Identifying a Target Market for your Small Business: 8 Steps to Success

This post is part 2 of a thread about Market segmentation and identifying your target market, and is a critical step in developing a strategic marketing plan for your small business.

In my last post on this topic, we explored the different methods by which a small business can divide an overall potential market into distinct segments, based on variables such as geography, demographics, psychographics, and market needs. We also reviewed the key rules that define what is (and what is not) a true market segment.

So you’ve found a bunch of market segments. What’s next? Given that a total potential market (or “universe”) can contain multiple unique customer segments, out task now is to identify which of these segments are most attractive in the context of our business or brand. This process is called Target Market Identification.

Your goal: is to select, from all of the segments you have identified, the segment or segments towards which you will direct marketing effort. (Marketing effort usually means directing investment, i.e. dollars.)

Choosing your target segment strategically: the 8 steps to success

It’s not always obvious which market segment(s) you should pursue. Here is a list of 8 key steps that will help you choose.

  1. Measure the size of the segment
  2. Measure the degree of need + demand within the segment
  3. Measure the current growth + potential growth of the segment
  4. Determine the age + sustainability of the segment
  5. Review seasonality + elasticity of demand within the segment
  6. Determine how well the segment fits with your brand promise + brand positioning
  7. Observe the number of competitors serving the same segment, + their position relative to your brand
  8. Consider your business resources against the market segment

Sound complex? Not really. Lets get started:

1. Measure the size of the segment

This is your first step and sets the stage for all other target segment identification considerations. Measuring the number of potential customers who meet the segmentation criteria will help you determine:

a) The feasibility of the segment. If your segment is too small to profitably pursue (even with a niche strategy) then it should not be considered a target segment.

b) The proportional size of the marketing investment ($$$) you wish to direct to the segment. A larger segment (meaning more potential customers) will in most cases require a greater marketing investment, and vice versa.

Getting back to our familiar example of Toronto Organic Star Catering, who have identified, amongst others,  a potential B2C (business to consumer) target segment using geographic, demographic, and psychographic segmentation as follows:

Geographic: Live in the Toronto Area

Demographic:

Gender: 60% female

Generation X predominate (born 1965 to 1979)

University degree or higher level of education achieved

Employed

Newly married or in long-term relationships

Higher than average household income

Psychographic: Vegetarian, vegan, and/or organic food preference and/or locally sourced food preference. Potentially higher importance placed on health/diet considerations vs. other segments.

There are several resources that our catering brand can turn to in order to measure the size of this segment:

Statistics Canada

PMB (Print Measurement Bureau) statistics

Wikipedia, Google Scholar blogs, and other web resources

Measuring the size of a target market segment is rarely an exact science; for a small to mid-size business owner with potentially limited resources, this may be even more the case.

The important thing is to arrive at a well-researched and comfortably accurate estimate of the number of customers within this segment, and compare it with the size of other segments identified. Then ask: “Does this segment represent a large enough number of potential customers to justify investing marketing resources?”

Moving ahead with our example, Toronto Star Organic Catering has determined that in most North American cities, approximately 25% of the population is vegetarian or vegan and a recent Foodland Ontario consumer research paper (fictional) indicates that approximately 15% of consumers in Toronto and Ottawa attempt to incorporate locally sourced foods as part of their regular grocery shopping.

Our catering brand has worked out that with all geographic, demographic and psychographic criteria considered, the segment size is approximately 200,000 consumers. From a needs-based approach, the total size of this consumer segment will of course be smaller given that our brand offers catering services only.

2. Measure the degree of need + demand within the segment

Do they want to buy what your selling? It’s a fundamental question for any small business marketer. That said, estimating the demand within a segment can be as easy as asking yourself:

Can your product or service deliver something of value to the segment better than the competition? Are you meeting an unfulfilled need or want of the target segment, or providing them a unique solution in a way that the competition does not?  If the answer is yes, than you have evidence of demand within the segment.

How to measure demand:

For small business owners, there are several ways to estimate demand without relying on expensive research and complex statistical analysis (although these are obviously superior if you have the resource dollars.)

  1. Count up the number of competitors you are aware of: businesses do not swarm to serve the needs of tiny, dying markets. Where there is smoke, there is fire.
  2. Google it. Punch your product or service category into the big G and see how many results come up in the Sponsored links section. How relevant are they? Are the organic search results mostly commercial enterprises?  Try Google maps to pinpoint competitors in your local geography. Or go old school and open the Yellow Pages and count the number of ads for competitors whose messaging and offers speak to the target segment.
  3. Call a competitor. Ask them how business has been.
  4. Visit Facebook pages for competing brands. No fans? hmmm.
  5. Statscan.com and industry Canada websites: provide a wealth of industry specific information, including revenue trends by category.

3. Measure the current growth + potential growth of the segment

Is the segment growing? Is it stable? Is it shrinking? If so, at what rate year over year? Look back over a mid-to longer term (5 to 10 year) historical timeline. Consider if Future Shop or Best Buy  had not looked at huge potential growth in the home theatre segment upon the introduction of large-format plasma TV screens? Or conversely, if they had not measured the alarming erosion of consumer demand for the VCR upon the introduction of affordable DVD technology?

Back to our catering brand, Toronto Organic Star Catering who have researched things well:

Geographically: Population in the Greater Toronto Area and the Metropolitan Toronto core has been increasing steadily, year over year, for the past 15 years.

