How to define the target market in your business plan

Your target market sets the tone for your marketing strategy - everything from how you develop and name your products or services right through to how you promote them. But before you can do any of that, you need to identify who your potential customers are.

What is a target market?

A target market is a group of customers you identify as the most likely buyers of your company's products or services.

This group is generally united by shared characteristics such as age, location or interests.

Identifying the target market is important for everything from how you make a product to what packaging you use – as well as how you market it. 

While a cheap bar of soap, for example, appeals to shoppers on a budget, older women with lots of spending power often choose to pay more for a hand soap with high-end ingredients and luxurious packaging.

Read more…

• What is market research?

• How to do market research

• How to brand your business

Why is target market important in business planning?

The main purpose of identifying a target market is to have a good understanding of who is likely to buy a particular product or service. 

Big businesses spend a lot of time and money defining their target markets before launching special offers, social media campaigns and advertising that’s specifically designed to appeal to them.

However, your marketing strategy is far from the only aspect of your business affected by the needs and desires of your target market.

For instance, a soft drinks company that discovers its target market is made up of sporty millennials might reduce the amount of sugar in its products or modify the cans to make them more attractive to a health-conscious audience.

How to identify and define your target market

The target market is a vital element of any business plan. You can start with broad categories, such as young professionals or married mothers, but the best results come when you drill down deeper. Here’s how to do it.

Gather data on your existing customers

If you’re already offering a product or service, you can learn a lot by getting to know those already using it. Things to consider when you do this include:

• Age – what stage of life are your customers or clients at?

• Location – where do they live?

• Spending power – how much can they spend on the product or service you offer?

• Interests – what do they like doing in their free time?

• Challenges – how does your product or service help them lead happier lives?

If your clients are businesses rather than people, you should look at how large they are and how long they’ve been trading, as well as their location and spending power.

Research wider data on similar groups

You can take advantage of the huge amounts of data available to build on the results of your existing customer research.

Let’s say your existing customer base is mostly made up of 30 to 40-year-old men. You can find out more about what makes this segment of society tick by reading up on them. A lot of data is available about different customer segments for free online, covering everything from how much they spend on Christmas presents to how they get to work.

If your business is targeting people who live locally, it also makes sense to analyse the local community. For instance, the Office for National Statistics can offer tables on your area’s characteristics, such as age and ethnicity.

Look at what your rivals are doing

Checking out how your competitors are marketing their products is another way to identify your target market. 

If, for example, a successful rival’s social media accounts are full of videos showing retired people using their products, you can be sure they are targeting an older market. 

Research of this kind can help you identify potential target markets you might not have thought of. It also gives you an opportunity to check how well their posts are performing, which can help you work out what their – and therefore your – customers find engaging.

Understand the value of your product or service

How does your product or service improve your customers’ lives? Understanding the benefits you provide is crucial for engaging with your target market. If your business has been operating for some time, consider asking your current customers why they use your products or services. You could do this through a survey or a social media poll.

Types of target market segmentation

Market segmentation involves dividing a market into smaller groups based on key characteristics that influence their spending decisions. These factors can include gender, income level and marital status.

There are four main types of segmentation to consider:

• Demographic: Consumers with similar demographics often value the same products and services (in this case yours). These shared demographics help to define your target market. They include age, income level, gender, occupation and education level

• Geographic: National and regional preferences are crucial for shaping marketing strategies. You only need to think about how adverts vary in different countries to understand the importance of location 

• Psychographic: This focuses on lifestyle, attitudes, interests and values. For business-to-business marketing, factors like industry, company size, performance and structure are important

• Behavioural: By researching your existing customers, you can learn how frequently they use your products or services, why they choose them and how loyal they are to your brand

Target market examples

The type of service or product you offer often determines the factors that define your target market. Here are some examples of how that works in the real world.

• Financial advice – a service of this kind appeals to people with money to place in a financial product - for example, in a pension plan or an investment fund. Hence, the target market tends to be high-income individuals who own their own homes

• Organic baby clothes – eco-conscious new parents are the clear target market for products of this kind. Common traits are also likely to include age, say 20 to 40 years old

• Home-delivered meal kits – these are generally aimed at busy professionals with a high disposable income who most likely live in urban areas  

Common mistakes to avoid when defining a target market

Defining your target market isn’t always easy. Here are a few tips to keep you on the right track. 

• You can’t be everything to everyone. It’s better to target a very specific market segment rather than trying to appeal to a wide range of people. After all, targeting a specific group of individuals doesn’t mean people from other groups won’t buy from you. It just boosts the chances of converting those you are targeting into loyal customers.

• You can have more than one target market. If your business has a range of products or services, for example, you may find different offerings appeal to different groups. But you can still only communicate effectively with one target market at a time.

• Your target market isn’t always defined by the sector or industry you’re in. Consider Italian restaurants. While a late-night pizza takeaway might draw a younger, more budget-conscious crowd, a traditional restaurant is more likely to appeal to families and older couples. On the other hand, a modern bar-restaurant serving cocktails alongside small plates might attract young professionals with money to spend. 

Top tips for writing the target market section of a business plan

Your business plan doesn’t need to go into detail about your target market and brand positioning. But it should include a simple statement defining your target market. 

This could be something like:

“Our target market is (women/men etc.) aged between (age range), who enjoy (hobbies and activities) and care about (attitudes and beliefs).”

If your business offers multiple products or services, you may also find it useful to define the target market for each one in your business plan.

Read more:

• How to write a business plan

• Key business plan sections

• Business plan mistakes to avoid