Small business owners can better compete with large companies by selling to a smaller niche market, targeting a customer who wants a specific benefit. To find out which segment of the market offers the best potential, you can perform a target market analysis to determine the product, price, distribution and promotional strategies for your ideal buyers.

Segment Your Marketplace

Segmenting a market refers to creating and selling a product or service in a way that appeals to a specific group of people who share a similar need, rather than just a demographic trait such as age or gender. For example, if you sell clothing, you might segment your market by selling only women’s clothing, but all women don’t have the same clothing needs. Women on a budget have different needs than women with a high disposable income. Stay-at-home moms have different wardrobe needs than working women. Older married women dress differently than college women. Segmenting a marketplace requires looking at specific groups by their needs, which sometimes align with broader demographic characteristics. An example of an effective target market analysis is one that starts by analyzing a macro market segment, then drills down and further examines groups within that segment.

Research Your Competition

One example of a target market analysis starts with data on the competition. If you are a new business, researching your competition can help you determine what your competitors have found to be the best market segments to serve. You might do business in an area with several big box retailers, but no specialty stores. This would let you create a niche with little or no competition. In addition, research what price points your competitors have, where they sell and what marketing methods they use to reach specific target markets.

Consider Demographics

Demographics are traits that consumer or business buyers share. These can include personal demographics, such as age, race, sex, education level, marital status, income or parental status. Business-to-business companies look at the demographics of companies based on their annual sales, number of employees, geographic location and industry. An example of a target market analysis based on demographics is one that uses census data, industry and academic research, and proprietary surveys to determine potential customer groups.

Create Your Niche

A target market analysis should provide you with information you can use to create your unique selling features, select which products you’ll make or services you’ll offer, set your price, choose your distribution channels and determine how you will communicate your marketing messages. The analysis of a local restaurant market, for example, might determine that the best potential customer is a budget-conscious senior, based on census data. If most restaurants in the area already cater to budget-conscious seniors, a restaurateur might decide to go after a smaller piece of the local food scene, targeting upscale singles and couples with no children who have more disposable income. The target market analysis might show there are fewer of these residents in the area, but that a restaurant that serves them will get enough business serving higher-priced meals to create high revenues and profits.