4 Step Target Market Analysis That Will Elevate Your Small Business in 2022
This post uses affiliate links.
Performing a target market analysis might seem intimidating. But it is an absolutely necessary process if you want a successful business. Keep reading if you want to know how to conduct a Target market analysis in 4 straightforward steps.
The target market for a small business is dependent on what industry your business is in. To understand what your target market is as a small business, you need to conduct a target market analysis.
Conducting a target market analysis for a small business is not as hard as it could seem. For a small business, without extensive resources, there are some simple steps you can take to identifying your target audience.
In this article I have outlined a target market analysis in 4 steps that anyone can do to identify their target audience:
Step 1. Understanding what Target Market Analysis is
The first step to conducting a target market analysis as a small business is to understand what target market analysis is and why you need it.
What is a Target Market Analysis?
Every business operates on a market that consists of several market segments. An easy way to think of market segments is the clothing industry. Where all the businesses that sell clothing makes up the market. People have different needs and preferences of clothing depending on gender, age, size etc. That means every business cannot sell clothes to everyone. No one size fits all. Which is why businesses divide the market into different market segments. Such as women’s clothing, men’s clothing and kid’s clothing. These segments can be divided even further. Into smaller niche segments, like young women’s sports tights.
While large corporations like H&M can target several broad market segments. Small businesses should select a small niche segment as their target market to be able to compete on that market.
A target market analysis is the process of segmenting the market and selecting a target audience. The process starts with understanding the needs, criteria and characteristics of individual customers. Then you group these customers based on similar criteria and characteristics. After that you choose the segment that is most attractive for your business and adapt your offer.
Performing a target market analysis is important both for new and existing businesses. If you are starting a new business you want to perform target market analysis to select an attractive target audience. For an existing business you want to validate your chosen target audience. And understand your customers better.
Why do a target market analysis as a small business?
As a small business you have limited resources. And you cannot compete directly against large corporations with extensive resource. To compete on a market, small businesses need to select a smaller niche target market. Performing a target market analysis will help you define the segments on your market. And then choose the segment you should target. The target market analysis ensures that the segment is a good business opportunity. And that your business can compete on that market. Understanding your target audience also helps attracting them as customers. It will also help you differentiate your business from competitors.
Step 2 of Target Market Analysis: Segmenting the Market
Segmenting the market means to identify differences in behaviors amongst different groups. This allows you to set the groups apart from one another. People have different needs and behaviors when buying products or services. It is this idea that segmentation of people into groups is based on. There are three ways you can segment a consumer market; with demographics, psychographics and behavior.
Demographic segmentation
Demographic segmentations means to divide consumers into groups based on demographic variables. Demographic variables are age, gender and life stage (such as building a family vs. building a career). Socio economic variables are also included in this. These can be level of education, income and social class. It is also important to consider geographic location. Such as what country, state and city the consumers are in. Geographical factors also includes if the consumers live in a big city, a small town or on the country side. All these demographic variables will contribute to how a group of consumers buy.
Psychographic segmentation
Psychographic segmentation is segmentation based on people’s lifestyle and personality. Variables to consider in regards to lifestyle are interests and activities. But also attitudes, opinions and values. Personality variables are the personality traits people admire or aspire to have and connects with. It does not necessarily mean what personality the consumers have themselves.
Behavior segmentation
Behavior segmentation regards factors such as benefits, purchase occasion, purchase behavior and usage. Benefits means what benefits consumers are seeking from buying a product. Or why they buy a product. Purchase occasion and behavior means how consumers buy a product. In what type of situation does the consumer buy the product? For example a consumer might buy clothes for a special occasion, as a gift or for everyday use. The situation thus affects how they buy. Behavior segmentation also looks at whether consumers shop for pleasure, are price sensitive or impulse buyers and more.
Combining segmentation techniques
When segmenting a market you usually want to combine these three methods. That way you can better understand the drivers of different groups of consumers. As a small business this is especially important. Since you are looking to target a small niche segment. You can start by selecting a broader demographic segment. Such as high income, middle-aged women in America. And then segment this market into smaller segments based on psychographic and behavior characteristics.
Let’s go back to our clothing example. In this case, you could look into behavior differences such as how and why they buy clothes. ‘How’ dividers could consist of buying in a physical store vs. online. Or impulse buying vs. planned buying. ‘Why’ dividers could be the sheer utilitarian need to not go naked vs. buying clothes for pleasure. Psychographic segmentation of this market can range from fashion lovers to business women to stay-at-home-moms.
Segmenting B2B markets
If your small business is selling to other businesses, the market segmentation works different. There are two main types of segmentation of businesses. Macro segmentation and micro segmentation. Macro segmentation means to segment based on business’s size, industry and location.
Micro segmentation involves factors such as choice criteria, decision process, buying behavior, and innovation. Choice criteria regards what businesses value when making buying decisions. Such as price, quality or time. Decision process regards how decisions are made, what processes they go through and who makes the buying decision. Buying behavior in a business regards whether it’s a new project or a rebuy. How innovative the business is can also affect how and what the business buys. Usually when segmenting businesses you want to first macro segment the market. And then consider potential micro segments.
Step 3 of Target Market Analysis: Selecting your Target Market
When you have segmented the market, you should have knowledge of the segments you can target. Most likely you already have an idea about which of these segments you want to target. But you need to validate that this segment makes up an attractive business opportunity. This means to make sure that the segment is large enough to make money from. And that there are not too much competition on the market. At this stage you need to perform some research to specify and select the segment that is most attractive for your business. There are several factors that you need to consider and look into, to validate your target market. The easiest way is to ask the following three questions:
- Can you monetize the target market?
