What are the two things that a new business owner should keep in mind when defining a customer base?

For your business to succeed, it must have enough customers to buy the product or service offered. Before you launch your new business, take time to evaluate your potential customer base. Figure out whom you expect to be your most likely customers -- in other words, your target customers. Then tailor your marketing efforts, as well as your products and services, to those customers.

Why Is Defining Target Customers Important?

Having a clear vision of your expected customer base will increase your business' chances of success. By defining your target customers you can:

• better determine if there are enough potential customers for your business (in other words, whether there is enough demand for your products or services)
• tweak your business idea to better meet the needs of your potential customer base
• tailor your products and services to better meet your customers' needs and desires
• target your marketing efforts to reach your most promising prospects, and
• craft your marketing messages appropriately -- using the right tone, language, and attitude to appeal to your best prospects.

Defining a target market will not limit your business. New entrepreneurs sometimes resist defining a target customer base, thinking it might limit the business or reduce the number of potential customers. This is a misconception. Identifying target customers does not prevent your business from accepting customers that don't fit the target profile. If such a customer seeks your product or service, you will still be available.

Defining a target market will increase cost efficiency. Defining a target customer base increases your cost efficiency. Unless you have unlimited marketing resources, it's much more effective to focus your marketing efforts on potential customers who you have determined are likely to buy your product or service -- rather than wasting time and money courting the vast world of prospects who merely could become customers.

How to Define Your Target Market

In a nutshell, defining your target customers means identifying the specific characteristics of the people or businesses who you believe are most likely to buy your product or service. These characteristics are sometimes called a demographic profile. Common characteristics used to classify customers include:

• age
• gender
• income level
• buying habits
• occupation or industry
• marital status
• family status (children or no children)
• geographic location
• ethnic group
• political affiliations or leanings, and
• hobbies and interests.

Create a customer profile. Use these criteria to draw a profile of your most promising potential customers -- those who have a real need or desire for your products or services. A maternity store specializing in professional wear, for example, may identify its target customers as 25- to 40-year-old pregnant, married women in the legal, financial, and real estate industries, within a ten-mile radius of the store. A bike shop with a focus on single-track mountain biking gear might define its target customers as 18- to 25-year-old single males living within two miles of the local university.

Be specific. Deciding how narrowly to define your target customer is more of an art than a science, but in general, you should err on the side of being specific. Business owners often make the mistake of defining their customer base too broadly, making it very difficult to engage in effective marketing efforts. Remember: A solid definition of your target customer serves as a foundation for all your marketing activities. The more carefully you've defined your target market, the more likely your marketing efforts -- even simple, low-cost methods -- will bear fruit.

When Target Customers Are Other Businesses

Some businesses focus on selling to other businesses rather than to individuals. Selling products or services to other businesses (sometimes called B2B, for "business to business") can be lucrative because businesses usually buy in larger quantities than individuals. For example, a soap manufacturer might sell 50 bars of soap to individual customers via its website in a given month, but could sell 500 bars in just one sale to a hotel.

If your business is targeting other businesses, you should still define your target customer, using characteristics such as:

• industry size
• number of employees
• amount of annual sales, and
• geographic location.

Defining a Market Niche

The term "niche" refers to a relatively narrow or specialized market; for example, a maternity clothing boutique specializing in corporate/professional wear or a law firm that specializes in immigration cases. In a crowded marketplace, a niche serves the critical function of distinguishing you from your competitors.

Focusing on a niche can be an effective and profitable strategy for small businesses because it is often too difficult and costly to try to cater to very broad audiences. Instead of trying to appeal to everyone, a small business often does better by developing a specialty in an area that is not being fully served by other businesses and exploiting that niche with cost-effective marketing strategies. Think of a niche as a hook that will help you reel in the potential customers that you have identified as the most profitable and likely prospects for your business.

Niches are usually defined as either operational or customer focused.

Operational niche. With this approach, the business focuses on specialized products or services that will inherently appeal to a narrow customer segment.

Customer niche. This approach focuses on one or more specific -- and profitable -- customer bases. Instead of emphasizing customized products or services, the business focuses on tailoring its marketing efforts to specific audiences.

