Analysing target markets
For strategic analysis, choosing which customers and markets to concentrate on is a fundamental decision. A clear view of the target market, and target customer focuses energies and resources from the point of view of strategy, so that plans are driven by what has value to the customer, and what has the greatest potential for return for the business given its capabilities and competitive environment.
While counts and statistics are needed for forecasting, customers in the target market also need to be sketched as individuals using personas, or use-cases, or pen portraits to bring out the essential qualities of individuals and businesses so as to try to think like the customer thinks.
Unless the business is a start-up, it will already have customers. So one of the best starting points for strategic analysis is to describe all the key target audiences and customers and what they do and value. By understanding what customers do and value, ways of helping them do what they do better can be identified. Where "better" is as judged by your customers, looking at what they value, not necessarily what is currently being provided or what the business is 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 untapped markets?
These demand-side views need to be matched against capabilities and the competitive environment to understand what costs and resources would be needed to, and which are the best areas to prioritise to meet customer needs.
Existing customers
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.
New markets
The option for analysing target markets is to ask who would be the ideal customers in the future. What sectors have gaps and unmet needs? 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.
While it is possible to start with internal views, without doing a data collection exercise, It can be risky to rely purely 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 towards existing customers and existing customers might not represent the new markets to be addressed.
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.
The information about chosen target markets needs to be matched against existing competencies and resources, and looked at in the light of competitive pressures.
See also strategy sections on identifying and analysing
For help and advice on building a choosing and monitoring target markets contact info@dobney.com
