In Focus: How to understand which customers you should be targeting
Our In Focus series of articles originally appeared in The Leadership Bulletin, a free weekly bulletin for leaders and managers. You can subscribe here.
Last week, I began the first in a three part series looking at the Segmentation, Targeting and Positioning (STP) model. (You can read last week’s Bulletin here). We wrapped up that edition by looking at how any customer base can be segmented by their demographics (e.g. age, gender, educational level, family status or wealth), location (e.g. town, region, country or international) and behaviours (e.g. online shoppers, in-person shoppers).
This week we’re looking at the second part of the model, targeting, which helps us to discover which segments of our audience we should be focusing on. I recommend that you complete the segmenting of your audience first and have the key segments to hand, that way you can consider each of the five key criteria I use for targeting as we go through them.
Profitability. Some customer groups are more profitable than others, for example those who buy higher value goods. Analyse your segmentation to discover which segments of your customers represent the most profitable customers. It is likely you will want to focus on these types of customers and expand your marketing and/or offer to them.
Size. How big are the individual segments? Are they large enough to enable you to achieve your business objectives? You want to make sure that the market you’re targeting isn’t too niche, but the important thing here is to consider the size of your market in connection with the other points. For example, fewer customers may be okay if you have higher profit margins and significant repeat custom. Similarly, it might be that your audience is currently limited by geography, but by investing in your online offer you could expand the number of potential clients beyond your town or city.
Growth. Are your segments of the market growing, shrinking, or staying the same? What does this mean for the segments you are targeting? A business in an area of declining population might struggle without adjusting how it reaches its potential customers. As part of this, I recommend analysing whether your products and services are experiencing a surge, or a drop, in general demand. If your product is becoming less popular with a general audience, this will impact which segments you target and how. These considerations may be less pressing if your products and services are in high demand all over the country.
Your credibility. How well-positioned are you to serve the needs of any one segment? Do you have some credibility with them already (e.g. in the right place; endorsements from similar customers) or would you have to invest significantly in attracting new customers from that segment (e.g. a new shopfront, or more sophisticated website)? No business starts out with credibility; it has to be earned. And, even when you have it, you don’t always have it with the right people. Ideally, you want to target segments where your credibility is strongest.
Your ability. Finally, you want to consider your ability to reach and serve the needs of each segment of your audience. Are you trying to sell into a territory with barriers to sale? Is overcoming them something you could invest in to reach a new market (e.g. changing your website to sell in $ as well as £ and bringing in a consultant on exporting beyond the UK)? Your ability as a business is never fixed, but it’s important to know how your operations can currently meet the needs of each segment of your market and whether any particular segment can justify investment in your business.
If you work through these five topics for your audience segments, this should help you to discover which segments are most profitable, sufficiently large or growing, and with whom you are (or can become) both credible and competent to serve. There’s lots more we could discuss on targeting, but I hope the above has given you a flavour of how targeting can build on segmenting to fine-tune the way your business understands and targets customers. Next week, I’ll consider the third and final part of this model: positioning.