Both approaches are effective, and businesses commonly use a little of each. For example, a day spa may define a customer niche of tour group companies and travel agents and actively market to them. At the same time, it may make small operational tweaks to cater to this customer niche, such as offering a free shuttle service to local hotels or including maps of local tourist attractions in its lobby area.

Niches are by definition narrow, but not so narrow that they don't contain enough customers to sustain the business. The key to defining a profitable niche is to find an area where there is an unmet demand, and to fill that need with your products or services.

Defining Markets and Niches: An Ongoing Process

In order for your business to succeed, use a circular process when defining your target customers and learning about your market. Here's how it works:

Typically, you start by identifying your best customer prospects based on your observations and intuition about your market (remember, your market includes not only customers, but also your competition and industry). Next, you do research to learn more about your market, such as what your target customers' buying habits are, what your competition is doing, or whether there are important industry trends. (To learn how to do this, see Nolo's article Doing Market Research.)

Based on this research, take another look at how you define your target customer and your overall business idea. If necessary, given the new information, make changes to your target market or niche in order to make the most of an unmet demand in the market.

This cycle shouldn't end when your business gets going. Learning about your market and adjusting your business plan accordingly is an ongoing process -- indeed, it is the heart of successfully running a business. Smart business owners constantly monitor market conditions and make adjustments to their businesses in order to stay profitable.

To learn more about defining target markets and niches, and using those profiles to help your business succeed, get The Small Business Start-Up Kit: A Step-by-Step Legal Guide, by Peri H. Pakroo (Nolo).

Effective marketing will help to achieve your goals and grow your business. It will build awareness, attract customers and build lasting, profitable relationships.

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Marketing is about planning and executing the development, pricing, distribution and promotion of products and services to satisfy the needs of your customers.

The main role of marketing is to deliver customer value to attracting new customers and keeping existing ones. This is achieved by:

• knowing what customers need
• coming up with solutions to meet these needs.

Marketing is about the principles that guide your customer-focused actions.

It is a comprehensive process that determines how to go to market with your products and services. For your marketing to be successful, you'll need a strong understanding of your brand positioning and the needs of your customers.

'Marketing is the science and art of exploring, creating and delivering value to satisfy the needs of a target market at a profit.'

Dr. Philip Kotler

Both science and art are important elements of marketing practice. The science of insights, analytics and metrics, and the art of creative ideas and clever execution should work together.

Marketing challenges

Many businesses find it challenging to do effective marketing because of:

• lack of time and resources (like staff and money)
• the growing complexity and continuous change in the world their business operates in, including
  • new technology and new channels, which require new skills and specialisation
  • increased competition, which has given customers an abundance of choice.

Technological advances have made customers more connected, informed and empowered than ever before. To meet the changing expectations, preferences and behaviours, your business must be:

• brand driven
• customer focused.

In practice this means that you should start with strategic thinking, marketing strategy and planning before getting into the tactics (the steps and activities).

By understanding your current situation, you'll be better able to recognise gaps and make improvements. To get more out of your marketing efforts, answer the following questions:

• What role does marketing currently play in your business?
• Does your marketing strategy align with your business strategy?
• Does your business have the right marketing skills and resources?

The 7 Ps of marketing

Marketing is delivered through a combination of elements—the 'marketing mix'. These elements are also often referred to as the 7 Ps of marketing.

This popular and practical marketing model can help you to:

• do a marketing audit
• refine your value proposition
• do a competitive analysis.

Assess your 7 Ps regularly to make sure they keep up with:

• your competitors
• changing customer needs
• technological advancements.

Product refers to what you create and deliver to meet the needs of your customers.

It requires you to think about:

• what problems you're solving for your customers
• how to exceed their expectations.

It includes your products and services, as well as the features, benefits, and value your products and services offer customers.

Value also includes:

• availability (e.g. trading hours and access to online ordering)
• options (e.g. a choice of payment methods or added extras)
• packaging (e.g. using sustainable or recycled materials or innovative designs)
• accessories (e.g. offering a customisable range or product bundles)
• warranties (e.g. offering express and extended guarantees)
• repairs (e.g. annual maintenance or on-site callouts)
• support (e.g. account managers or online tutorials).

You can do customer research to find out which of these factors your customers value most.

