You have started a business, you are confident your product or service is a winner, and you are excited to be your own boss!
But before you jump in with both feet, it is important to consider not only WHAT you will be selling, but also WHO you will be selling it to.
Target market analysis is an important stage in the business planning process, and even established businesses can benefit from taking a fresh look at their target market.
You may have heard the terms ‘customer avatar’ or ‘ideal customer’ or ‘buyer persona’. These all relate to defining the type of person you want to sell your product or service to.
Creating a customer avatar is a valuable process, as it will help you understand your target market and which of their problems your solution solves. This is the first step towards developing key messages for your marketing communications. You may find that you have several different customer avatars, and will develop a different strategy and set of key messages for each segment of your overall target market.
Perhaps more importantly, defining your target market can help you validate whether your business model is viable from a financial perspective.
Analysing three aspects of your target market will help you narrow down exactly who your optimal customers are so you can split them into very targeted segments:
• Geographic characteristics help you to understand WHERE your optimal customers are
• Demographic characteristics help you to understand WHO they are
• Psychographic characteristics help you to understand HOW they behave and WHAT they do
Marketing practitioners have been using these characteristics for years to define target markets and create customer avatars.
For example, census data from 2011 tells us that in the greater Adelaide area:
• There are approximately 625,225 women
• 7% of people are aged 25 to 29
• 56.9% of people over the age of 15 work full time
Based on this information we can estimate that there are approximately 25,000 women in the greater Adelaide area aged between 25 and 29 who work full time.
This example is based on geographic and demographic characteristics only so when we add in psychographic characteristics such as behaviours, attitudes, and lifestyles, we can define much more specific customer profiles and make our estimates even more detailed.
If we were thinking about designing a product or service specifically for this customer segment, we now know how many potential customers there are and can make some assumptions around how many units of our product or service we might be able to sell.
We can then calculate potential revenue, fixed and variable costs, and profit, and use a break-even calculation to validate whether our product or service is viable. We might need to make some adjustments to our product or service to make it appealing to a broader target market, we might decide to introduce variants targeted to different customer segments to increase overall sales, or we might need to revisit our pricing or cost structure to ensure our product or service is profitable.
Knowing your customers is an important part of knowing your numbers.
Want to know more about these calculations? Please get in touch for a chat.
This information has been provided by Kelly Hody Mkt Etc, who specialises in working with business owners to help them market more efficiently and effectively.