How to identify your target market as a small business owner

If you want to provide an excellent customer experience, you’ll first need to know who your customers are. Learning how to identify a target market is a crucial step in any small business marketing strategy, helping to inform countless decisions about your product, marketing channels, and other aspects of your business. In this guide, we’ll take a deeper look at how to identify a target market for your small business, the different methods you can use to apply the findings of your research and some examples of how target market data can be used in real-world situations.

What is target market segmentation? 

When you start exploring the question ‘what is a target market?’, you’re likely to find it intersects with the topic of ‘what is segmentation targeting and positioning in marketing’.

There are 4 main types of target market segmentation you can use to divide your audience by different characteristics, which we’ll explore in more detail later:

• Geographic

• Demographic

• Psychographic

• Behavioural

To understand how target market segmentation might work in a real-world business scenario, we’ll look at an overview of two audience segments for a fictional business, Connie’s Craft Corner. Connie’s Craft Corner is a London-based hand-crafted gifts store specialising in jewellery and ornaments made from sustainable, locally-sourced materials. They operate solely from their brick-and-mortar store but have plans to expand into e-commerce in the future. The high-quality craftsmanship of their products is reflected in their luxury price point. Connie’s Craft Corner’s 2 main segments are:

Eco-conscious consumer

• Aged 20-40

• Busy professionals who have the income to afford a higher price point 

• Passionate about supporting local businesses and buying sustainably-produced products. 

• Responds positively to messaging that emphasises the use of sustainable materials in our gifts and the partnership we have with a local tree-planting programme.

Luxury gift buyer

• Aged 40-60

• Affluent individuals who value unique and exclusive gifts with quality craftsmanship.

• Likely to respond to messaging that emphasises our discerning quality in the manufacturing process, and our partnerships with luxury boutiques who have stocked limited runs of our products.

Though target markets can include more segments (e.g. interior decorator, one-off special occasion buyer) and involve much more detailed profiles, these two segments illustrate how small businesses can adjust their approach to marketing a single product to different target consumers for more effective results.

The 4 types of target market segmentation

It’s common for entrepreneurs just getting started with audience targeting to wonder ‘what is the difference between market and target market?’ The answer usually depends on the level of segmentation involved.

When you’re looking to separate your audience from the wider market, there are 4 key types of segmentation you can use to identify a sufficiently detailed target market. Here’s a look at each of these categories and how you can use them.

Geographic

Geographic target market segmentation involves splitting your target market based on where they live, e.g. their town, county, or postcode. Analysing consumer locations has the benefit of helping you predict the type of brick-and-mortar stores an audience segment is most likely to visit and purchase from. If you’re able to research a geographic region’s distinguishing features in more detail, you may find a lot more information about the common traits shared by the people who live there, for example:

• The average income bracket.

• Knowledge of local events and history.

• Ethical and political topics that are regularly discussed in the area.

• Industries and professions that a high proportion of people work in.

One notable way that geographic location can affect a target market is in the average purchasing power for a region. By studying the differences that set your target market apart in a specific area, you’ll find it much easier to localise your marketing strategy and improve performance by aligning your brand to the nuances of different regions.

Demographic

Demographic market segmentation focuses on the personal traits that could influence a customer’s purchasing decision. Some of these characteristics might include:

• Age range.

• Gender.

• Relationship status and children.

• Homeownership.

• Income bracket.

• Level of education.

As a merchant, you can use this data as part of your small business marketing strategy to determine how different demographic variables affect their relationship with your business.

Researching demographic segmentation can be done either by analysing data sets from audiences who are already interacting with your brand, e.g through social media or email marketing, or by leveraging secondary market research from entities that have studied trends in the way different demographics tend to choose products or services.

You can also carry out independent research through surveys, focus groups, and other methods. However, this may be harder to accomplish logistically for smaller businesses that have a limited budget for their research.

Psychographic

Psychographic segmentation deals with distinguishing your audience based on psychological or personality traits and how these relate to people’s purchasing decisions. For example, studies published by Statista showed that “Career advancement is a relatively important aspect of life to grocery & beverage delivery users.” Some of the variables to consider when engaging in psychographic segmentation include:

• Personality traits.