Price refers to your business pricing strategy and how customers pay for your products and services.

It's the all-important value exchange—that is, the price customers are prepared to pay for the benefits you deliver.

When deciding on prices, you need to know:

To attract and retain customers, your ideal pricing strategy should:

• align with your business type and goals
• reflect your desired brand positioning
• consider your competition.

You can read more about pricing strategies and use our pricing calculators to work out the best approach for your business.

Place refers to where your products and services are made, found, distributed, sold and supported. It can be a physical location, a digital presence, or both.

Whether it's real or virtual, the design must:

You may engage directly with customers, or your distribution model could include third-party intermediaries, such as:

• partners
• resellers
• couriers.

Your distribution model forms part of the customer experience and must be actively managed.

You could also do a review of your marketing channels to see if you're targeting your promotions in the right places.

Promotion is about communicating information about your products and services to your target customer segments. It's usually designed to create a response.

As part of promotion, also consider your other communication, for example, to your partners and employees.

Choose the right promotional activities

Through the marketing strategy and planning process, you'll be able to choose the right mix of promotional activities for your business needs.

Select your promotional activities based on the media use and preferences of your target market.

Your promotional activities should use the right:

• channels (where and when you communicate to customers)
• messaging (what you say to them, and how you say it).

Types of promotional activities

• Advertising—you can promote your brand across many channels, for example, newspapers, magazines, radio, television, outdoor and online. Find out how to make your business advertising successful.
• Personal selling—effective personal selling, such as telemarketing, requires strong interpersonal and communication skills. You need a good understanding of your customers and back this up with expert knowledge.
• Public relations—positive publicity is earned media (media or exposure you haven't paid for). This can be achieved through, for example, press releases and interviews with national, regional or local media. Learn more about public relations for your business.
• Sales promotions—a proven technique to generate interest is to run short-term sales incentives. This includes discounts, competitions, and coupons. Find out more about running sales promotions and using coupon websites.
• Direct marketing—this represents an efficient way to engage with customers. This can range from targeted direct mail through to letterbox drops. It's worthwhile to learn more about direct marketing methods.
• Online marketing—the digital world offers many cost-effective marketing opportunities. Find out how to develop your digital marketing strategy.

This refers to the individuals who work for your business, including yourself. It's the people who deal with your customers, either directly or indirectly.

This is the human side of your business. When you provide outstanding service and support, you add value to the experience and encourage word-of-mouth and referrals.

Think about how often online customer reviews focus on exceptionally good, friendly service or on rude, bad service.

Consider all interactions, including:

• face-to-face
• through your contact centre
• though online (live) chats and email correspondence
• on social media.

You can give your business a competitive edge by:

This is about the activities involved in delivering your products or services. In simple terms, it's about being 'easy to do business with'.

An effective process helps you to:

• achieve repeatable and consistent customer service levels
• save time and money by increasing your operational efficiency.

It's helpful to map out the end-to-end journey from your customer's perspective. Explore all potential brand interactions, for example:

• sales
• service
• ordering
• delivery
• payment.

Also consider the technology you use and the partners you deal with.

Discover more about business processes and procedures together with customer journey mapping.

This refers to all existing and potential features customers see when engaging with your business.

Physical evidence:

• is the tangible proof that establishes credibility
• includes the look and feel of your business branding
• spans the physical and digital environment.

Physical evidence may be:

• a retail store
• interior design
• a business website
• online ratings and reviews
• the uniforms and behaviour of employees.

Consider everything about your business that can be seen or otherwise observed, and how it can help to reinforce your brand and elevate your business.

To maximise your success, you need to make the most of your marketing mix. The power of marketing lies in combining the different marketing elements in an effective way.

To help you do this, use our template to evaluate your 7 Ps.

Marketing is an essential part of your business. Take a practical and phased approach by following the step-by-step guide to develop your marketing strategy and plan.

Before taking the next step, think about these critical success factors:

• resources—do you have the right people, time and budget?
• expertise—do you have the right knowledge and skills?
• communication—do you have a collaborative approach?

These factors will determine if you can reach your marketing goals. Identify where you need to focus your effort on by completing the interactive marketing health check.

Also consider...

• Last reviewed: 29 Aug 2022
• Last updated: 29 Aug 2022