- Can you compete on the market?
- Can you satisfy the target market’s need?
Can you monetize the target market?
One of the first things you need to research is if the market segment is large enough. As a small business you need to select a small niche to target, but it cannot be so small that there are not enough consumers that want to buy your product. How many people does your segment consist of? Do they have money to buy your product? Is the segment growing or is it decreasing? This relates to the longevity of the segment meaning if it is based on a short term trend or will exist long term. All of these factors will contribute to answer if the segment is attractive in terms of if you can make money from it.
Can you compete on the target market?
The second factor to consider to evaluate a selected target market is the competition. It is important to understand how competitive the segment you are selecting to target is. Since this will affect your business performance. What other businesses are targeting the segment? Are there many new businesses targeting the segment? Can you differentiate your business from the competition in this segment?
Differentiating your business means to have a unique offer that stands out from the competition. This is often done through branding. When choosing a target market, you can select a segment in order to differentiate your business from the competition. This is a good tactic for a small business. Small businesses should choose a small niche segment with low competition. To understand whether you can differentiate your business in a segment, you read this article on How to Build a Brand as a Small Business.
Can you satisfy the target market’s need?
The third consideration to research is whether your business has the capacity to satisfy the target market’s needs. It is important not only to know that the market segment is a good business opportunity in general. But also if it is good for your specific business, with your capabilities. This involves looking internally into your business and considering your strengths. Consider whether you can use those if you choose to target this specific market segment. Do you have the knowledge, technology and capacity to create/adapt your product offer so that it will satisfy the needs of the target market?
This might seem abstract. Let’s go back to our clothing example to illustrate better. You have selected to pursue high income, housewives that with fashion interest. This segment might only want to purchase clothes from established luxury brands such as Louis Vuitton and Chanel. Therefore, as a small business, you will most likely not be able to satisfy this market segments’ need. You don’t have the capacity to satisfy the target market.
Answering these three main questions will require quite a bit of research. But it is vital to perform this research to determine that you have chosen a good target market for your business. When researching you might come across a different segment that will suit your business better. At this stage it can also be a good idea to compare different segments that you are considering to one another.
This type of research can seem a bit tedious. Especially if you want to outline and compare different market segments. If you do not enjoy conducting research or feel like you do not have the time, getting help on this part of the target market analysis is a great idea. There are many easy-to-use and low-cost services that you can use to hire experts for small tasks like these. Fiverr is one of these services that can relieve you of a few hours of hard work. So that you can focus more on the business activities that you excel at and enjoy.
Step 4 of Target Market Analysis: Get to know your target audience
At this stage, you should have evaluated the different market segments. And selected the segment you want to target. This segment makes up your target audience. The next step of the target market analysis is to deep dive into your target audience and get to know them. It is important for you to understand who your target audience is to adapt your business offer to them. This step relates back to the segmenting step, since you will use the same methods to specify your target audience.
Getting to know your target audience involves all the demographic, psychographic and behavior variables. Not only the ones you used to define the market segment. To understand who your target audience is, you should answer the following questions:
- What is the age range, gender and life cycle stage of your target audience?
- What are their level of education and income?
- Where are they located geographically?
- What are their interests, hobbies, likes and dislikes?
- What values, opinions, attitudes and beliefs do they have?
- What qualities/personality traits do they admire and who/what do they aspire to be?
- How and where do they shop? Do they shop online or in-store? On their phone or on their laptop?
- What social media channels do they use? Or are they not using social media? In that case what other channels are they using?
Answering these questions about your target audience is essential to be able to communicate effectively with them. The ultimate goal of target market analysis is to be able to adapt your offer and communication to attract more customers.
Create a target customer profile
When you have answered all these questions you should have a clear idea of who your target audience is. To adapt your offer and communicate better with your target audience, a good practice is to create a customer profile. This involves using all the answers to the questions in the previous section to describe your ideal customer. Think of it like telling a story about who this target customer is – and write a short text about them. Make up a name, set an age and give them a profession. Then include the rest of the demographic, psychographic and behavior characteristics that this person has. In the end you will have a clear customer profile that you can have in mind when communicating to your target audience. Read more about how to create a customer profile here.
Adapt offer and communications to your target audience
Using your defined customer persona will help you adapt your product offer. And tailor communications to your target audience. Communicating the benefits of your product to your target audience can be challenging. Having your customer persona in mind. And tailoring your communications specifically to this ‘person’. Will help you get the right message to the right people. If you want to know more about how to adapt your communications to your target audience read this article on Social Media Marketing for Small Businesses.
The customer persona can also help you adjust your product to better fit your target audience. These adaptations can be how you design your website or store. Or actually changing the product attributes.
By now, I hope you have an understanding of how to conduct a target market analysis. So that you can reach your target audience better. As your business grows, you might want to come back to this process to make sure that you keep targeting the right customers. When adding new products or services to your business, you might want to increase your customer base and add new market segments as well. Make sure to always to research and validate your target market/s. And adapt your offer and communications to them.
I hope you found this 4 step target market analysis helpful. If you did please share it with a friend.
I'm Emma Ellinor
I’m a digital marketer, project manager and retail analyst.
For the past 7 years I have immersed myself into the field of marketing and management. I am on a mission to inspire more women to take their business to the next level. By sharing my journey to escape the 9-5 trap along with useful marketing, time management and small business tips.
