To intensify your product or service offering and shape your marketing spends rightly, identifying your core target market, and its size is the most crucial task. It does not only make you recognize your destination but also smoothen your business journey.
But before proceeding further, first, ask yourself who your target audience is?
If your answer is everyone, you’re living with a myth. Trying to market your product or service to everyone will only waste your time and money.
Target Market and Target Audience are two different things that you need to understand.
A target market comprises everyone who is interested in your products or services. In contrast, the group of people within the target market divided into segments based on demographics, geography, and other qualities defines the target audience.
For instance, let’s assume your company sells sporting goods. Here, your target market is anyone who might be interested in sporting goods. Part of your audience might consist of teenagers who play sports; another group could consist of professional athletes. Yet, another group might comprise middle-aged men and women who want to stay fit. Each of these groups or segments falls under your target market and represents your target audience.
Knowing your Target Market
Understanding the right target market after you are done with idea assessment is essential. It’s also equally necessary to divide the target market into segments of the target audience. Doing this allows you to narrow your focus on the right section of the audience to market your product with predictability better results.
Steps to Identify the Target Market
a) Narrow Down Your Focus
Who is most likely to buy your product or service?
While answering this, consider the buyer’s demographics, geography, and behavioral traits. It will help you to create a buyer persona for your startup.
Let’s understand it by taking the example of Grofers and Flipkart:
Grofers is an online grocery shop that delivers grocery items on-demand. It was formed for couples doing 9 to 6 or 10 to 7 jobs, and of course, going to the market after work is not at all fun for anyone. This problem led Grofers to identify the working couple as the right target market. After it worked well for the working couples, Grofers widened its target market for other buyer personas, such as a group looking for discounts on groceries.
Back in 2007, when Flipkart was founded by Sachin Bansal and Binny Bansal, buying a book not available in the bookstore of your city was a tedious job. One had to visit and search for multiple places without any surety of getting it.
Flipkart identified the bibliophile as its target market and built the product of selling books online. They later expanded into other product categories such as consumer electronics, fashion, home essentials & groceries, and lifestyle products.
Understanding the Size of the Market
You have identified your target segment, now understanding the size of the market is equally important. No matter how competitive your pricing or innovative product is, if the size of your market is too small, you never make money.
How can you find the market size?
There are two approaches to find market size. Let’s dig into it:
1. Top-down approach
2. bottom-up approach
- Top-down approach
Top-down analysis is calculated by determining the total market, then estimating your share of that market. You would first look at the broad market and then move down to the target market segment.
Suppose your startup is launching electronic gadgets in a particular area with a population of 300,000. You then refine your market by interest, age, buying power, etc., to narrow your target audience. By this, you estimate the size of the potential market is 5%. If the gadget’s price is 1200, the market size for your product would be INR 18M (1200*15,000). Even if you only manage to sell to 5 percent of that market, you will make 15,000 sales.
2. Bottom-Up approach
The bottom-up analysis is calculated by estimating potential sales to determine a total sales figure.
Let’s understand it by calculating the market size for Burger King. For this, we will estimate the number of burgers sold per outlet and then multiply it with the number of outlets in India and the average price of a burger.
Market size for a burger chain = (Average price burger) * (Number of outlets in India)*(Estimated number of burgers sold per outlet)*365 days
Suppose some credible resources say that Burger King receives 360 orders during peak hours and 120 orders during non-peak hours per day. Assuming every order typically contains 2 burgers, this would give us 720 burgers sold during peak hours and 240 burgers sold during non-peak hours. You arrive at this number by multiplying the number of orders per hour by the number of burgers per order, respectively. You see that 960 burgers sold per day at one outlet.
Considering that the outlet also receives home delivery orders and receives 144 burgers orders during peak whereas 96 orders during the non-peak hours. The total burgers sold by home delivery per day is 240.
If you total the one outlet orders, you will arrive at 1,200 burgers that an outlet would handle per day. Now taking the average cost per burger at Rs 100 and that this burger chain would have about 202 outlets in India. The total sales the chain can make per year would account for Rs 8.8 bn.
The market size of Burger King= 100*202*1200*365= INR 8.8 bn
Now you know how to identify and calculate the size of your target market.
These are some basic knowledge you should know to become a successful entrepreneur. The key to finding your target market is to stay focused and make an honest and unbiased evaluation of how viable your product or service will be.