ComplianceLegalFinanceTax & AccountingNovember 16, 2020

Your target market: critical for business success

Do you know who your buyers are? Do you understand why they buy your products or services? If not, now's the time to find out
  • County Business Patterns. Released annually by the Department of Commerce, each state bound separately, these provide figures on employment, payrolls, number of businesses and number of employees in each business class.
  • County and City Data Book. A book by the Census Bureau gives you information on housing, population, income, health, retail and wholesale trade.

Segment Your Market to Drive Growth

Although the universe of all potential buyers may be your "market," dividing the market into sections or "segments" can help you generate more revenue. This segmentation can be based on any number of factors demographic or lifestyle factors. For example, you could segment your customers by age group. Or, you might divide them by family size. Different segments will have different needs and are likely to respond to different advertising or promotions. By thinking in terms of "what does this group of customers need," you can generate solutions that resonate with the target group.

Most marketers know that "20 percent of buyers consume 80 percent of product volume." If you can identify that key 20 percent and find others like them, you can sell much more product with much less effort. These loyal customers of your product or services can be thought of as a market "niche" that you should attempt to dominate. Niche marketing today means targeting, communicating with, selling, and obtaining feedback on the heaviest users of your business's products or services.

Large companies have embraced niche marketing, continuing to refine and target their product offerings to different buyer groups. As an example, Nike re-staged a multi-billion dollar company that had plateaued by pursuing a segmentation strategy. Nike designed and marketed athletic shoes for each different sport, often further segmenting with specialized models within each sport (e.g., "Air Jordan" basketball shoes, and additional basketball models called "Force," represented by Charles Barkley and David Robinson, and "Flight," represented by Scottie Pippin).

While you are unlikely to have the equipment to manufacture specialty athletic shoes or the budget to be able to recruit an NBA superstar as your spokesperson, you can define your best customers and look for ways to entice them, and others like them, into buying your product or services.

Picking the right segment of the market is important to achieving sufficiently large sales volume and profitability to survive and prosper as a company. Picking the right market segment means one that is

measurable in quantitative terms;

substantial enough to generate planned sales volume;

accessible to your company's distribution methods; and

sensitive to planned/affordable marketing.

It is also important to examine other factors that could affect your company's success:

strength of competitors to attract your niche buyers away from your products;

similarity of competitive products in the buyers' minds;

rate of new product introductions by competitors; and

ease of entry/protectability in the market for your niche.

It is also important to be able to identify and estimate the size of your target market, particularly if you're thinking about a new venture, so that you can tell if the customer base is large enough to support your business or new product idea. Remember that it's not enough that people like your business concept. There must be enough target buyers on a frequent-enough basis to sustain your company sales, spending, and profits from year to year. Selling a product or service that people may need only once in a lifetime may not be a sustainable business, unless a large number of people need it at any given time, or everyone needs it eventually (e.g., funeral services).

Each total market must be examined in light of:

size of the total market

size of the market that is interested in your products

size of the market that is available for distribution of your products

size of the market that already buys competitive products

size of the market that your company can serve

size of the market that your company can reach with advertising and distribution

Know What Is Important to Intermediate Buyers

If your target customers are the end user of your products and services, then demographic and lifestyle factors are essential to understanding them. However, not all businesses sell directly to the ultimate users of the products. If you sell to other businesses, who turn around and resell your products and services, your buyers are predominantly channel buyers. For example, consumer packaged goods such as food, health, and beauty aids and household products may be initially purchased in large amounts by a master distributor, who sells to local/regional distributors. These local distributors often sell to a wholesale buyer representing a chain of stores. Finally, individual store managers decide to buy and stock the product before the consumer ever has a chance to buy the product.

Channel Buyers Come in Different Flavors

Channel buyers may be subdivided into the following major market categories: business-to-business, government, and consumer markets.

Business-to-Business and Government Buyers

Business-to-business and government buyers are subject to many different influences than buyers of consumer goods. Generally, B2B and government purchasers have the following characteristics:

fewer buyers

larger business transactions

regional concentration of buyers

defined sales and broker relationships

dependent upon end-user buying patterns and demand

an inelastic market, meaning that the demand for goods and services is not significantly affected by a significant change in price

Business buyers take many factors into account when contemplating buying decisions:

macroeconomic trends, nationally and internationally

long-term material supply trends and inventory needs

delivery rates, timing, and reliability

plant capacities

suppliers' financial resources

Government buyers are subject to numerous government contracting rules and regulations.

Consumer-Goods Buyers

Consumer-goods buyers are subject to different influences when compared with business-to-business and government buyers. The major factors affecting this channel are:

there may be many buyers at multiple levels in the same company

small to large transactions

national, regional, and local buyer concentration

direct company sales to buyers, or broker relationships

directly dependent upon end-user buying patterns

end users influenced by company advertising and promotion spending

an elastic market, meaning that the demand for goods and services is easily affected by slight changes in price.

Regardless of the channel of the intermediate buyer, you can expect the sales cycle to be longer and more complicated than that involved with sales directly to the end-user.

Economic Factors Are Essential to Intermediate Buyers

If intermediate buyers are involved prior to products reaching the end user, influences other than customer demographics and lifestyle factors are likely to be important. For example, grocery buyers of consumer packaged goods may have strict profit margin guidelines (e.g., minimum 25 percent on discount retail price programs), and minimum discount thresholds that they will accept (e.g., at least 10 percent off invoice). Buyers are also heavily influenced by brand advertising and promotion support programs (e.g., coupons in local newspapers on the promoted brand). For new products, cash payments to the stores for each new item (e.g., $500 to over $25,000 per item) and free case goods on each new item for each store are common for larger chains. Some of the more important factors include:

Profitability of the item. The higher the margin and dollar profit per item vs. competitive category products, the more likely the trade will accept it, regardless of product quality.

Availability of discounts. Discounts can increase margin, volume, and velocity of the item. For example, 10 percent to 25 percent off invoice each quarter for all purchases during the period are typical discounts for grocery and drug retailers.

Advertising and promotion support programs. Multimedia TV, radio, print and PR support, plus heavy consumer couponing, sweepstakes, and contests are typical consumer packaged goods programs that may be run one to four times a year.

Slotting fee allowances. New item "slotting fees" are the subject of controversy and frustration for many manufacturers supplying grocery, drug, and mass merchandiser retailers. Slotting fees are cash payments and/or free goods that are not refundable, even if the products are dropped after six months by the retailer. Slotting fees range from a few hundred dollars to over $50,000 per item in some chains.

Availability of free samples. Allowing the intermediate purchaser to have a "free trial" of the product can encourage future sales. For example, one case per store is common for new grocery item distribution.

Personal buyer/seller relationships. There will always be personal relationships influencing buying decisions as long as there are people selling to people. That's why you hire good salespeople

Sales incentive programs. These programs may spur salespeople on to greater productivity and sales of a particular item or offering.

Nikki Nelson
Customer Service Manager
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