• Beliefs and values.

• Opinions.

• Interests or hobbies.

• Media consumption habits.

Understanding these audience traits can be useful when you’re working to define your brand identity and want to ensure this aligns with your customers’ shared values and beliefs. If, for example, your psychographic research for an independent bookshop shows that your audience values sustainability, you may want to align your brand values. The independent bookshop could partner with a local tree-planting programme or introduce initiatives such as a pre-loved section of the store or run regular book swap events to encourage customers to exchange books they no longer need for something new, reducing waste and building community engagement in the process. While psychographic segmentation can be hard to quantify, gaining a deeper understanding of your audience can be helpful when tackling the less tangible aspects of your marketing, such as your brand personality.

Behavioural

Behavioural target market segmentation deals with dividing your audience based on the way they interact with your brand and other businesses across various channels. Some of the variables that determine behavioural segmentation can include:

• Previous purchases.

• Purchase frequency and value.

• Awareness of your business.

• How highly they rate products or services in reviews.

• Interactions with your business over social media and other communication channels.

When thinking about the question ‘how does behavioural segmentation identify target markets’, it’s important to consider the stage of business growth you’re in and whether you’re equipped to tackle behavioural segmentation.

Because behavioural target market segmentation requires you to have built up some sales data to study, you won’t need to worry about it in the early stages of your business when you’re defining your offering or just starting to launch your brand.

However, once you’ve carried out enough customer acquisition to create a large data set, you’ll be able to divide customers by their behaviour more effectively and make marketing and business development decisions based on this.

However, once you’ve carried out enough customer acquisition to create a large data set, you’ll be able to divide customers by their behaviour more effectively and make marketing and business development decisions based on this. If, for example, you’re running a restaurant with different menus for lunch and dinner, you may be able to carry out behavioural segmentation by looking at the purchase patterns of customers who dine during dinner compared to those who visit at lunch, in terms of average order value, how many starters vs mains are sold, and so on.

Why is identifying a target market important for small businesses? 

As a small business owner, you might automatically associate market research drives with the realm of larger, more established businesses. However, there are many benefits identifying a target market has specifically for smaller merchants. Some of these include:

• Focus resources on marketing to the people most likely to purchase your products or services, and manage the risk of carrying out marketing activities that are less likely to give you a return on investment (ROI).

• Develop informed buyer personas.

• Find gaps in the market while your business is still flexible enough to adapt.

• Find new business opportunities to develop products or services that better align with your target market’s needs.

• Establish customer loyalty through messaging and improve customer service.

Learning how to identify a target market early will keep your business operations as efficient as possible, and help you overcome some of the common marketing challenges faced by merchants when running a business for the first time.

3 benefits of identifying a target market

Exploring how to identify a target market has a range of benefits that can be helpful for small merchants. It’s important to consider these as your business grows and you think about applying your target market research to your long-term business goals. Here’s a look at how identifying a target market can benefit your business now and in the future.

Precise marketing

As you develop your target market, you’ll build a rich bank of knowledge such as your audience’s demographics, buying habits, and personal values. Gaining a deeper understanding of your target market will provide more precision in your marketing strategy. This level of refinement will improve the effectiveness of your messaging and content across the channels you select as part of your marketing mix. 

Developing products your audience loves

Learning how to identify target markets relevant to your brand will help you understand the wants and needs of your core target market segments, alongside their pain points and product features they actively look for and those they avoid. This principle extends past the products you decide to develop or stock, and can also help you inform the physical layout of your brick-and-mortar store and customer experience.

For example if you’re running a high street apparel shop, and you’ve found that your target market tends to buy accessories with their garments, you may want to display accessories prominently near your checkout to better align your business with their preferred shopping experience and impulsive purchase habits.

Developing trust and brand loyalty

Studying your target market, particularly when it comes to behavioural and psychographic segmentation, helps align your marketing with your audience on a more personal level. When you use language that appeals to your target market and showcases brand values that align with your audience, you can help improve customer retention and create a greater sense of trust in your brand.

