What is a Market?
Your 10 best customers belong to a common market. A market is a group of people with one or more qualities in common. Neighbourhoods, likely people with similar interests, industries, nonprofit organizations and government agencies are all examples of markets. In fact, everyone in our society is part of many different markets.
In order for a market to be viable for business purposes, however, certain conditions must exist.
- It must have unsatisfied wants or needs. For example, a new neighbourhood may have a need for a dry cleaning service.
- It must have resources/money to spend. You won’t sell too many $2,000 watches, for example, to a market that earns an average of $20,000 per year.
- It must have the willingness and the ability to spend it. Even if someone can afford a $2,000 watch, for example, he may think it is a ridiculous amount of money to pay for something that just tells the time.
Your job as an entrepreneur is to find a way to satisfy one or more of those wants or needs for a price your market is willing to pay, while retaining a reasonable profit.
It's a simple formula, but as we all know, simple doesn't necessarily mean easy. A lot of businesses struggle in this area. Why? Most often it's because they approach marketing from the wrong direction. They start with a product or service and then focus their efforts on convincing the market to buy it. The problem is, no matter how hard you try, if there isn't a large enough demand from your market for what you have, it won't sell. You won’t convince very many people to buy what they don’t see a need for.
So instead of trying to sell your products, focus on solving your customer's problems. People won't buy something just because you spend a fortune on advertising. They need to see that the benefits outweigh the cost.
If your current market is unable to see how your product or service can satisfy their needs or wants, you've got three options.
- You're selling the right product (or service) to the wrong people. You need to change your market.
- You're selling the wrong product to the right people. You need to change your product.
- You're selling the right product to the right people, but they don't know it. You need to change your marketing strategy.
The most common scenario is number three. You're selling the right product to the right people, but they don't know it... yet.
The solution is to align your business with the needs of your customers. Your business must become synonymous with the fulfillment of your customers' needs. You must become the solution to their problems.
No matter what your situation, the process is always the same.
- Determine who you are selling to.
- Identify their needs (or wants).
- Create solutions for those needs.
- Let them know about it.
Back in 1890, Johnson & Johnson put together the original first aid kit in response to a plea from railroad workers who needed treatment on-the-scene as they toiled to lay tracks across the country. Over 100 years later, the name Johnson & Johnson is still synonymous with first aid.
Your Target Market is the section of the market at which you specifically aim your marketing efforts. It's the group of people with the greatest potential to become your best customers. Having too broad a focus here can spread your resources too thin. It's a waste of money to market your products or services to people who are either not interested, or are not in a position to buy. Just imagine trying to sell a powerful sports car to a Target Market that included everyone with a driver's license. It's unlikely the results would justify the expense. You would probably do better with a narrower Target Market, such as single males, under the age of 35, with an above average income.
In marketing it's nearly impossible, and usually unwise, to try to be all things to all people.
Mystery writer, John D. MacDonald produced one best-selling novel after another in paperback. His books never appeared in hard back first. When asked about it, he commented ‘My audience is $3.95 readers.’”
Selecting Your Target Market
There are three general guidelines to consider when selecting a Target Market.
If you’ve got a superior product, service, or approach to business, then by no means should you be discouraged from competing head-to-head with anyone. You should never be afraid of competition, but it is only prudent to maximize your opportunities for success.
- Select a Target Market that is compatible with your corporate vision.
If your goal is to make the highest quality pastries in the city, distributing them through gas stations marketing to busy motorists looking for a quick snack could damage your brand. High-end restaurants catering to a market with more discerning tastes might be more appropriate.
- Select a Target Market that is capable of supporting your business.
Your Target Market should be large enough to generate adequate sales for a reasonable profit. You may have the perfect product for 36-year-old women who live in trailer parks with three dogs and a cat, but the market will likely be too small to support your business.
- Select a Target Market with room for you to grow into as well. Especially if the competition has access to considerably more resources than you. This doesn't mean you can’t carve out a niche in an established market and outperform even the largest competitor. It does mean, however, to do your homework and think before you act.
Your Target Market should be the market with the greatest potential for profit, and the strongest connection to your corporate foundation. It may or may not currently make up the majority of your customers, but that should be your goal.
There are literally thousands of facts you could collect to help you identify your Target Market. You could find out where they live, how old they are, what their shoe size is, what their favorite dessert is, or where they go for their vacations. But all information is not created equal. When it comes to marketing, the value of information is relative only to its impact on your customer's buying decisions. Before you start your research, you need to decide what type of information you're looking for.
It's possible to have more than one Target Market. If your company sells both a commercial and a consumer product, for example, you clearly have two distinct Target Markets. But even if you sell strictly one or the other, you may still have several Target Markets. A furniture manufacturer, for example, would focus on different Target Markets for its home and office furnishings.
To help you narrow your search for your Target Market we'll use a process called market segmentation. A market segment can be thought of as a homogeneous slice of the mass market pie. It's any group that shares a common characteristic. Women, people between the ages of 25 and 35, home owners, tennis players and doctors are all examples of market segments.
Target markets are typically made up of several different market segments, overlapping one another. For example, single parents with children under the age of five and an income over $40,000, might describe a Target Market for a daycare.
A product marketed to the wrong Target Market will perform poorly no matter how good it is and how large the market is. You've got to get to know your market if you want to sell to them with any degree of certainty. Marketing without that knowledge is like shooting at a blank target. You might hit the center every once in a while, but mostly by luck. Market segments help you paint a “bull's eye” on your marketing “target.”
There are two basic ways to segment a market... Demographic Segmentation and Psychographic Segmentation.
- Demographic Segmentation: This studies who your best customers are. It answers questions, such as: How old are your customers? What type of education do they have? What type of families do they have? What is their income?
1a. Geographic Segmentation: This studies where your best customers are located. It answers questions, such as: How far away are your customers? What neighbourhoods do they live in?
Do they come to you as their primary destination or do they stop in on the way somewhere else?
- Psychographic Segmentation: This studies how your best customers think. It answers questions, such as: How do your customers make buying decisions? How do they feel about your industry? Are they conservative? What are their values?
2a. Benefit Segmentation: This studies the benefits your best customers expect to derive from your products. It answers the question: Why do your best customers buy your products?
The first two categories, “demographic” and “geographic,” identify the observable or factual variables of a market segment. The last two, “psychographic” and “benefit,” identify variables that exist within the minds of your prospects. As such, they are subjective and often unverifiable. Nonetheless, they are all beneficial for understanding your Target Market.