Starting a new small business is one of the most exciting things you can do in your life. But at GoForth, we also know that understanding your target market inside and out will increase your odds of small business success.
Why research your target market?
Imagine you’ve decided to open a flower shop. You find suppliers, lease a building and open your doors for business.
But by the end of your first week you’ve made a total of two sales.
What happened? Here are some possibilities:
Your shop is located in an area that gets little to no foot traffic, like a business park.
You opened your shop across the street from a family-run flower shop that has been successful in that location for 25 years, with many loyal customers.
People aren’t actually interested in buying your bouquets.
Your prices don’t align with your product’s perceived value.
These are just four barriers to your business’ success that market research could have revealed. Researching your target market can make the difference between a successful business and one that isn’t. There’s time and cost of associated, but it’s an important investment in your small business’ success.
Quite often, new entrepreneurs think their target market is “anyone who’ll buy my product.” However, this simply isn’t true. Using the flower shop example, maybe your target market is people who are interested in classes on floral arrangement. Maybe it’s influencers who want fresh decorations for the backgrounds of their photos or videos. Take the time to identify your target market.
In order to make better use of your marketing dollars, we recommend that you narrow down your market into specific customer groups (anywhere from one to four groups) that will be most profitable and accessible to target.
Our rules for creating customer segments? Glad you asked. Essentially, your segments should be basically different from one another, but members of each segment should be basically the same.
Understanding your target market
When visualizing your target market, consider the following main elements:
Demographics – Age, income, gender, education, family status, income level, occupation, social class, ethnicity. Psychographics – Lifestyle, personalities, attitudes, opinions, values. Geographics – Cultural, climate, regional and national differences, population density, population growth rate. Behaviours – Buying patterns, usage rate, price sensitivity, brand loyalty, benefits wanted.
The 7 rules of customer segmentation
Rule #1 Each segment should be measurable; you should know how many potential customers you have. Rule #2 Each segment should be large enough to be profitable. Rule #3 Each segment should be basically different from other segments; they should be unique. Rule #4 Members of a segment should have common, unsatisfied needs. Rule #5 Each segment should have strong growth potential. Rule #6 Each segment should be suited to your company’s goals and capabilities. Rule #7 Each segment should be accessible through communication and distribution channels; you have to be able to reach them with your message.
Who will you be selling to? Selling to everyone is highly discouraged, since everyone has different wants and needs. Instead, it’s best to decide on target markets – groups of customers who share similar characteristics that you can market to more effectively. It’ll save you time and money, reduce headaches from trying to please large amounts of people with different needs, and it can make the difference between a successful business and falling flat right out of the gate.
Gathering market research data is a crucial step in the business planning process. Market research is used to determine consumer opinions, industry trends and competitor stats. It’s used to gauge consumer interest in new products and service offerings and to establish a list of prospective customers. There are a number of ways to go about collecting this data, but we’ve developed a free, step-by-step guide on how to use one of them – CANSIM.
What’s your target market? Why does it matter? GoForth’s President Dr Leslie McGeough has this to say on the topic:
My own business advisor (and everyone should have an advisor, no matter how seasoned an entrepreneur they are) once told me the field is full of white rabbits. Pick the white rabbit you can catch and go after that one. In other words, there are opportunities and potential targets everywhere. Don’t fall into the trap of thinking “Everyone will buy my product!” Focus, focus, focus.