Imagine, for example, that you’re running a cafe in an area that attracts high levels of foot traffic. As you observe and understand your customers and build a detailed profile, you can adjust the customer experience to your audience’s preferences. Some examples of this might be crafting a menu that features drinks and baked goods your audience loves, or using decor in a style your audience has expressed an interest in. When this customer experience is fully developed, it will encourage your target market to visit your cafe rather than your competitors’, confident they’ll have a positive experience.

8 steps to identify your target market

Now that we’ve explored what your target market is and its role in marketing and business development, it’s time to identify your target market using a methodical, step-by-step process. Finding your target market as a small merchant requires developing audience data sets that are accurate and robust while understanding how to use time and resources as efficiently as possible. While there’s no single answer to the question ‘how do businesses identify their target market?’, there are common phases in the process that can help you develop a more methodical approach to understanding your target audience. Here are the essential stages to plan for when identifying your target market.

Study your current customers

If your business has been trading for some time, you’ll probably already have access to useful data sets tied to your existing target audience. Even if you operate with a few regular customers, there are probably shared traits you’ll be able to identify between them to help you develop a target market. For example, if you’re running a driveway cleaning service, a common thread may be that all your customers are homeowners. By taking the time to analyse the people already buying from your business, you’ll give yourself a strong starting point to segment your audience and build a more detailed profile of your target market in the future. 2 effective ways of studying your existing customer base include:

Leverage email marketing analytics

The analytics from email marketing campaigns can act as a useful source of information to further develop your target market definition and adjust your long-term business plan.

• Analysing different target market segments by metrics like open rate or CTR (click-through-rate)

• Using geographic data to find engagement patterns depending on location.

• Demographic analysis to see if people from various demographic groups are more or less likely to interact with your email content.

• A/B testing focused on certain target market segments to find out more about their psychographic data.

• Running customer surveys targeted at your mailing list.

By contextualising these activities through specific questions you want to answer about your target market, you’ll build a more detailed profile that can be used for more informed and effective marketing.

Leverage social media analytics 

Social media can be another source of information when exploring how to find your target market, especially as a small merchant who isn’t ready to invest in large research projects.

Social media platforms like Instagram offer free analytics tools that provide key details about your social following, such as their gender, geographic location, and age range. Using these insights, you can identify patterns in the content that generates the most engagement, giving you a better idea of the behavioural traits, interests, and preferences of your audience. If you already have an engaged audience on social media, these reports can give you an instant, granular picture of the average demographics of those already engaged with your brand. Importantly, this approach to identifying your target market usually won’t cost you anything, making it a smart choice for small businesses with a limited budget.

Some of the useful target market datasets you can harvest from popular social media platforms include:

Define your product or service

Your business’ product and unique selling point (USP) is an essential starting point when understanding how your product or service solves specific challenges and the demographic who face them.

If you’re running a shop specialising in hand-crafted gifts using locally-sourced materials. Your USP might appeal to people looking for gifts with unique, sentimental value, or people who want to ensure their gift to a loved one is more sustainable by buying from a local independent brand. As you think about the appeal your USP has for your target audience, it can also be useful to consider other details of your offering and how this might narrow your target market down for more effective targeting. For example, if your price point is above the average found among your competitors, this might help identify people who are in middle-to-high income brackets, and happy to pay a higher price point for quality gifts.

When defining your product or service, carrying out competitor analysis and SWOT analysis will give you a more detailed understanding of the state of the current market. It can also highlight how your products or services are likely perceived by your target consumer.

This process or analysis involves:

• Competitor analysis:

  • Identifying your main competitors.

  • Analysing your competitors’ target audiences and marketing strategies.

• SWOT analysis:

  • Understanding your business’ strengths and weaknesses relative to your competition.

  • Identifying external threats and opportunities presented by your competitors and the conditions of the wider market.

These analysis frameworks will enable you to distinguish your target audience and use this knowledge in your decision making to target your marketing more precisely and avoid investing resources into activities less likely to bring you a return.

