Which customers are the best customers to target? Which pricing strategies work best for the markets you are looking to reach?
Choosing the right target market is so important that it can affect the efficiency and effectiveness of your marketing campaign to such a degree that you might not make any sales if you fail to accurately target a specific demographic.
Consider the following topics and questions when planning out the target market portion of your marketing plan.
Are you targeting the customers that will actually buy your product?
This is a very important topic to consider when designing your marketing plan. You need to make sure you are targeting the market that is in most need of your product. If you are marketing to the wrong demographic, your marketing mix will be inefficient and you will either make no sales or at best, suboptimal sales.
Are your target customers willing to pay the price that you charge for your product?
You may take on one of two main pricing strategies: a) where you will have lower prices than your competition or b) higher prices than your competition and differentiate yourself through product quality.
In either case, you need to make sure that the market you are targeting is willing to pay the price that you charge for your product.
You should be asking yourself questions such as:
- Is this market willing to pay more for higher quality?
- Does this market value this product enough to pay a premium price?
- Will these customers pay a higher amount based on brand?
Finding the answers to these questions will help you locate the most profitable demographic to target.
What is the lifetime value of your target customer?
This is extremely important when deciding on the pricing of your products, especially your flagship products that initially attract your customers (your front-end products).
If you determine that your typical customer is a repeat buyer for many years and has a high lifetime value, you can afford to have a narrower (or negative) profit margin on these front-end products to entice them to buy from you and establish a relationship with you. Their subsequent repeat buys will often be comprised of your non-flagship products that can be priced higher (your back-end products, more on this soon).
Ask yourself the following questions when determining lifetime value:
- Will this target market generally purchase this product again?
- Do they remain loyal to a specific brand?
- Will there be need for additional purchases?
- Will this target market spend the money for additional purchases?
When asking yourself all of these questions, you should consider which market will yield the highest value, will conduct the most repeat buys and have the capacity to remain loyal to a brand.
To determine the lifetime value of an average customer, Michael Masterson, author of Ready, Fire, Aim: Zero to $100 Million in No Time Flat advises calling the marketing managers of some of your larger competitors (Masterson suggests identifying yourself as a marketing student, which you really are) and asking what the lifetime revenue (aka “gross sales”) of a customer would be. You should then determine the lifetime cost of goods sold and overhead that you would pay on average for the sale of these products. Subtract these figures from the lifetime revenue. The resulting figure is the lifetime net profit (before taxes) of your average customer.
Are your competitors targeting this same demographic?
If they aren’t, you should wonder why. Figure out why it is that your competitors are targeting different customers than you. If there is a legitimate reason why are you targeting different customers, than this is fine. But generally, your larger competitors are experienced enough in the industry to know which targets spend the most money. Use this as an indicator when choosing your demographic.
Once you have determined your optimal demographic, you might want to start narrowing down this target even more, as described in niche marketing…
What niches are you targeting?
At the early stages of running a business, targeting niche markets are more important than some would think.
Your larger competitors are probably much more efficient at producing their products, so chances are you will have a lot of difficulty beating your competitors in price. Many small businesses end up pricing their product higher than their competition on account of higher product quality. However, while your research has indicated that your target market may be willing to spend more on quality, you want to make this a surer bet.
This is where niche marketing comes in. If a customer’s very narrow and specific demographic is targeted (ie: middle aged, work-at-home mother in the Orlando, FL area), they will feel more identified with your product than your competitors’ product. This will cause them to believe that your product will more effectively solve their problem, thus giving them an even greater incentive to buy.
This is what makes niche marketing so effective. It differentiates your brand from your larger competitors and causes your target niches to identify more with your product. The best part of niche marketing is, you don’t have to target just one niche. You can target as many as you want as long as each individual marketing message specifies only one niche.
Has anyone had any successes with niche marketing? Any dos and don’ts for marketing plans or demographic targeting?