Building a business plan: how to select your target market

Identifying one’s target market is fundamental for any company.

No matter what the size or sector, everyone is called upon to find one or more niches to address their offer.

The construction of a complete and effective business plan depends on this step.

The analysis of the market and the choice of the market are therefore a piece of a larger mosaic, on which the growth of the company is based.

It is necessary to know who you are addressing, what their expectations are, how the market is evolving, what its size is and who its competitors are.

This applies to both B2B and B2C. What does this mean?

It means that regardless you are offering your products to consumers (B2C) or to other organisations (B2B), it is essential that you study the market segments carefully and choose the ones that are right for your business.

But how to do this? What are the criteria to be taken into account when selecting the right segments?

Target market: what is it?

When we talk about a target market, we refer to a homogeneous group of interlocutors in line with a commercial offering.

In other words, it is a group of consumers, companies or other organisations with similar characteristics and who might be interested in our products and services.

The target market can in turn be subdivided into smaller portions, i.e. so-called niches or segments.

Segmentation can be based on different factors:

• Demographic: e.g. age, gender and purchasing power of consumers.
• Firmographic: the equivalent of the above, but applied to organisations (volume of turnover, sector, number of employees, etc.).
• Geographical: the location in a certain area.
• Psychographic and behavioural: the interests of potential customers, their goals, their opinions, the needs behind the purchase etc.

Taking these factors into account allows you to isolate the most suitable niche for your business strategy.

Let’s clarify with a B2B example.

A company specialising in industrial oils might have as its target market a segment of the automotive industry that uses these preparations for earthmoving vehicles.

In this case, the market-defining factors could be:

• A turnover of the client company exceeding 150 million euros (firmographic factor).
• Its location in a specific area.
• Its production needs; for example, the high viscosity of the oil may be an essential motivation for the purchase (behavioural factor).

These are just some of the characteristics of a market segment identified by a company and served through appropriate commercial strategies.

But what are the criteria on which to base the choice of the most appropriate one?

Selecting the target market: what you should take into account

According to Philip Kotler and Gary M. Armostrong, there are five characteristics that a market segment should possess. In particular, it must be:

• Measurable: it is necessary to know the approximate size of the segment in order to estimate the potential demand.
• Accessible: the company must have the capacity – organisational, financial and distributional – to reach the selected market.
• Sustainable: capable of generating revenue that can cover costs.
• Differentiable: people (or organisations) in one segment must have distinctive needs compared to those in other segments.
• Actionable: the company must be able to develop products or services that can be applied in the segment. In other words, it must have the means and know-how to offer something that meets an actual need.

Only by carefully analysing all these criteria is it possible to select the most suitable market.

The choice will then influence other aspects of the company’s strategy, including the development of distribution channels and pricing policies.

For example, once the demand has been estimated, it will be necessary to verify that the distribution structure is able to satisfy it within a reasonable timeframe; furthermore, the price chosen for the product/service should be compatible with the costs incurred.

If this is not the case, new evaluations will be needed to make the business plan more effective.

Studying the target market: an eye on competitors

We have reviewed the variables (demographic, firmographic etc.) to be taken into account when segmenting a market.

We have then looked at the requirements (measurable, accessible etc.) that a segment must possess in order to be selected.

However important these elements are, they are not the only ones to be taken into account: an eye must be kept on the competitive scenario.

Who are my competitors? What do they offer that I don’t? How am I better? These are all questions that every company must answer before implementing its strategies.

It is not enough for a segment to be easily identifiable and reachable; our company must also be able to stand out within it.

Let us return for a moment to the company specializing in industrial oils that we mentioned.

After having identified a niche consistent with the offer, the management should ask itself who the competitors are and what characterizes their products.

For example, they may have certifications that our company does not have, thus putting us at a disadvantage despite the high quality of its lubricants.

A complete market analysis can anticipate possible problems and help to make the necessary improvements.

How to do it properly?

Selecting your niche with the help of technology

A great help in this respect comes from digital technologies.

Artificial Intelligence allows us to analyse thousands of pieces of information from different sources in a matter of minutes, selecting only the most important ones.

This makes it easier to process the masses of data that even companies are flooded with every day.

This principle of Big Data Analysis can also be applied to the choice of market niche and the analysis of competitors.

How many competitors are there? Where are they located? What do they sell? What characteristics do my ideal customers in a certain area have? What are their goals and interests?

Answering these and other questions today is automatic thanks to solutions that combine databases and AI algorithms.

In the B2B arena, the application of such technologies allows you to focus on very specific niches, identified for example through industry codes, and then study the online presence of companies to understand exactly what they do and what their characteristics are.

Selecting the target market: conclusions

As we have seen, the selection of the target market involves several steps and has a decisive influence on business activity.

First, the target segment must be identified, choosing it on the basis of variables that are consistent with our product or service (for example, the age of consumers or the turnover of a possible client company).

Next, we need to check that the segment has the 5 characteristics of the Kotler and Armostrong model, so that it is manageable with the resources available to the company.

Finally, competitors and their strengths must be assessed to develop strategies to cope with their presence or, alternatively, to move towards different market segments.

Analyses carried out using new technologies facilitate this process, allowing time and costs to be cut and providing a quick overview of one’s target market.