It is essential that an entrepreneur learns all there is to know about the target market for their product or service. The more an entrepreneur knows about a market, the greater their chances of success will be.
Broadly speaking, this information should include:
- A deep knowledge of the key competitors.
- Knowledge of all the other players in the market, including smaller competitors, suppliers, distributors, dealers and service providers.
- Complete knowledge of the market size and profitability.
- How much revenue the market generates and how fast it will grow over the next 5 to 7 years.
- Knowledge of the major trends that affect the market, including legal and regulatory issues.
- A clear understanding of your buyer.
- A strong, clear value proposition that speaks specifically to your buyer.
- Clear picture on distribution, pricing, packaging, fulfillment, maintenance and support.
There are several ways to segment a market: by geography, by demographics and by psychographics. You need to determine which technique will best serve your business.
When you segment a market by geography, you choose to promote your goods/services to a community, county, region, state, nation, or globally. What option(s) will provide you with the greatest benefit at the lowest cost? What do you know about your current customers? Where are they located?
If you have their address in your customer database you can easily sort them based upon zip codes to find out where they reside. If you do not have a system capable of tracking that, ask your customers (as they are buying things) what their zip code is. Also ask them how they heard about your company. Did they respond to an advertisement or did they just happen to wander in? You really need to know where your customers are coming from so that you can plan future advertising campaigns. If you are missing some regions, how can you construct a campaign to attract them?
Identifying your market by demographics enables you to develop more effective advertising and promotion programs aimed at your distinct customer groups. As you look at the demographic components, ask yourself: What gender are my customers? What age groups do they fall into? What income level do they have? What education level have they attained? Is ethnicity or religion an important factor? What about children—do they have kids at home and what are their ages? If you don’t know the answers, start collecting that information via an anonymous survey tool.
The third way to identify your market is to use psychographic similarities. Psychographics is the use of demographics to study and measure attitudes, values, lifestyles, and opinions for marketing purposes. This includes personality, buying motives and the consumers’ usage of the products. Understanding your customers at this level aids you in optimizing your promotional strategies to appeal to their purchase motives, usage styles and lifestyles.
For example, the market for sunscreen may consist of psychographics segments with purchase motives of health, beauty, and safety. The usage styles for sunscreen may include multiple times a day, daily, event-only or less frequently. The lifestyles of sunscreen purchasers may include athletes, parents with young children, older people concerned about skin cancer, people who spend recreational time outdoors, boating enthusiasts, etc.
Psychographic characteristics inform not only advertising decisions but also packaging and distribution of products. Methods of gathering psychographic data include conducting individual interviews, organizing focus group studies, and purchasing reports from companies who compile market research.