BizPlanIt Virtual Business Plan - Target Market Business Plan Newsletter

A popular and critical question posed to business owners and entrepreneurs by lenders and investors is "Who is your customer?" It's such a simple question, yet the inability to answer it has possibly caused more ‘going out of business' sales than any other.

Why can failing to answer such a simple question have such a devastating impact on your business? Unfortunately, because many business owners place too much emphasis on their products and services, and too little on what the customer truly wants and needs. You may have a great product, with more neat gadgets, features, and benefits that your competition offers, but does your customer care? And how do you know they care?

The first place to start is by defining exactly who would be interested in buying your product or service. This is your target market, defined as the group of the population sharing a common set of traits, which distinguish them from everyone else.

For example, a children's clothing store located in the mall might have a customer profile like this: Children between the ages of 3 to 8 years old, 65% female and 35% male, located within 10 miles of the mall, and whose parents earn over $40,000 a year. These characteristics define a target market - and a central set of characteristics for potential customers for children's clothing. If you're in the start-up phase, your target market may be less tangible than the target market for a company with years of operational history and customer files. But as you gain experience running your business, and you maintain accurate records of who actually purchases your product or service, your understanding of your ideal customer will improve.

So why focus on your target customer?

First, if you don't understand who they are, how can you tailor your product or service to best meet their needs? One key to business success is the ability to provide products and services that meet the needs and wants of your customers. If your customers want to purchase red shoes, and all you sell are blue shoes, how many do you suspect you will sell? If your customer believes that the speed of your service is more important than its quality, isn't that information you need to know?

Second, when you understand who your customers is, you can determine with more accuracy which marketing mediums and channels will be most effective in reaching them. If your potential customer only listens to FM stations, and you advertise on an AM station, your marketing efforts will be unsuccessful. The more narrowly you can define your customer, the more focused your marketing efforts become, and the more your marketing dollars will work for you.

For example, if you want to sell print shop owners a product, then advertising in a print industry magazine is a far more effective use of marketing dollars than placing an ad in USA Today or Time. This doesn't mean that your customer won't read USA Today or TIME, just that you won't be advertising to all the millions of people who clearly have no interest in your product.

Here are suggestions on how to breakdown your customer profile, on both the business and consumer level.

Demographic characteristics are specific, objective, and observable characteristics that your target customers share. Most marketing mediums, such as newspapers, magazines, radio stations and television stations can provide excellent demographic characteristics on their audience. General demographic characteristics include:

Age or age range
Gender
Income Level
Family Life Cycle
Occupation
Education
Race/Ethnic Group
Social Class
Industry
Product/Service Sold
SIC Code
Years in Business
Revenues
Number of Employees

Geographic characteristics are based on the location(s) where your target customer can be reached. Are they in the urban areas or do they reside in the rural areas? Are they in Montana or New York? Correctly deciding whether to run an advertisement in the New York Times or the Los Angeles Times, will save you money, and help you generate more effective marketing results. Try to identify your customer based on the following geographic characteristics:

Country / Region
State
City / Town
Size of Population
Climate
Population Density

Psychographic characteristics, though less tangible, are still important to identify and understand. These traits have more to do with a person's psychological characteristics such as attitudes, beliefs, hopes, fears, prejudices, needs or desires, and are highly dependent on your customers' self-image and their perceptions of your industry or product. Psychographic traits include such things as:

Social Class
Lifestyle
Leader / Follower
Extrovert / Introvert
Independent / Dependent
Conservative / Liberal
Traditional / Experimental
Socially conscious / Self-centered

Consumer / Behavioral characteristics are those relating to the purchasing and usage traits of your customers. Do they use similar products such as yours, and how often do they use them? What are the benefits people desire in your service, and how does this translate into sales? Consider these consumer / behavioral traits for your target customer:

Usage Ratio
Benefits Sought
Method of Usage
Frequency of Usage
Frequency of Purchase

Market Size
Once you determine who your customer is, it's important to identify the size of your customer base. Is it large or is it small? If it's too large, consider narrowing it down and focusing on a particular niche. Trying to reach and sell a large target market is difficult and costly, especially if it's populated by well-financed competitors who will force you to incur significant costs to achieve a sizable market share. If too small, will you be able to capture enough customers to make a sufficient profit?

Market Trends
Once you define your customer, and determine their total numbers in the population, it's a good idea to research the trends of your market. Over the next few years, what growth rate can be expected for your target market? What changes are taking place in the makeup of your market, and how will they change in the future? How are, and how will, customers change their use of your product or service?

So you ask, "How do I find all this information?" BizPlanIt has a few suggestions. First, talk to as many of the people in your target market as possible. Seriously - just talk to them and ask questions. Conduct surveys. Discover what they like and dislike, and what they want and need. What is the most important factor in their purchase decision? Facilitate a focus group, or if you have the money, consider working with a market research firm.

Second, don't forget the local library. It's rich with books, magazines, research journals, reference guides, and computer databases to help you find the information you need. Ask the librarian for help, we always find them extremely helpful in locating specific sources quickly.

Lastly, use your own eyes and ears to discover valuable details about your target market and their buying habits. Visit your competitors disguised as a consumer. Hang out in a store related to the product or service you sell and take it all in. Request annual reports and marketing information to find out about the financial, operational, and marketing factors that are important in your industry. Essentially, look around, collect information, get organized, and figure out who your target customer is, and how you will reach them effectively.

For more advice on writing the target market section of your business plan:

Email us at BizPlanIt if you have comments or suggestions about our Virtual Business Plan.