target Market One of the most powerful strategies a business can adopt is to focus on a specific target market. A target market is a specific industry, function, demographic group, geographic area, or group of people sharing common psychographic interests. It is not easy for most entrepreneurs to choose to focus on a niche. There are three reasons for this. First, many business owners have the attitude that they can handle anything that comes their way. They seem to thrive on take taking on any client, and any situation. They would rather be brilliant and heroic than be successful. Second, it is hard, and even scary, to focus. Focusing means you have to go deep into the issues and problems of specific market, and become an expert not just in your specialised field, but also in solving the problems of a specific group of people. It means saying no to work from clients too far outside your market. It means making a commitment! Third, there is something comforting in not focusing. By not focusing, you have an infinite number of potential clients. Everybody's your target market! Unfortunately, as you will soon see, this situation only provides the illusion of comfort. It turns out that, by choosing a target market, you reduce the number of potential clients and increase the number of actual clients.
The Cost of Not Choosing a Target Market 1. Your marketing efforts are shotgun and expensive. If your target market is â€œeveryoneâ€?, you need a huge marketing budget to reach them. 2. You have to reinvent the wheel with new projects. Without a clearly defined target market each new client will need a customised solution. Successful businesses develop solutions that are 80% repeatable and 20% customisable to a specific industry or sector. 3. Your positioning in the market is weak. If you are attempting to be all things to all people your marketing message will be vague and diluted. For example what is more memorable:
“The web designer for the accounting industry” or “that guy that does websites”; “The financial planner that specialises in baby boomer retirement planning” or “a skilled financial planner”; 4. Other competitors choose a target market and beat you Prospects are looking for someone that understands their issues and problems. If your competitor focuses on their needs and develops solutions to meet these needs, they will have an edge over you.
The Benefits of Choosing a Target Market Your business development costs decrease. When you target a particular market, you can use and improve the same marketing materials. You can go deep into researching the issues that plague your market. You can become an expert. This allows your message to reach your prospects more easily and your marketing costs decrease. Your reputation spreads rapidly People in a tight community talk to each other. Your expertise and reputation can spread quickly throughout your target market. You understand your prospects issues more thoroughly By developing a deep understanding of their particular issues you can speak their language and build trust and credibility faster than your competition. Your solution becomes more valuable and attractive By specialising in a target market you will develop reusable collateral, from marketing to how you deliver your services. This means specialised repeatable service offerings that will be attractive to your prospects. You can create your own proven methodology. You can charge higher fees for your work You spend less time implementing solutions for your clients, saving costs and delivering the service faster. This creates value in the clients mind and allows you to charge a premium for your services. Once you dominate one target market, you can dominate the next one After you have dominated a small target market you can move on to the next. You will spend some time creating your systems and processes along with your marketing collateral. Once done, it can be repurposed for another target market.
