Who Is Your Target Buyer?

Do you know precisely who your customers are? Do you know what type of people or businesses they are? For example, if you sell to consumers, do you have demographic information (e.g., what are their average income ranges, education, typical occupations, geographic location, family makeup, etc.) that identifies your target buyer? What about lifestyle information (e.g., hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.) on your target buyer?

This type of information can help you in two ways. It can help you make changes to your product or service itself, to better match with what your customers are likely to want. It can also tell you how to reach your customers through advertising, promotions, etc.

How can you refine your understanding of your customer base? Look at the issue from two angles: miche marketing and market segmenting.

Niche marketing

The "heavy users" of your product can be thought of as a market "niche" that you should attempt to dominate. Niche marketing today means targeting, communicating with, selling, and obtaining feedback on the heaviest users of your business's products or services.

Picking the right segment of the market is important to achieving sufficiently large sales volume and profitability to survive and prosper as a company. The right market segment is:

• measurable in quantitative terms
• substantial enough to generate planned sales volume
• accessible to your company's distribution methods
• sensitive to planned/affordable marketing spending events

It is also important to examine other factors that could affect your company's success:

• strength of competitors to attract your niche buyers away from your products
• similarity of competitive products in the buyers' minds
• rate of new product introductions by competitors
• ease of entry/protectability in the market for your niche

Even large companies have embraced niche marketing, continuing to refine and target their product offerings to different buyer groups. As an example, Nike restaged a multi-billion dollar company that had plateaued by pursuing a segmentation strategy. Nike designed and marketed athletic shoes for each different sport, often further segmenting with specialized models within each sport (e.g., "Air Jordan" basketball shoes, and additional basketball models called "Force," represented by Charles Barkley and David Robinson, and "Flight," represented by Scottie Pippin).

It is also important to be able to identify and estimate the size of your target market, particularly if you're thinking about a new venture, so that you can tell if the customer base is large enough to support your business or new product idea. Remember that it's not enough that people like your business concept. There must be enough target buyers on a frequent-enough basis to sustain your company sales, spending, and profits from year to year.

For example, selling a product or service that people may need only once in a lifetime (e.g., an indestructible toothbrush) may not be a sustainable business, unless a large number of people need it at any given time, or everyone needs it eventually.

Segmenting the market

If the universe of all potential buyers is your "market," then the market can be divided up into sections or "segments" based on any number of factors. For example, you might divide up your customers by age group and find that you sell most of your products to people aged 18 to 34. You might divide them up by family size and find that you sell most of your products to married couples with young children.

Many small businesses stop there, thinking they have enough information to be able to identify and communicate with their most likely customers. However, larger companies will attempt to find out even more information about their customers' lifestyles, values, life stage, etc.

The key terms to know when segmenting the market are:

• Demographics refers to age, sex, income, education, race, martial status, size of household, geographic location, size of city, and profession.
• Psychographics refers to personality and emotionally based behavior linked to purchase choices; for example, whether customers are risk-takers or risk-avoiders, impulsive buyers, etc.
• Lifestyle refers to the collective choice of hobbies, recreational pursuits, entertainment, vacations, and other non-work time pursuits.
• Belief and value systems includes religious, political, nationalistic, and cultural beliefs and values.
• Life stage refers to chronological benchmarking of people's lives at different ages (e.g., pre-teens, teenagers, seniors, etc.).

Larger companies segment their markets by conducting extensive market research projects, consisting of several rounds of exploratory research:

1. Customer and product data collection: Researchers gather data from users of similar products on:
   • number and timing of brand purchases;
   • reasons for purchases;
   • consumers' attitudes about various product attributes;
   • importance of the product to the lifestyle of consumer;
   • category user information (demographics, psychographics, media habits, etc.).
2. Factor and cluster analysis: Researchers analyze the data collected in (1) to find correlations between product purchases and other factors, as a basis for identifying actionable consumer target "clusters." Clusters are defined as "niche markets," where there are identifiable numbers of buyers or users who share the same characteristics and who can be reached by adept advertising and promotion.
3. Cluster identification and importance ranking: Researchers then determine
   • whether clusters are large and viable enough to spend marketing funds on them;
   • whether potential marketing niche clusters fit strategic company objectives; i.e., does marketing to this group fit your existing image and long-term goals.

What can smaller companies do to segment their markets?

1. Smaller companies can research secondary data sources and conduct individual interviews with key trade buyers and consumers or end users of their products and services. This is called qualitative research. Often qualitative research can be accomplished for free or little expense.
2. Smaller companies can also conduct informal factor and cluster analysis by:
   • watching key competitors' marketing efforts and copying them;
   • talking to key trade buyers about new product introductions;
   • conducting needs analyses from qualitative research with individuals and groups.
3. In many cases, smaller companies have access to the same databases as large companies for estimating the sizes of market segment clusters and their importance. Some low-cost sources of external secondary data include:
   • trade and association publications and experts;
   • basic research publications;
   • external measurement services;
   • government publications.
4. Smaller companies can segment markets by geography, distribution, price, packaging, sizes, product life, and other tangible factors in addition to demographics and lifestyle and psychographic clustering.

Source: CCH Business Owner's Toolkit

<< BACK