It is important to choose the right target market because it makes the other elements of your go-to-market strategy easier, but if you choose the wrong target market, getting all the other elements right will not really help much. It takes effort to find, define and validate the right market with different segments that offer the best opportunities (Friedman, 2002).
A lot of companies rely on generic market research reports that are not very relevant to their unique situation. The best way to go about market research is to get several independent sources of information and investigate how those sources got their information (ibid).
Don’t assume that just because a market seems to be growing quickly or is already big that it is suitable for you, it might be that a slow growing market is better suited for your specific product. A way to do this is to look at the risks, costs and time horizon of entering a specific market and how this compares to your company objectives. There is no good or bad market per se, it all depends on your business and what kind of opportunities you are willing to take. Finally, make sure you consult your staff, partners, distributors and people who are knowledgeable about the competition regarding specific market conditions to get a fuller picture that allows you to make better decisions (ibid).
According to Friedman (2002) the following six steps help you to target the right market:
|1. Develop universe of markets||The aim of this is to understand all the markets that could be relevant for you. Make a list of the markets you already know (geographical, vertical, horizontal, etc.) and ask your team for their input. As a next step, you can ask your stakeholder network for their opinion and look at what competitors are doing.
Once you have compiled a full list, start to eliminate markets where there is obviously no need, markets with a very high entry cost and high legal or regulatory restrictions.
The markets you are left over with now should be sensible, but they can still be quite big and vague. Hence, you should divide them into various market segments.
|2. Choose market evaluation criteria||The idea of this step is to evaluate and compare the markets and their various segments in a strategic way. It is advised to not use too many criteria and thus stick to four to six criteria that add value.
Some of those criteria could be market size, market growth rate, ability to become a leading brand in that market, cost of entering the market, cost to serve your customers (how difficult are they to reach, small or big purchases, etc.), presence of channels (can you use existing one or do you have to build one), competitors in the market and strategic fit for your company.
|3. Evaluate target markets against criteria||Once you have chosen a set of markets and have worked out the evaluation criteria, you can evaluate the markets against each other.
To aid you in deciding which evaluation criteria are most important, you can align the criteria with your business goals before you evaluate the different target markets.
The idea is to short list a handful of markets that meet or to a large extent meet your criteria.
|4. Validate markets with key prospects||At this stage, you should validate your chosen markets if customers will want to do business with you. Target a sensible amount of customers according to your market (for B2B - 5 companies might be enough, for B2C markets - you might want to ask 50-100 people).
This exercise will give you insights into whether customers need and want to buy your products in that market or if you made a wrong assumption.
|5. Prioritize markets for penetration||Now that you have a few selected markets, you need to prioritize which one(s) you are going to focus on. For young companies, it is more likely to focus on one target market.
One way is to now go back to the list you made and choose the market that best fit your criteria. However, you should make sure that the market you pursue first offers immediate sales opportunities, low cost of entry and low regulations, as well as existing channels to reach your customers. These criteria should prevail over everything else, then you can go back to your list and look for the most suited one.
|6. Fine-tune target markets over time||Keep in mind that markets are always changing and one that might be great now might not be anymore in six months time. Thus, you should keep track of where the markets are going and adjust if necessary.|
(adapted from Friedman, 2002)
→Click the View the Lesson Quiz button below and successfully complete the quiz to advance to the next lesson...
Friedman, L.G., (2002). Go-to-market strategy: advanced techniques and tools for selling more products, to more customers, more profitably. Routledge.