What is a Target Market? A Must Know Before Starting a Small Business
A target market
is the market segment or in other words the smaller group of a larger group that
a product or service is marketed to. There are many ways that it can be defined. It
can be defined by age, gender
and/or socio-economic grouping.
Let's say you are thinking of starting a small business selling golf clubs. Your target market is golf clubs. Golf clubs would be a smaller
market segment in the much larger sport of golf. However golf is still only a
market segment of the entire sports industry. Basically each industry has
various market segments and when you break those larger segments into the
smaller groups you will end up with a more targeted market segment.
Now back to our example. We found our target market and now we need to define our customers of these golf clubs by age, gender and income level. We also would need to do research to see if it is a growing market segment, who the manufacturers of the products are, and if it is a profitable market.
I have put together some questions to help you in determining it this market segment could become your next product line or if it is worthy of starting a small business in.
- How much disposable
income do most golfers have?
- What ages are more apt
buy the clubs?
- How much does each age
buy and spend on golf clubs?
- Are men or women more
apt to buy golf clubs?
- Where do they buy
(internet or brick and mortar stores)?
- How large is the golf
- Will the golf club
industry continue to expand?
- What are some of the
other products that most golfers need?
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These questions could be
applied to your research for any industry in which you are thinking of starting
a small business. You will find that you can come up with many more questions
then I have listed. However I believe you now have a good understanding of what
a target market is. Now is it "Hot"?
Hot Target Market
There are thousands of
markets and market segments. The key is to find
"hot" markets when starting a small business. If the market segment isn't "hot" then it may be declining. The market might be right under your nose or you may need to create one by finding a need and filling it. We call that
Note: Before starting a small business you need to start with a
life plan first. This is your road map to creating a successful business based with the lifestyle you want to have. When you know what you want for all aspects of your life, then starting a small business will become the perfect match to help achieve all of your goals and aspirations. Once you find a hot market then you can put your
business plan together.
Find an Industry
Is there an industry that you have a major passion for? Would you be excited to get out of bed every morning working in it? The key is to find the industry that you are most interested in and then focus your attention on as much information as possible within that industry. What are the pros and cons of the overall industry? What type of market segments can the industry be broken down to?
Is there Industry Growth Potential?
Industry growth potential is a very important factor. As a whole is the industry you are interested in on the rise, holding its own or losing market strength? Are new products or technology coming into the industry or not? How will that affect your target market today and in the future? Is there a market segment in that industry that is just forming?
Break the Industry Down to Market Segments
Once you have an industry that you are excited about break it down into market segments. Remember the example we talked about with the golf clubs? In that example we were thinking of starting a small business selling golf clubs which was our target market. But before we got to selling golf clubs, we had to break down the huge industry of sports first (tennis, golf, swimming, running, basketball etc.). Then we had to break down the individual sport golf, and then we took it further to golfing equipment and then to golf clubs.
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Define your Customer and Profit
Within this target market who would be your customers? Is there enough potential customers to generate enough profits for starting a small business? If so, how much is spent on this market segment? Can people live without this product or service or is it a necessity? How large is the target market in terms of customers? What do they spend, how do they spend it and on what is the most important product or service do they spend the most money on?
Is the market segment mature or still growing? How many competitors are already in your target market? Are they making a profit? Are the businesses growing, consolidating or closing? Is the competition so severe that your will not be able to make a comfortable profit? What volume of sales will you need to be profitable? It can be hard to get these answers but there are usually market analysis done for most large market segments.
Research the Manufacturers, Vendors and Distributors
Who are the manufacturers in the industry? How many are there and what are the standards for distribution within that industry? The reason I ask this questions is to find out whether they drop ship or sell directly to the customers themselves. If they sell directly to the customer you will be competing with the manufacturer and pricing will become a problem. Check out my article on finding manufacturers and the questions to ask once you have found your potential hot target market.
Does it fit My Life Plan?
What are your goals and desires personally and business wise? Does the results of the research into the target market fit into your life plan and will it be a good fit for starting a small business? If the answer is yes then it is time to create your business plan and start negotiating for products or services.
Finding your hot target market is easier once you know what your business and personal passions are. Starting a small business without creating a life plan first is like starting a journey without the proper supplies. Once you have found an industry that you are excited about, you can start to do the research to find the market segments within it. After breaking down the market segments you can then zero in on specific markets. But is it a hot target market? Armed with this information and your hard research you will be able to determine that answer.
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