five strategies for leveraging the optimum target market

 

  • Review the priorities.
  • Segment the market.
  • Understand the market.
  • Identify the opportunities.
  • Review the mindset.

 

CUSTOMER-CENTRIC MARKETING

To be ethical, marketing must be customer-centric. For a business to be ethical, the marketing must be customer-centric. There are few things more unethical than trying to convince a human being they should buy something they neither need nor want.  

Marketing must be customer-centric to maximise its contribution to profitability and performance. Customer-centric marketing is the key to maximising sales, margins, the average sale per customer, repeat business rates and referral rates.

TARGET MARKETING

Nothing is more central to effective customer-centric marketing and marketing, more generally, than identifying, understanding, and fully leveraging the optimum target market. A scientific, as opposed to intuitive, approach to identifying and understanding the optimum target market is central to reducing costs and maximising sales. My philosophy on target marketing can be summarised as follows:

  • Leaving the identification and understanding of a target market to intuition is the height of being penny-wise and pound-foolish.
  • The better the target market is identified and understood, the lower the marketing cost and the higher the potential returns will be.
  • The optimum target market will almost always be the smallest sustainable market that a business can address well enough to maximise ROI.

 

DEFINITIONS

Four terms are central to the discussion, the definitions of which follow:

  • Market segmentation – using well-defined criteria to divide a brand’s total addressable market share into smaller groups.
  • Target market – the group of potential customers to which a product will be actively marketed because of that market’s propensity to purchase.
  • Market persona – a semi-fictional representation of a group of customers who have similar goals, buyer journeys and personal profiles.
  • Target audience – the group or groups of people who need to be communicated with if sales or performance are to be maximised.

 

Most markets have numerous segments, and the task is to identify the target market that should be targeted in marketing. While sales might come from a range of market segments, the target market (or markets) is the one that marketing resources are to be focused on because they will generate the highest level of sales. Developing a market ‘persona’ involves bringing the target market to life to facilitate ongoing understanding and customisation. A market persona paints a picture of the optimum customer – which can and should be fine-tuned over time. In addition to the target market – potential purchasers, there is also the target audience – which includes the range of stakeholders – including financiers, suppliers, governments, staff, and shareholders, who need to be communicated with to maximise performance.

This missive focuses on the target market and more specifically, identifying, understanding, and leveraging the optimal target market.

IMPORTANCE

Identifying, understanding, and leveraging the optimum target facilitates:

  • Focusing of marketing expenditure on those consumers most likely to purchase.
  • The customisation of the product, purchase experience, and marketing.
  • Understanding the market well enough to research and identify innovations.
  • Developing and maintaining relationships that drive repeat business and referral rates.

 

 It is common knowledge, at least among marketers with a rational perspective that no business can or should try to be all things to all people. Indeed, as Mark Cuban (one of the leading venture capitalists in Silicon Valley suggests – the best market for any business is the ‘smallest sustainable market’. The smallest possible sustainable market best facilitates the advantages listed above.

A brand can of course have multiple target markets. Those markets should, however, be prioritised with the marketing strategy structured accordingly. Reinforcing the importance of market segmentation are the following statistics:

  • 77%of marketing ROI comes from segmented, targeted, and triggered campaigns.
  • Non-targeted campaigns show a 50%lower CTR than segmented campaigns.
  • Segmentation leads to a 3 to 5%increase in returns on promoted sales.
  • Segmentation causes companies to be 60%more likely to understand the customer.

 

 STRATEGIES

This missive addresses five strategies for identifying, understanding and leveraging the optimum target market. Those strategies, which are customer-centric, are – reviewing the priorities, segmenting the market, understanding the market, identifying the opportunities, and reviewing the mindset.

REVIEW THE PRIORITIES

It is not uncommon for a business to develop a product and then identify a market or markets to sell it to. While this can work, a more customer-centric approach involves stages as follows:

  • Identify a product category.
  • Identify an opportunity.
  • Identify the market.
  • Understand the market.
  • Work with the product to develop the brand.
  • Develop a ‘market persona’.

 

Identifying the general product category or categories a business works in or a brand should involve might be based on a range of factors, including the capabilities and interests of the business and its people. Having done this, the priority should be to review the market and then identify opportunities that might be addressed by the brand being sold by the business. This in turn will point to or provide insights into the target market – the market with opportunities the business can address or problems it can solve.

Once the market, or indeed markets, has been defined, developing the best possible understanding of that market is prudent. The better the understanding of the market – the more effectively the business can develop a brand and marketing strategy customised to its needs. Having defined the target market and, indeed, the optimum target market, the product and customer experience can be customised to ensure it meets the needs and exceeds the target market’s expectations.

