Defining Your Target and Niche Markets

Defining your main target market is the key to understanding how your business can deliver the greatest value to your customers and prospects. You will serve your customers much better if you can group them together by specific needs and wants.

The best way to do this is to define your single primary target market. Then, depending on your business, you may need to define one or two secondary and/or niche markets.

Definition of Markets & Niches
You’ll find a lot of marketing books talking about defining your “niche.” This can cause confusion as the terms “target market,” “niche market,” and “niche” are sometimes used interchangeably. For purposes of this module, I’d like to define these terms in order to avoid confusion.

Target Market: Your target market is simply your main subset of customers that have a similar set of wants and needs. Even if you haven’t fully defined these needs, you most likely have a very good idea of your main target market. Your main target market may be large or small. The size is not important, but your ability to define the needs of the customers within the market is critical.

Secondary Market: A secondary market is a market that is related to your primary target market, but is not your main source of business revenue. A good example of this would be a roofing company that has the primary target market of commercial roof replacements. This company may also have a secondary market in residential roof repairs. However, because their primary revenue growth comes from commercial buildings, the residential work they do is considered secondary. It may not be as profitable as commercial work, but it’s profitable enough to be considered a secondary market.

Niche Market: A niche market is a group of potential customers that have a definable need that no one else is providing. Uncovering a niche market can be difficult. But, once you do, it can be very profitable. As an example, a cleaning service might uncover a niche opportunity in cleaning blinds. A graphic designer may decide there is a niche opportunity in creating just eBook covers. A niche market tends to be a small and definable need within an overall target market.

Niche: A niche is simply the service or product you specialize in providing your target and niche markets. Your niche can be offered to your target market as well as any definable niche or secondary markets.

The easiest way to begin defining your primary, secondary and any possible niche markets is to look at your past clients. Create a spreadsheet of past customers by creating column headings. You can start with customer name, business name, industry type, services and/or products purchased, and total amount spent over a particular time period.

If you’re a business that mainly sells to other businesses, then your spreadsheet can also contain columns related to industry, # of employees, revenue, business type and possibly geographic location.

Look for Common Patterns
As you go through your data, look for common customer patterns that will allow you to start creating definable data on your main target market as well as any secondary markets or niche areas.

Maybe you uncover a group of customers that tend to purchase low-cost impulse-type products. Maybe there is a certain niche segment where the buying process is long because all purchases must go through an approval committee.

Looking for patterns like this will allow you to start grouping customers by different attributes. There is no right or wrong way to do this. Just work to uncover any patterns in the types of customers that buy from you.

Check Out Your Competition
Another good way to help define your primary and any secondary target markets is to check out your competitor’s website and brochures to see what customer groups they may be targeting. This can also help define niche market segments that would most benefit from your company’s offerings.

Ask yourself the following questions to really determine if you have a potential definable target market.

1. Does this group of customers have a problem that my product or service solves?
2. Am I able to differentiate my products and services from the competition in order to provide unique value to this group?
3. Will this group be willing to pay full price for my products and/or services?

Define Your Target Markets
Remember, a niche market is a just narrowly defined group of customers. Don’t overcomplicate the process. It’s simply a way to partition your overall market into definable sub-markets.

By looking at your customer data, you will want to write down and define the following three areas:

1. Main Target Market – You most likely already have a good idea of your main or primary target market. Use your customer data to reinforce and further define this main category of customers. Remember, size of your main market is not important. What is important is that all the customers defined in this group must have similar wants and needs.

2. Secondary Markets – As you look at your past customers, you may find you can group some into their own areas. For example, a roofing company that targets commercial buildings may find they have a secondary market in residential roof repairs. Don’t force this however. It’s fine to have a single narrowly-focused target market with no definable secondary markets. If you try to attack your primary market as well as several secondary markets simultaneously, you may find you’re spreading your marketing efforts over too wide an area.

3. Niche Markets – This can be a difficult one to define. A niche market is a small segment of customers that have a set of needs no one else is currently providing. As with secondary markets, don’t force the creation of a niche area if nothing comes up in reviewing your customers. However, always be on the lookout for niche market opportunities. As you learn more about your customers, you may very well discover some great niche opportunities.

Once you have defined your various markets, take a closer look and make sure they are aligned with your business. If you can determine that a particular target segment has low profit potential, then you’re better off dropping it as a definable market. It’s better to focus on two or three market areas that have a good profit potential than 5-6 with poor or mediocre potential.

As your business grows and you add products and services to your portfolio, you will most likely define additional secondary and niche markets. As long as they are focused around a similar set of customers with similar needs, add them to your overall list of target markets.

Here’s an example of how a roofing business might define their target and niche markets.

Primary Target Market: Industrial & Commercial Buildings
Secondary Target Markets: Residential Repair, Real Estate Managers
Niche Markets: Hospitals, Elementary Schools

Defining your niche markets allows you to understand the very specific wants and needs of your various customers. Developing relevant and compelling solutions to these needs is the key to growing your small business.