Types of Target Markets There are a number of ways to define a target market. Before you choose your target market, you should consider your options. For B2B businesses I have a strong preference for target markets focused on a specific industry. At the same time it may be more powerful to choose a target market that focuses on a particular function in a specific industry and geography. Industry If you market to businesses, you are wise to focus your efforts in reaching key decision-makers in a specific industry. Take a look at the Yellow Pages. You will find some industries in there that might be under served and yet extremely profitable. Look at the following under “A”: Accountants Accounts Receivable services. Advertising, Aerobics, Air-conditioning services Architectural services Antiques Appraisers To me, an industry focus is the most powerful niche for B2B businesses. It is usually easier to reach decision makers targeted by industry. These same decision-makers have common problems are a common language. Also, you can build a national reputation and presence within an industry by focusing on national publications. Notice that “small business” is not an industry. Many businesses believe that small business in their local geography is their target market. They attend Chamber of Commerce networking events, make cold calls, send letters, and eventually begin to hate business development and marketing, because it takes too much time and effort. Choosing “small business” is like not choosing a target market all. It simply is too unfocused. It would be better to start with a relatively large industry in your local market, and dominate that niche. Then move onto another niche, and another, until you dominate 5 or 6 focus target markets in your area. Choosing larger companies within the industry grouping may also be part of the strategy. It is just as expensive to market to a small business as it is to a large company. Job Function or Title Other target markets could be people with the same function or job title. Examples include chief executive officers, human resources managers, purchasing
managers, marketing executives and sales managers. If you target business, it makes good sense to focus by industry first and job title second. By doing that, it will focus your solution even more to the needs of a specific audience. Geography The geographic target market focuses on location. Location is as narrow as a few neighbourhoods, and as broad as a specific country. In between are subdivisions, suburbs, industrial parks, metropolitan area, regions and state. For B2B businesses, geography alone is a weak target market. It is best to use geography as a submarket instead of as a primary market. For instance, you might choose to focus on providing websites for art dealers in the metropolitan area. That's better than providing websites for anyone in the metropolitan area, because it will be easier to reach art dealers and meet their unique needs. However, if you market your services to consumers, geography can be a strong target market. Consumers like to know that you are active in the community or neighbourhood, and know their local situation. Real estate professionals especially benefit from geographic focus on a land development or neighbourhood, particularly when backed up with successful sales data and relationships with people in the area. Demographics The demographic target market consists of people with a common characteristic, like income, ethnicity, religion, age, and gender. I would avoid any demographic sectors that are not easy to reach and not filled with high income individuals. Psychographics Psychographics refers to common interests, values, and beliefs. People in the same psychographic groups are like subcultures, sharing similar hobbies, passions, likes, and dislikes. People with deeply held beliefs and passions spend money on those beliefs. If you have a large enough psychographic group that needs your services, you might have hit a goldmine.
Examples of psychographic groups include: Golfers Surfers Motorcycle riders Star Trek fans Environmentalists Union supporters INXS fans Sports fanatics.
Criteria for Choosing a Target Market Choosing the right target market takes research and thought. The last thing you want to do is invest time and money in a market that you can't reach, has no money, is too small, or could care less about your services. Following are criteria for choosing a profitable target market: 1.
You can reach your target market easily. Think about the number of ways you can reach your target market. A lowcost way of reaching a target market could be public speaking, networking, or writing articles/publicity. Research and make sure at least some of the following resources are available: lists that you can rent or buy, so that you can e-mail or call prospects. Magazines that your prospects read, so that you can write articles, rent the subscriber list, do interviews, or advertise. Websites that your prospects visit Clubs and associations that your prospects join Meetings, trade shows, conventions, and educational events that your prospects attend. Products and services that your prospects buy that complement yours. You may be able to arrange a joint-venture and do some joint marketing with other companies that offer similar products and services. Boards or service organisations that your target market joins
Your target market has compelling problems, opportunities, or needs. If your prospects do not have any â€œpainâ€? there will be no business transacted. They must have a problem, opportunity or need before they will buy your services.
Approach your target market as if you were an analyst and understand their issues from their point of view. Most problems have to do with money status, acceptance, safety, excitement, time, and anything that increases pleasure and takes away pain. For the business sector most problems have three levels: A business aspect. These are specific business problems that your prospects need to solve. The usual problems are a desire to reduce cost, increase revenue, and improve cash flow. If you dig deeper you may find that the problems can include: reducing employee turnover, how to attract and keep loyal customers, how to grow the business, how to reduce labour costs, how to reduce rework. Professional or career aspect. By helping the people in your target market solve their problems you can also improve their career. It may help them to look good in front of the boss or investors. It may mean job security and visibility in the industry. An emotional aspect. People buy your products and services to reduce their perceived pain. Pain can mean many things such as: a feeling of insecurity, fear of making a mistake, fear of looking bad, fear of losing status and fear of missing out or stress from avoiding a solution. One way of finding out what drives your target market is to conduct a series of surveys or interviews aimed at discovering their frustrations. 3.
The decision-makers have money to spend. The target market must have discretionary budgets, or the ability to access funds. Research your target market to ensure that there is some spending going on in that sector.