Once an understanding of the market is established, priority can be given to developing a market ‘persona’ – the benefits of which are well documented in research:

  • Using personas makes 90%of companies more knowledgeable about their customers.

 

 A market persona also enables a business to conduct thought experiments that enable it to get into the minds of target market members and theorise how market members will behave in a meaningful way. A market persona can be a powerful marketing tool – that is only accessible if the market is well-defined and well-understood. 

SEGMENT THE MARKET.

Marketing strategists and researchers talk about three considerations when identifying the target market for a product or brand:

  • TAM – total accessible market.
  • SAM – serviceable addressable market.
  • OTM – optimum target market.

 

The TAM is made up of all people that a business can access should they wish to. The SAM is made up of all people that a business might choose to address should the numbers stack up. The OTM represents the market that the business should ideally address. Some experts also talk about the following:

  • SSM – the smallest sustainable market.

 

 The SSM is the smallest market that the business can address if profitability is to be maximised and sustained. The quest for the SSM is, or should be, motivated by the desirability of customising the product, purchase experience and marketing strategy as much as possible – given that increasing customisation almost always increases sales, margins, the average sale, repeat business rates and referral rates.

Identifying the TAM, SAM, OTM, and SSM lies at the heart of market segmentation – the process of dividing the market into relatively homogeneous groups based on criteria relevant to the potential for sales at a commercial price point. The most common criteria for segmenting a market fall into three broad categories:

  •  
  •  
  •  

 

 Segmentation based on demographic criteria (such as age, income, location, gender etc.) is the most common. Segmentation based on behavioural criteria (Such as purchase frequency, purchase size, purchase timing and loyalty etc.) is less common but no less important. Perhaps the least common criteria – psychographic criteria (such as personality, lifestyle, social status, interests, attitudes etc.), are almost certainly the most important. Major businesses almost ignoring demographic and behavioural criteria for segmentation in favour of psychological criteria include the world’s greatest brand:

  •  
  •  
  •  

 

These brands and many other international brands like them appreciate the power and relevance of psychographic segmentation.

The challenge is identifying the criteria relevant to the business and the proposed product offering and then identifying the TAM, SAM, OTM and SSM.

UNDERSTAND THE MARKET.

Answer these three questions:

  • Proctor and Gamble relaunched its Olay brand some years ago. Before relaunching, its Olay brand used research to test 3 price points; Proctor and Gamble tested demand at three price points – $12.99, $15.99, and $18.99. Which price point achieved the highest UNIT sales?
  • Researcher Dan Ariely established two stalls – the first giving away ice creams (valued at $4.00) and the second giving away $4.00. Which stall attracted the most customers?
  • In sample 1 – consumers choose from 24 flavours of jam. In sample 2, consumers choose from 6 flavours of jam. Which sample generated a 3% purchase rate, and which generated a 30% purchase rate? Which sample was more satisfied

 

If in answering these questions you had ANY hesitation in answering – $18.99, the ice cream, and sample 2 for 30% – then your intuition has served you poorly. This is consistent with a wealth of data demonstrating three things: 

  • Those who think they have the intuition required to understand their audience are disadvantaging their business.
  • Undertaking research and applying intuition to hard data is often more reliable than intuition alone.
  • There are more than 25 cognitive biases that even the most confident businesspeople suffer from – many of which directly impact intuition. 

 

Understanding a market requires research. A professional researcher need not always undertake this, but it must have a solid sample, be completed objectively, and be as comprehensive as possible. Furthermore, the cost of well-designed research will almost always be less costly than poorly targeted or customised marketing. 

Once the markets have been identified – do what the likes of Apple and Google do – undertake the research needed to understand the markets better than your competitors. These businesses do not research because they are big – they are big because they are not arrogant enough to think they know it all.

IDENTIFY THE OPPORTUNITIES

Once the product category has been defined, the process of identifying opportunities can begin, through the following:

  • Identification of unmet needs.
  • Identification of unmet expectations.
  • Identification of problems requiring a solution.

 

Of course, it might be that in researching the market, the business cannot identify any significant or commercial opportunities. If this is the case, instead of trying to aggressively sell a product to a market that neither needs nor wants it (which all too many businesses do) – it is more customer-centric and commercially sound to look for other opportunities – possible marketing another product that can address identifiable commercially sound opportunities.

If, however, research does identify unmet needs, unmet expectations, or problems requiring a solution, the opportunity exists to develop a product and brand that is customised to address those needs, expectations, and problems directly. More specifically, the opportunity arises to work with the target market to develop the optimum product, purchase experience and marketing strategy incorporating a strategic competitive advantage of point of difference that maximises the return on investment.

