Once you have identified the segments that make up your market, you need to then decide which of these segments you are going to target for potential customers. In order to make this decision you need to carry out some analysis of the segments whilst bearing in mind your business goals and budget.
Factors to Consider in Identifying Target Markets
Some of the things that you may want to consider are:
- How many segments can you afford to target?
- Which segments already have the most competition?
- Which segments have the least competition?
- Are you new to this market? Do you need to test a small segment first?
- What growth potential is the segment showing?
- How much market penetration do you need in order to break-even?
- What is the likelihood of achieving the market share that you need in short, medium and long terms?
- Does the segment pose any threat to your businesses reputation?
- What is the profit potential?
Tips for Identifying Target Markets
It is often easiest to determine which segments are most appropriate for your business by drawing up a simple morphological box/decision matrix/grid analysis. This graphical representation of the market segments will help to focus your decision making on the keys areas.
The most logical way to do this is to list your market segments row by row in the left-hand column and then create a column for each of the criteria that are most important to your business. For example segment size; profitability; competition levels; and current market share. Then you need to analyse each sector against the criteria until your chart is complete. Once completed the chart should indicate which segments show the most potential and which ones you need to avoid.
Identification of your target markets is vital to creating the right marketing mix. You may decide to target one segment or multiple segments and there are good rationales for doing both but they will be individual to the market that you work in. The only caveat to that is that you should always have a fallback position. Finding the right balance is the key because targeting one segment can be akin to having all your eggs in one basket equally targeting many segments can dilute your message and selling power.
One final word of caution – identifying your target markets is not a one off analysis. You have to keep revisiting your analysis regularly. Markets are ever changing and they move at great speed. Your analysis needs to be up to date at all times so that you are ready to move with the market.