Define a buyer persona

To build the details of your target market segments and gain a more intuitive understanding of your customers, your next steps should be focused on developing a buyer persona from your existing customer data. Buyer personas are fictional representations of the individuals who buy from your business, encompassing basic data about your audience such as their demographics, income bracket, location and more. When developing your small business buyer personas, ensure a greater emphasis on the psychographic details of your target audience to make them feel more tangible and personable. Questions to consider when defining your buyer persona include:

• What are your customers’ interests and hobbies? 

• Which brands other than yours do they usually buy from (whether competitors or not)?

• What are the distinguishing features of your customers’ lifestyles?

• What are their attitudes and values, and how will these affect purchasing decisions?

By investigating these distinguishing features to build psychographic data on your audience, and combining it with demographic, geographic, and behavioural data, you’ll develop a more comprehensive buyer persona that will guide future targeting.

Create a target market statement

Now that you’ve organised the main components of your target market analysis, your next step is to summarise this in a target market statement.

Similar to a mission statement, this should briefly but clearly outline: 

• Who your target market is.

• The problems or needs they have that your product or service addresses.

• Why your product or service is the best solution to their needs.

A target market statement for a vegan food van might read:

“Our target market is comprised of environmentally conscious people aged 18-35 who live and work in urban areas and are passionate about conscious, sustainable buying. These customers are typically university students or young professionals with moderate-to-high disposable incomes. They are passionate about animal welfare, environmental sustainability, and the benefits of organic and vegan diets. Our business, The Pedroburger Food Van, caters to their desire for tasty and quick meals that align with their dietary preferences, lifestyle, and ethical concerns. Unlike other food trucks, Pedroburger offers a diverse menu of 100% organic and plant-based dishes, made from responsibly-sourced ingredients and prepared fresh every day.”

Assess the big and niche market competition

Once you’ve carried out your target market research focusing on your target audience and direct competitors, you can build a more comprehensive data set by expanding your research to encompass the wider market. Some areas to consider investigating for an even more detailed view of your target market might include:

• Larger market competitors with well-established brands, market share and more resources than you.

• Niche competitors with operations similar in size to yours or smaller, who offer products or services that appeal to a more specific audience.

Understanding these businesses’ relationships with more niche target markets can help you understand potential shortcomings or develop strategies to serve new audience segments.

Market research

Market research will help you understand the distinguishing features of your primary audience and the conditions of the wider market which may affect their behaviour when interacting with your small business. When carrying out market research for your small business, there are 2 main types of research to help build a detailed image of who you’re marketing to. These are primary and secondary research.

Primary research

Primary research involves carrying out research directly from your audience, using methods such as surveys and interviews, focus groups, and more. This can be costly in both time and money, so is often avoided by small merchants who are just getting started and need to be conservative with the resources they have. The benefit of primary research is that it provides first-hand insights into your customers and gives you full control over the questions and methods you’ll use to find out how your target market sees your brand. It’s worth noting that primary research doesn’t have to be a large, expensive project. Many small businesses gain valuable data on their customers through cheap or even free methods like in-store surveys and social media polls.

Secondary research

Secondary research involves analysing primary research that’s been done for you by another business entity, for example case studies in trade journals, government surveys, and other sources.

While this kind of research is easier to attain than primary research, as it often only involves assessing readily available data, it lacks the level of control and customisation that comes with primary research. Aside from planning your primary and secondary research, it’s important to make the distinction between quantitative and qualitative research.

• Quantitative research involves looking at numerical data from your available analytics sources to identify patterns, for example, the proportion of restaurant bills that contain items from your dessert menu. 

• Qualitative research, focuses on the more intangible aspects of your target market, for example the audience sentiment around certain social causes.

By covering these different facets of your target market research, you’ll be able to build a more detailed audience profile and a more comprehensive understanding of your market.

What to do with your target market analysis? 

Once you’ve gathered and collated detailed information on your target market, you should feel better acquainted with your audience’s purchasing behaviours, preferences, and values. There are 3 common ways to apply your target market analysis to help develop your business and customer relationships.

