Defining your target market can help you establish your niche. Knowing your niche and understanding your audience benefits your business strategy in myriad ways, including helping you develop a more strategic marketing plan, getting the most out of your digital marketing spending, navigating niche marketing, and ultimately driving sales and growing your business into the revenue machine you want it to be.
Not sure what a target market is or how to approach it? This guide will give you a comprehensive overview of the moving pieces included in establishing your target market.
What Is a Target Market?
A target market is a specific group of consumers who might be interested in a business’s products or services. A target market is a subgroup within the total market for a product or service.
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Consumers who fall into your target market likely share similar characteristics—whether that means demographic similarities, shared preferences or values, geographic locations, or buying power.
Why Every New Business Needs to Find Its Target Market
Finding your target market helps you narrow down your ideal customer and develop the marketing strategies that will most appeal to them. Essentially, a target market helps you develop a strategy. Strategy, in turn, is essential for driving business, protecting your capital, and minimizing risk.
When you start your new business or side hustle by determining your target market, you give yourself a specific consumer base that you want to center in your customer acquisition strategy. This will help you avoid common startup pitfalls in your early marketing efforts like pouring money into an unfocused marketing strategy that yields lackluster results.
How to Determine Your Target Market
Establishing your target market requires testing, adjusting, and iterating. This is because nailing down your target market can be a bit of a chicken-or-the-egg situation, according to Abby Ha of Well PCB. “Before you can even begin to narrow your target market, you need to know what you have to offer. That’s tough to figure out before you’ve found your market because no one knows what they have to offer until they figure out what their market needs.”
While “finding your target market” might sound like something you’d have to hire an expensive agency for, it’s actually a lot simpler than it might seem. It’s also something you can do yourself following these steps.
Start Specific, Then Broaden Your Approach
Starting with a specific focus yields more actionable, reliable results than by asking yourself the broad question of “Who is my target market?” If you have an established business, Ha offers this advice, “Look at the reality of your business and the people you serve right now and what they have in common.”
This advice can also be adopted if you have a product/service prototype or an online following that has not yet established its product offerings. You can start with your prototype and begin to inquire, “Who is drawn to this product/service? What am I offering that is different?”
Analyze the Total Market Conditions
Once you have nailed down a cursory sense of what is compelling about your business and the audience you expect will respond to it, you want to understand what the overall market for your product is. A market analysis, which is the larger process of assessing the dynamics within a particular industry, can be helpful. You want to know what the total market potential is and how your industry is trending.
Think of it as a pie chart—or more deliciously, as pie. Ultimately, your target market will only be one slice of the pie. It’s impossible to know how big the slice will be without understanding the size of the pie.
Reference Your Competitors
Your competitors’ marketing can tell you a lot about your target market. If you anticipate that you’ll share the same target audience as your competitors, you can glean a great deal of information about what their audience is responding to. Ha says, “Look for other brands in your niche and analyze their marketing strategies. What does their website say? Who are they targeting? What channels do they use? Who are their competitors?”
Conversely, your competitors may have left a hole in the market, creating an opportunity for you to address an underserved customer. If this is the case, you can collect the common marketing strategies shared by your competitors. Later, you can test different marketing approaches to see what connects with your target customer.
Rely on Findings from Your Market Research
Market research gives you a plethora of information that can help you readily and accurately pinpoint your target market, especially when it comes to market segmentation. Customer surveys can provide a good deal of demographic information on your target audience, and customer interviews can be treasure-troves of information about behavioral and psychographic segments.
We cover more about market segmentation (what it is and how to use it) below, but if you have completed robust market research, you’ll already be a step ahead of the game. If you’re not sure what market research is or how to do it, you can consult our Complete Guide to Market Research.
Draw on Information From Social Media
If you already have a social media following, you already have information about your target audience. If you don’t have a social media following, you can reference competitors to see the types of people who are not only following but engaging with their posts.
Analyze Your Current Customer Base (If Applicable)
If you already have a current customer base, analyze what you know about them. What do they have in common? Do they share certain demographic information, hold similar beliefs, or tend to cluster in a specific geographic area? You likely already have the information necessary to identify your target audience. It’s just a question of effectively gathering and analyzing the data.
What Is Market Segmentation and What Role Does it Play in Defining Your Target Market?
Market segmentation is the process of dividing a broad market audience by shared characteristics that give you a sense of different customer needs/pain points and predicted behaviors. Grouping customers based on shared characteristics is essential because as Ha puts it, “If you know your target audience and their characteristics, then you know your target market.”
Market segmentation can also be useful in developing buyer personas or customer profiles. These tools will help you identify a potential customer and what they like, which in turn will help you with niche marketing.
