In this article, we will walk through the steps of identifying a target market and calculate how much of that market we intend to capture.
Step 1: Identify Specific Demographics
Demographics are “the statistical data of a population, especially those showing average age, income, education, etc.” They are the quantifiable characteristics of your target market. Below is a list of common demographic variables that marketers choose from.
- Income level
- Education level
- Marital or family status
- Ethnic background
Choosing different options of demographic variables will result in different target markets. For example, a target market of consumers ages 18-25 will have many different preferences and capabilities than a target market of consumers whose ages range from 45-65. Another example would be marital status. A consumer who is married is going to have different spending habits and capabilities than a consumer who is not married.
The point of demographic variables is to target the consumers who are most likely and able to purchase your product or service. If your product or service costs $1,000 per consumption, then it would not be wise to target consumers who make $10,000 annually (as that would cost them a significant amount of their money). You will want to target the consumers with the right mix of demographic variables for your marketing efforts. Again, target those consumers who are able and willing to buy your product or service.
Step 2: Identify Specific Psychographics
To get even more granular with your target market, consider the psychographics of your ideal buyer. Psychographics are “the study and grouping of people according to their attitudes and tastes, especially for market research.” Where demographics are the quantifiable characteristics of your target market, psychographics are more qualitative in nature. Below are some typical psychographic characteristics.
Relying on demographics alone will provide you with an outline of your ideal buyer. Adding psychographics to the mix will give you a colored-in image of your ideal buyer. Demographics will allow you to see who you are targeting, and psychographics will allow you to see how your target market makes purchasing decisions. Combining a demographic mix with a psychographic mix gives you the clearest picture of your target market.
Step 3: Determine How Many Consumers Are in Your Target Market
Once you have your ideal buyer selected based on specific demographics and psychographics, the next step is to determine how many consumers are in that particular market. For example, say your ideal buyer is an educated white woman whose age is 35 and lives in Minneapolis, MN. You can use the demographic information found on the Census Bureau’s website to determine the number for that target market. Here’s a breakdown of that process
- Determine population of Minneapolis, MN: 422,331
- Determine the percentage of women in Minneapolis, MN: 4%
- Determine the percentage of white persons in Minneapolis, MN: 8%
- Determine the percentage of people who hold a bachelor’s degree in Minneapolis, MN: 7%
- Apply these percentages to the total population: 41,529
- The number 41,529 is the amount of educated, white women in Minneapolis, MN who are between the ages of 19-64
- 41,529 is the total number of consumers in this target market
Step 4: Determine How Many Consumers Within That Target Market You Will Capture
The last step in selecting a target market is determining how many consumers within the market you will realistically capture (get to buy from your business). It would be unrealistic for you to assume that you will capture the entirety of the market, especially if you are a startup. Continuing with the above example of an educated, white woman in Minneapolis who is 35, we know that the size of the potential market is 41,529 consumers. If we sold 3 products per day to this target market in our first year of operation, then we would sell 1,095 products in one year (365 x 3 products per day). If one consumer in this market purchases one product, then we can assume that we can capture approximately 2.6% of this market within the first year of operation. This calculation allows you to forecast a year’s worth of sales and it will allow you to set sales goals on a daily, weekly, and monthly basis.
Identifying your target market will allow you to more accurately forecast sales and develop messaging and branding that resonates with the audience you’re trying to reach. It’s a science and an art that serious businesses will be sure to undertake.
Now go and get a piece of that pie!
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