Developing a clear sustainable strategic competitive advantage and point of differentiation is central to minimising the cost of marketing and maximising sales. The research to define and understand the market will provide the data needed to identify the opportunities. If no clear opportunity can be identified, it will be more difficult to differentiate the product or customer experience. This can only increase the cost of marketing and offers nothing to maximise sales.

REVIEW THE MINDSET.

Thinking one has the knowledge needed, based on experience and intuition is an example of having the wrong mindset. Another example of having the wrong mindset is believing that the product that will best address needs and exceed expectations can be developed using intuition. A final example of the wrong mindset is not appreciating that markets change over time – and that even if the target market is well understood today, it may be less understood next year.

The solutions here are threefold:

  • Resist the arrogance that leads to a reliance on intuition.
  • Leverage the power of co-creation.
  • Develop a brand community.

 

The ego that tells us to rely on our intuition is as misplaced as the notion that a business cannot afford research (when it can clearly afford to waste money on unsuccessful promotion – that would not have been undertaken if research was completed). Working with the customer or potential customer to refine the product and purchase experience is perhaps the most important step any business can take to develop a product that will meet customer needs and exceed their expectations. Developing a brand community provides the opportunity to monitor the target market, engage with it and, in so doing, facilitate the customisation of the product, brand, and marketing.

Fortunately, none of these solutions involve prohibitive costs. All three are central to ethical, customer-centric marketing. The advantages of co-creation are evidenced in these research findings from McKinsey:

  • 81%say brands are more authentic when they collaborate with customers 
  • 86%say brands are most trustworthy when engaging in co-creation.
  • 40%more revenue is derived from personalised marketing resulting from co-creation.

 

 The advantages of a brand community are evidenced by the following research findings:

  • 66%of businesses say they turn to brand communities for product development.
  • 71%of businesses use customer collaborations for market research.
  • 36%of businesses report using fewer surveys for marketing research and development.

 

Change your mindset – avoid relying on intuition, co-create your offering and develop a brand community. It will save you money.

INSIGHTS

  1. Ethical marketing is customer-centric. If marketing is not customer-centric, it is rarely ethical – irrespective of their commitment to CSR.
  2. The most cost-effective marketing is customer-centric. If it is not customer-centric, it is rarely cost-effective – and rarely maximises ROI.
  3. Identifying, understanding, and leveraging the optimum target market requires a customer-centric approach to marketing.
  4. While many, if not most, businesses claim to be customer-centric, few are – and they pay a high price for not being so.
  5. While segmenting a market based on demographic or behavioural criteria is easy, it is generally more relevant to use psychographic criteria. 

 

ANOTHER PERSPECTIVE

 

 RECOMMENDED READING

 

 TIPS

  1. To maximise ROI – identify the target market before developing the product. 
  2. To maximise ROI – move from TAM to SAM to OTM – based on science. 
  3. To maximise ROI – understand the market better than any of the competitors. 
  4. To maximise ROI – identify unmet needs and expectations or problems to solve. 
  5. To maximise ROI – drop arrogant intuition and embrace cost-effective research. 

 

QUESTIONS

  1. Given that 77%of marketing ROI comes from segmented, targeted, and triggered campaigns – what is research telling you about your target market?
  2. Given that non-targeted campaigns show a 50%lower CTR than segmented campaigns – what segmentation strategies and criteria are you using?
  3. Given that using personas makes 90%of companies more knowledgeable about their customers – what in detail is the persona of your target market?
  4. Given that segmentation causes companies to be 60%more likely to understand the customer – what is your approach to checking that your target market is optimum?
  5. Given that 40%more revenue is derived from personalised marketing resulting from co-creation – what is your strategy for personalising your marketing?

 

STATISTICS

  1. 66%of businesses say they turn to brand communities for product development.
  2. 71%of companies use customer collaborations for market research.
  3. 36%of businesses report using fewer surveys for marketing research and development.
  4. 81%say brands are more authentic when they collaborate with customers 
  5. 86%say brands are most trustworthy when engaging in co-creation.

 

Return on investment in marketing is maximised when the customer is at the centre of the strategic planning process. Many businesses claim to be customer-centric, but few are – resulting in higher marketing costs and a lower average customer lifetime value.

A customer-centric business understands the needs, wants, and expectations of its target market – why members do what they do – and how best to cause members of the market to behave in a way that maximises performance. 

I work with clients to understand customer needs, wants and expectations; and develop strategies that leverage the power of consumer behaviour to maximise return on investment while at the same time embracing the ethics of customer-centric business. 

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