Informing business development decisions

As you scale a business, you’ll be presented with a variety of decisions that you’ll want to validate with data. An analysis of your target audience’s buying habits, demographics, and psychographics can make the right course of action much more obvious.

Imagine, for example, that you’re running an independent cafe that’s succeeded in catering to students and young professionals, and you’re considering opening another branch in a neighbouring town. If there’s a high concentration of students and young professionals in the prospective new location, near a campus or central business district for example, it could be a strong indicator that your new branch will reach the same levels of success due to the similar customer base.

Refining your product or service offering

Target market analysis can be a great resource when planning to develop a product or service to match consumer preferences. This is particularly true when your analysis is informed by primary research focusing on loyal customers who have already shown they like your product or service. Think of a scenario where you’re running a gift shop, and your social media analytics have shown a large proportion of your active followers also follow a local artisan who makes handmade jewellery.

This interest in handmade products could lead you to offer more handmade jewellery items or even stocking pieces from the artisan your customers are interested in.

Enhancing the customer experience and loyalty

Like your product development, your target market analysis can also be an effective driver for creating a more positive customer experience and generating a stronger sense of loyalty among your customer base. If, for example, you’re running a food truck business, you may have discovered through secondary research that people in your target market place a lot of value on having a quick and hassle-free purchasing experience. You can accommodate this preference by embracing new payment technology, such as a high-speed card reader or a self-serve kiosk ordering system, which will reduce wait times and encourage better customer loyalty.

Driving technology innovations

Deciding if and when to upgrade the technology at your small business is another area where target market analysis can provide useful insights, and inform your technological purchases and upgrades. If you’re a hospitality business owner and your demographic research has determined that you’re serving mostly millennials and Generation Z, you can expand on this by finding secondary market research exploring the features they value in take-out or eat-in cafes and restaurants. This can lead to making informed decisions about the technological investments you’ll make at your business, for example upgrading to a high-speed WiFi provider or developing a mobile ordering app.

Target market analysis example

Stafford-based SumUp merchant Candid Beer maintains a brand identity that’s young and hip, but markedly local and firmly connected to the community where it was formed.

Their product focus on everything hand-crafted extends past the unique drinks and quality food served in their craft beer shop, as evidenced by their hand-written menus and partnering with events such as a local ‘Artisan Maker’s Market’. While these elements appeal to a target market that values organic, hand-made quality in the brands they buy from, Candid Beer has also created an in-store experience for customers with a preference for using technology for smoother ordering. This is shown through their use of ordering and online payment methods such as Goodeats mobile ordering and SumUp’s Point of Sale Pro.

This combination is one example of how independent, localised businesses can cater to multiple target audience segments through well-informed marketing and the development of the customer experience.

Small business target market example

Seeing how to organise the key data points of a target market will help you arrange your own research to ensure it’s comprehensive and easily digestible. Here’s a target market example for a fictional apparel shop, Ella's Dresses, to help you understand how to identify a target market in real-world business situations.

Key demographics

• Women aged 25-45.

• Professionals with moderate disposable income.

• Urban and suburban residents.

• Women seeking quality dresses for both casual and special occasions.

Key psychographics

• Values individuality and self-expression through fashion.

• Fashion-conscious but anti-fast fashion.

• Prefers unique, well-crafted pieces over mass-produced items.

• Likes to know the brands they buy from prioritise sustainability and ethical production.

• Enjoys personalised shopping experiences.

Challenges

• Finding dresses that are unique and high-quality for a reasonable price point.

• Looking up-to-date without being a slave to trends.

• Having a personalised and friendly shopping experience they can’t find in big chain retailers.

Preferred marketing channels

• Social media platforms, particularly Instagram and Pinterest.

• Email newsletters and promotions.

• Local fashion events, markets and pop-up shops.

Preferred content types

• Quality images and videos with new arrivals and styling ideas.

• User-generated and influencer content.

• Behind-the-scenes content showcasing the design and production process.

• Fashion tips and style guides.

• Interactive content like polls and quizzes.

By organising the key data points for your target market in this kind of methodical structure, you’ll be able to reference it quickly and make it easier to share with team members or third-party marketers.