Let’s take a look at the different ways you can segment the market.
Demographic segmentation refers to a group of consumers who share a similar demographic. This can include age, gender, race, cultural identities, religious beliefs, level of education, income level, and professions.
A geographic segment refers to a group of consumers who live in a particular geographic area. It is often the easiest segmentation type to identify. You can identify a geographic segment broadly (by country or region) or more specifically (by city or zip code).
Psychographic segmentation refers to a group of people who share similar psychological traits. This can include beliefs, motivations, and priorities that may determine consumer behavior, whether they’re conscious or subconscious.
Behavioral segmentation groups consumers based on how they behave. You might segment groups based on their habits regarding purchasing, browsing, or spending. Behavioral segments can also be determined based on how a customer interacts with your brand.
How to Test Your Target Market
If you’re developing a new product or service, start by casting two nets at once. “One is a big net for the ‘general’ market, the mainstream audience, and the other net is a very small net for people who are already converted to your market,” says Ha.
What would this look like in practice? “Suppose you were selling custom-made wooden toy ships. Before you begin marketing, you would find out what exactly it is about wooden toy ships that is attractive to people,” Ha says. You do your research and you discover (for the sake of this example) that toy boat enthusiasts really pop for ships made of wood from the lost city of Atlantis.
Your market testing approach would then require you to make two versions, according to Ha. “One version is the ‘normal’ version made with ordinary wood, and the other version is your special version made with magical wood from Atlantis.” Put both into the market and see which one attracts more business.
This testing approach gives you concrete information about how the market will respond to your product based on how it has already, and concrete data will always be a more useful sales tool than theoretical abstractions.
Target Market Examples
Learn from these real-life founders who achieved stratospheric success once they found their target audiences.
Tamara Mellon, Jimmy Choo
Tamara Mellon began by identifying a gap in the market. “I realized that nobody was doing really interesting luxury women’s shoes. It was about to happen. So mid ’90s, this wave started of accessories exploding, before that it was all about the clothing and nobody cared about the accessories,” she told Nathan Chan on the Foundr Podcast.
Her goal was to compete directly with Manolo Blahnik, the market leader at the time. That meant targeting an audience of affluent women who were looking for fashion-forward luxury shoes.
Malcolm Ong, Skillshare
Malcolm Ong identified his target market by looking at the existing education landscape. There was a linear path for most people that included college—but that wasn’t always the best place for people or the most effective path for learning certain disciplines (especially the arts).
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When this combined with the data illustrating the overwhelming weight of student loan debt, he took the step to launch Skillshare.
“That was really the impetus of why we felt so strongly about Skillshare and doing something with an education, and then the whole idea of, ‘Well, if I wanted to learn something, why do I need to go to college? Why do I need to go to a four-year institution? Why can’t I simply just learn from the people that are already working in that job or the people that are already working in the fields that I’m interested in?’” Ong said on the Foundr Podcast.
The target market in this case is people who want educational opportunities outside the collegiate system. Once Ong had a sense of what the right target audience was for Skillshare, the next step was to prove the concept.
Ong explained, “In the very beginning, we just wanted to curate 10 classes a month for the first three months, see if we could do that, see if people were interested, and see if there was demand for that. We’re actually very successful in doing that. Almost 100% of our teachers have never taught before. We got 30 classes in our first three months. The classes pretty much sold out in terms of tickets. So, that was enough to convince us. Hey, we’re onto something here.”
Tiffany Masterson, Drunk Elephant
Tiffany Masterson started the skincare company, Drunk Elephant, as a side hustle. Again, Masterson began her product journey by identifying a gap in the market. She had struggled with her skin and dove into researching the science of skincare. As she did, she put together formulas and combinations she would love to see in different skincare products.
Similar to Skillshare, the product launches acted as a proof of concept and tested interest in the brand. Masterson launched the product on her own website and took a year to collect customer feedback. This forced her to continue to learn, adjust, and iterate, ultimately giving her a stronger product and audience research that would help direct her marketing campaigns later on.
All the more impressive? Masterson started Drunk Elephant as a side hustle… only to sell the brand to Shiseido in 2019 for $845 million.
Start With a Side Hustle
Ready to see if your business idea has what it takes? Starting with a side hustle can be an effective way to start building your business, while still maintaining the stability you need to pay your bills. The same way that you can test a product to help find your target customer, you can test a business as a side hustle to see what kind of traction it has.
Not sure how to begin a side hustle? Check out the Foundr mini-course. It’ll give you all the tools you need to launch and grow your side hustle.