Lifestyle/business-style description
Purchasing patterns description
Buying sensitivities description
Know Thy Customer: The Secret of Trader Joe’s Success
Differentiate with a Demographic
learning objectives
In this chapter, you’ll learn how to:
■ Recognize who the customers are
■ Determine whether a market exists
■ Distinguish between customer categories such as purchasers, end users, and distributors
■ Define customer needs and wants
■ Identify and describe the target market
■ Evaluate the size of the target market
■ Analyze the trends affecting the market
■ Recognize viable market niches
Your Customers: Who Are They?
Before you can begin marketing to your prospective customers, you first have to know who they are. Are they old or are they young? Do they live in the city or in the suburbs? Do they care more about price or about quality? If you sell to businesses, are they big companies or small? What industries are they in? How quickly do they make their buying decisions?
This information may not immediately seem important, especially when you first launch an entrepreneurial venture. After all, you need every customer you can find. But narrowing in on exactly the type of customers you’d most like to reach—and the kind that are most likely to be willing, eager, and able to buy from you—is a key building block to success in marketing. Defining your target market gives focus to all your marketing and sales activities, helps you craft your advertising messages (and images) and choose where and when to advertise, influences which distribution channels you use, and perhaps even helps you decide on the color of your employees’ uniforms or the type of music playing in your store.
It’s critical to clearly, and early, define your customers, because many of the other decisions you make about your business will follow from knowing who they are. If you don’t know who your customers are—their age, location, interests, spending habits, income level, and the like—you won’t know how to tell them about your product or service or how to get it to them. You could waste money placing ads on the wrong websites, sending direct mail to the wrong people, or participating in the wrong social media. Without knowing who your customers are, you could easily misjudge the price your customers are willing to pay. Know thy customers should be one of your business mantras from Day One. You must understand both who makes up your target market and the characteristics and motivations of that market.
Are customers really out there?
First, you need to figure out if potential customers actually exist. Companies have been built—and have failed—on the false premise that customers for a given product or service are, in fact, out there. You can assess whether your customer base actually exists in a number of ways.
The best way to know whether customers are out there is, paradoxically, if you have competition—if direct competitors already sell the same or similar product or service. The fact that real customers already pay real money for what you intend to sell provides the strongest indication that you’ll likely find a willing customer base. While the fact that competition exists often scares off novice entrepreneurs, the fact that you have healthy competition means customers are out there. Indeed, many investors in entrepreneurial companies like to see healthy competitors. Of course, if your competition is very strong and their customers extremely loyal, it may be difficult to attract these customers to your offerings. But, in general, the rule is that “it’s easier to get a piece of an existing market than to create a new market.”
Still, most entrepreneurs either introduce something new, improved, or different—or try to reach a new market. That means you need to attempt to determine whether you’ll find receptive customers.
Target markets and established businesses
Even if you’ve been in business for years, you still need to research your market. That’s because customers change and evolve. What was true about your customer base when you first built your business may no longer be accurate. What goes on with them now may differ from what originally motivated them to buy from you.
Learning more about your present customers can help you keep them. Your research may suggest that you need to modify your marketing activities—perhaps even your products and services. You’ll also learn how to bring in more new customers.
en·tre·pre·neur·ship key terms
Consumer or end user
The individual who will actually use the product or service and not necessarily the person or entity that purchases it.
Demographics
The description of a market by the most basic, objective aspects of the customer base. These specific, observable traits define a target market, such as age, income, gender, and occupation for consumers, or company size, revenue, and industry affiliation for business customers.
Market segmentation
The process of dividing a market into sections or “niches” that share something in common—either they behave in similar ways, or they have similar requirements. The goal of market segmentation is to tailor a product or service to appeal to each segment. This “tailoring” can include marketing, pricing, or distributing differently, or adding or deleting features.
Psychographics
Characteristics of a target market based on attitudes, values, lifestyle, desires, business style, and behavioral characteristics that may affect the buying decisions of customers.
Purchasing patterns