The decision-makers are willing to spend money to solve their problems. While you're doing research into your target market ensure that the decision-makers in your target market have purchased similar services or products before. Don't be a pioneer into new markets. This is a costly exercise. It is much more effective to find a market that is willing and able to buy your services or products, and then offer a better solution than the competition offers.
The target market is large enough to support your business Can your target market support your business? Ask yourself the following two questions: What percentage of the target market needs to become my clients for me to break even? Can I reasonably expect to achieve that level of market penetration? Your target market should be large enough so that you only need a small percentage of penetration or share in order to break even on your expenses. Example #1: Web design for real estate agents: Number of real estate agents: 20,000. Average engagement: $5,000 Breakeven expenses per year, including minimum salary: $100,000. Number of clients required per year to break even: 20 ($100,000 divided by $5,000). Percentage penetration required: 0.1% Example #2: Financial management systems for car manufacturers: Number of car manufacturers: 10. Average engagement: $250,000 Breakeven expenses per year, including minimum salary: $500,000. Number of clients required per year to break even: 2 Percentage penetration required: 20% Example #3: Computer support for small businesses in Melbourne: Number of small businesses: 25,000. Average engagement: $500 Breakeven expenses per year, including minimum salary: $150,000. Number of clients required per year to break even: 300 Percentage penetration required: 1.2%
The first example seems to be the most doable. The second example is in fact too narrow and not a large enough pool of businesses to be viable. There may be a need to broaden the industries targeted (horizontal). The third example requires 300 clients, or roughly 1 per day to break even! 6.
You can compete. People like to work with people who speak their language, know the issues and have been around the block. They don't like to have to break in a new service provider/business owner. Begin early on to collect referrals, testimonials, and the portfolio of case studies that can be used in building your credibility.
There is not too much competition. Don't enter markets that are saturated or too competitive without a huge budget and loads of patience this approach will break you. Large markets may provide sustenance for many competitors. Small crowded markets are not the place for you to be.
You can dominate the target market. If your ambitions aren't all that high or you only want to make a meagre living, then you don't need to worry about dominating your market. Find out what your competition is charging, how they market their services and how happy their clients are. Look for gaps that may exist in your competitorâ€™s service or product offerings and see if you can fill them. If you have ambitious financial goals you should make sure you can dominate your competitors.
You want to dominate the target market. Unless you're passionate about solving the problems that beset your target market, stay out of it. If you do not want to dominate, find a lucrative niche or innovate, do not waste your time and money.
You can develop repeat business.
Servicing clients once and once only means you have to constantly look for new clients. Think about the average value of a client to you over a year, then over five or 10 years. The best markets are those where your clients will require you time and time again. You should develop a range of services and different tiers or levels of service to satisfy your clientâ€™s needs.
Use the following checklist to compare up to three possible target markets. For each criterion rate the target market on a scale of 1 (poor) to 5 (excellent). When completed you should have a reasonable idea of which one is the most suitable to focus on. Criteria Easy to reach Has compelling problems Has money to spend Willing to spend money Large enough You can compete Not too much competition You can dominate You want to dominate You can develop repeat business OVERALL RANKING
The Right Solutions to Offer Your Target Market The solutions you develop as your business offerings should satisfy a compelling need in your market. You need to do some research into what are the four or five biggest issues, problems, frustrations within your target market and craft solutions to meet these issues. Don't try and guess what your prospects really want. Or worse still, create a service offering or product without first knowing that it has a demand and a market for it. The following grid illustrates the necessary thinking that goes into crafting a solution for your target markets problems. The problems you solve should be within your range of capabilities, or you should have access to the capabilities.
Importance To Your Market Low High
Your “sweet spot” should be the upper right-hand corner - areas of crucial importance to your client, and where your capabilities are strong.
The client will buy – if you develop capabilities
DEVELOP SOLUTIONS HERE
Like pushing a square peg in a round hole
Strong Your Capabilities