Analysis of target markets
Within the process of carrying out Strategic Analysis, choosing which customers and markets to concentrate on and looking at what has value to these customers ensures that your efforts and resources can be focused on the areas with the most potential for return.
One of the best starting points for strategic analysis is to look at who your key target audiences and customers are and what they do and value. Once you understand what your customers do and value, you can start to look for ways of helping them do what they do better. Where "better" is as judged by your customers, looking at what they value, not necessarily what you are good at.
The process of choosing a target audience can happen at two levels.
- What existing customers do we have and what is their value to us (profit not revenue)?
- What customers could we have in the future if we chose to target uptapped markets?
These demand-side views need to be matched against your capabilities and the competitive environment to understand what costs would be involved to reap these rewards.
In terms of customers you already have, many companies will have lists of customers and accounts (this is not always the case, particularly where there is a distribution channel involved).
The key questions to ask are: Who are the most important customers to you in terms of profit and strategic fit? What do these customers value? What are their business priorities? Where are the competitive pressures on these accounts? What can you offer in the way of improvements to keep them with you and increase your value to them, or your value to their customers?
For existing accounts we look at revenue and costs per customer to identify where the profitable customers are (which is not always as you would expect).
Secondly, we look at what these customers need and value to identify areas of opportunity, and possibly to find ways of grouping or segmenting customers who have similar needs or requirements.
Surprisingly, although many companies have close working relationships with their major customers, there is plenty of evidence to show that few companies take the time to periodically review the whole relationship and to understand where and what customers really want. In particular, some of the existing knowledge has been filtered through distribution channels who may have their own agenda, or is focused on the here-and-now sorting out issues of delivery, price and quality on today's sales that the mechanics and future of the relationship can be overlooked, allowing competitors to sneak in.
Consequently this is where techniques such as relationship analysis, conjoint analysis, and for supply chains, value-chain analysis can have real power to unlock the profit potential from your customers.
The option for analysing target markets is to ask who could your customers be in the future. What sectors could you attack? Where are there economies of scale in meeting a group of customer's needs.
For new markets, research either in the form of desk research using existing studies and market intelligence, or in the form of bespoke market research studies will be needed to ascertain who are the best prospect areas.
It is possible to take an internal view without doing a data collection exercise, but It can be risky to rely on internal views of the wider markets, or even external views such as your distribution channel or existing customers.
The problem is that the perspective you have is likely to be biased because of your position in the market. This is known as the the sales-view bias.
Sales are mainly going to be spending most of their time talking to people who are interested in your product (the Pros). They see the market from the Pro end looking back. Consequently they spend less time talking to the rest of the market who become more interested in your competitors (the Cons). The risk is that the customers you don't see start changing the market (move you mouse over the picture to see this), or worse, you produce products and services that become more and more specific to a small number of existing customers and less and less relevant to a wider audience.
This means that it is always worth taking an objective, marketwide look to try and identify new markets that are arising, or threats that are developing. Market intelligence can be used to identify likely target customers and to source lists and existing market data. If market research is carried out a range techniques such as segmentation can be used to identify likely prospects backed up by in depth qualitative research to find out what these new customers are looking for.
With these perspectives, the next question is to draw this together to build options for the future and by evaluating the costs, risks and opportunities it is possible to prioritise the key strategies that are possible.
For help and advice on building a choosing and monitoring target markets contact firstname.lastname@example.org