You have hurdled over the fears of becoming an entrepreneur and decided to take the risk. Your entrepreneurial idea has been born and you’re thrilled about the future of your new business. One crucial step to launching your business is understanding your client base. Where will your customers come from? Who are your customers and where do they live? What are their shopping habits? Are they online or in-person purchasers?
The foundation of any successful business lies within its target market. Target market is the specific segment of the market that your business appeals to. This segment can be determined by many different variables, like geographical location, demographics, psychological characteristics or consumer behaviors. Luckily, technological innovations have made honing your target market easier than ever before. Entrepreneurs are entering a golden age of marketing. Search engines and social media platforms have developed algorithms that allow businesses to customize the demographics of the consumers who come across their advertisements. With this technology at the tip of our fingertips, making efficient use of your marketing budget has never been more achievable.
It is important that all startups clearly define their target market, especially during the earlier phase of their venture. One of the more dangerous decisions an entrepreneur can make is being overconfident in the broad appeal of their product. If this overconfidence leads you to adopt a “one-size-fits-all” approach to marketing, it will be much harder to distinguish yourself from your established rivals. Yes, your business may appeal to all consumers in one way or another. However, there will always be a specific group of people that need your product much more than the average consumer. Having a small group of consumers that deeply relate to your marketing message is much more effective than having a large amount of somewhat-interested consumers. Limiting the scope of your initial proposal is the only way for businesses, particularly new businesses, to stand out from the established competition.
The primary financial reason target markets are important for startups is because it allows them to make the most efficient use of their limited marketing budget. Most likely money will be tight during the earlier phases of your venture, so it is important to maximize your conversion rate. The conversion rate is the percentage of people who saw your advertisement that actually ended up buying the product. In order to see a more successful conversion rate, it is essential that your business doesn’t waste a single dollar by marketing to lost causes. The average consumer is more loyal to the established brands of the industry, which is why they aren’t as willing to take a chance on an indistinguishable, unproven innovation. Pumping money into a marketing campaign that seeks to directly compete with market leaders is almost guaranteed to suffer from low conversion rates. You should instead limit the scope of your marketing campaign so that it only reaches consumers that deeply resonate with your marketing message. Because these consumers are more likely to buy your new innovation, higher conversion rates will be inevitable.
None of this is to say that firms should never market towards the masses. Rather, startups should wait until after they have achieved significant success before they consider expanding their focus to the other segments of the market. This is because appealing to your target market is what initially allows you to test out your strengths and weaknesses, which will give you a better understanding of where your business’s core competencies are. In simple terms, core competencies are the areas in which your product or service differentiates itself from the current market. Being able to properly define your core competencies will help your business develop a consistent vision of what makes your offering unique, in such a way that allows your firm to establish a loyal customer base. Once this is achieved, your business will finally have access to the resources and expertise necessary to invest into expanding into new markets.
Jake Stammen, Baylor University student