Demographically: The demographic profile of the segment has been relatively stable over the past 10 years, with a notable increase in university completion as the highest level of education attained.

Psychographically: Our catering brand has found that due to changes in consumer preference, there has been a marked and significant increase in the number of consumers preferring locally sourced and organic foods, and a slightly less positive trend in the number of consumers who identify as vegetarian or vegan. The profile of these consumers also dovetails well against the demographic profile of the segment. Good news for our catering brand!

Remember: Even if the size of the identified target market segment is currently a good fit with your business infrastructure and marketing mix, you should not assume that this will always be the case and vice versa. The segment may be shrinking down to a niche size that your business has no appetite for, or may be expanding beyond your resource capacity to service properly.

4. Determine the age + sustainability of the segment

Is this segment sustainable? Does this matter to you? Perhaps your business supplies the latest Christmas fad toy to Sears Canada. The needs segment for your business, parents of wishful children who want this specific gadget or toy, has most likely been around for about 3 months and will vanish into oblivion on December 26. If a stable and sustainable segment is what you seek, for your brand, you will not find it in trend or fad demand segments.

For Toronto Organic Star Catering, whose brand promise is “Make your event perfect. Naturally” the segment identified above is in the growth stage. It has been in the past 5 years that demand for organic/locally sourced or vegetarian/veggie food has expanded outside of its niche to the mainstream, particularly amongst younger people.

So is the segment sustainable? Toronto Organic Star Catering wants to devote marketing resources towards a segment that is sustainable and relatively stable or growing over a 10 year time horizon. It seems likely that high-level consumer perspective son sustainable living, healthy living, and sustainable consumption will help bolster demand in our catering company’s brand promise over the long-term.

5. Review seasonality + elasticity of demand within the segment

Similar to sustainability considerations, the seasonality or elasticity of demand within an identified target market segment over a short timeframe (within a year, for example) may in turn impact the timing of investment in promotional efforts, stock purchasing, pricing or distribution models and logistics.

For Toronto Organic Star Catering, the target segment under consideration shows seasonal demand fluctuations as impacted by wedding season, holiday party season, and stable demand trends for birthday parties and baby showers.

6. Determine how well the segment fits with your brand promise + brand positioning

In other words, can you provide value to the segment? Of all of the segments you revealed during the market segmentation process, your brand promise will most likely be a stronger fit with some over others.

If there is little or no alignment, you may want to review or revise your market segmentation process or your brand promise. Or select a different segment that works better with your brand reality.

7. Observe the number of competitors serving the same segment, + their position relative to your brand

For new brands and small business managers, this process if often done by instinct, or may even be the trigger that initiated the business start-up from the outset.

For example: If you are a small bottled cola brand, you will need to map out your brand’s competitive space, your marketing mix, and realistic opportunities against segment Goliaths Coca-Cola and Pepsi, along with private label brands. Consider Cott. beverages. Despite the appeal of it’s plucky-underdog approach (and not disagreeable profits) it’s a bit like pitting a tricycle against a Harley Davidson.

How to measure this:

  1. List your competitors, and identify their brand promise and UBP.
  2. Consider and itemize (using geographics, demographics, psychographics, etc.) which segment of your overall market each brand serves (or targets) primarily. A good way to do this is reverse engineer the messaging within their communications material, which given enough consideration will often reveal their target audience (i.e target segment.)
  3. Consider and itemize any of your competitors secondary target markets.
  4. Now do the same for your brand (you should have already done this homework before reaching this point in your strategic marketing plan; if you haven’t, please return to GO and do not collect any profits.)
  5. Is there overlap with your segment? If so, to what degree? If many of your direct competitors target the identical segment primarily, you are considering competing in a hyper-competitive segment that may require more resources on your part (or a more dynamic and innovative marketing mix) to extract profits.

For Toronto Organic Star Catering, research in the Toronto area indicates 4 other competitors; particularly 2 catering companies that offer organic and locally sourced food choices primarily for corporate functions and galas. Almost all the competing caterers in the area offer vegetarian options, however only a few present this feature as a prominent benefit that would speak specifically to this segment. More good news for our catering start-up brand!

From a purely brand standpoint, it is also important to measure your brand promise, Unique Buying Proposition, and marketing mix against competitors. This includes a review of the degree  and intensity of promotional noise (i.e. share of voice) your brand will have upon targeting a segment of potential customers.

8. Consider how your business resources will hold up in attracting and retaining the market segment

The target segment you select should be well aligned with your business resources. If not, how much operational change would be required to develop a marketing mix and business infrastructure that would best meet this segments needs?

For example, our Toronto area catering company does not have the resources to meet the demand of many destination weddings; their ability to deliver their brand promise is hindered by the availability of locally soured produce, vegetarian options, and organic food in, say, the Bahamas.

Completed all 8 steps? Congratulations, you now have a target market! My next posts will help you decide what to do with your target market (which is where the fun begins.)


If you have any questions about strategic market segmentation or target market identification for your business, you can contact me at:

cōjent. marketing + communications.

cojent.marketing@gmail.com

416.768.6056 (Toronto)

twitter.com/cojentmarketing

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About cojent. marketing communications.

advertising better marketing for your business. brand branding brand promise business strategies communications consulting consumers copywriting
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