Target Marketing and Market Research
William Joubert, Director of Southeastern Small Business Development Center
To be successful, businesses must be familiar with the key areas of entrepreneurship, which include marketing fundamentals. With over 20 years helping small businesses start and grow, I can say from experience that most struggling and failed businesses did not know their market or customers.
Consider your business a solution to your customer’s problem. Someone in need of a haircut has a problem. A barber shop is there to solve the problem by providing haircuts. While it sounds simple, there is more to it. Some people will want later hours, some want cheaper prices, some want appointments, and the list goes on. Every barber shop is different with a different clientele, location, prices, etc. So knowing your customer and what they want, when they want it, where they want it, and the price point is central to success. The following steps can help you identify who your customer might be.
Know Your Industry
Let’s start the journey by first looking at your industry. What are sales nationally or globally? A quick Google search will give you a pretty good answer. Next, are sales in your industry going up or down and by how much? This answer can also be found online. The next question is harder to answer but critical to know: why are national sales going up or down? What is driving this change? Perhaps technology is changing business as usual, like Uber hurting the taxi industry. Other factors could be deregulation, new, cheaper, competing products, different classes of products, etc. Knowing these answers can help you position your business and strategy.
Know Your Market
The next step is to define your market. How big is your market? Do you sell global, national, statewide, or in just a few zip codes? If you are selling pet supplies, most of your customers won’t drive very far to get them, so your market is a few zip codes at best. If you are selling furniture or washing machines, then it is possible customers will drive to another city. So pick your market area carefully. Once you have your market area defined, we need to quantify some things.
Understand the Numbers
The things you quantify will depend on what drives sales. If you are selling hot water heaters or air conditioning systems, then count homes and how old they are because these systems need to be replaced periodically. If you are selling shoes, then count people. If those shoes are for children, then count children. Selling pet supplies? Count households. All this data can be found on the internet. Because internet sources involve data collected for someone else, and we don’t know its original intended use, it is considered secondary data and will not be 100% accurate, but it can still give you a feel for how big a number is or what the purchasing patterns are.
For example, an internet search for pet supplies would reveal that households spend approximately $1,170 per year on pet supplies and that 50% of all home own a dog. Do some simple math. If there are 10,000 homes in your market and learned that 50% have dogs, that’s 5,000 homes multiplied by the $1,170 annual spending which results in $5,850,000 in estimated sales in your market.
Calculate Market Share
Now that we know the total market sales, we need to start estimating market share – that is, how will the $5,850,000 be divided up? How many other competitors and/or retail outlets carry pet supplies and how big are they? Big box retailers like Walmart would probably get about 50%, or $2,925,000 or all sales of pet supplies in our market. Figure another 30%, or $1,755,000 for national grocery stores, and we are left with about 20%, or $1,170,000 to be divided among the specialty pet stores. Assuming there are three pet stores in our market, that means each store could potentially get approximately $390,000 per year in sales. While these are assumptions, they still give us a better view of where sales would go in our market.
Know Your Competition
All competitors are not equal. Try to compare them by their strengths and weaknesses. Look at things like hours of operation, pricing, credit terms, customer service, product selection, quality and location, to name a few. In a pet store, for example, some people may not want to be around reptiles or exotic pets and thus would steer away from them. Others may want a big corporate feel, and still others want more of a mom and pop store. With regard to location, malls, downtowns, strip malls, and locations near homes or schools will attract different customers. When picking a location, you are choosing to not sell to certain customers, so great care should be taken when picking the location.
Profile Your Customers
While on this journey you must also determine your customer profile. Who do you want to serve? The customer profile includes gender, income level, type of employment, when they work, where they live, age, marital status, etc. Other more difficult to determine attributes could include their personal preferences. Most businesses will have several customer profiles that complement each other. Knowing that your customer profile might include children or people who don’t have pets can really save you time, effort, and money because you will not market to them.
It is my hope that this journey clearly illustrates the importance of a solid knowledge of market fundamentals. This process is critical to business success and should not be taken lightly. Not everyone who lives in your area is your customer, so there should be some purposeful study to identify who you want to sell to. This information will also be a key factor when you deploy your advertising and promotion mix/plan.
The Louisiana Small Business Development Center provides assistance to existing and potential small businesses in Louisiana. Learn more at lsbdc.org.← News and Insights