What is a Target Market?

A target market is like the audience for a movie…

Is the movie about robots shooting each other and battling aliens? The audience in the theater is probably going to skew toward teenagers and young adults. Is the movie about retirees finding love? The audience is probably going to look pretty different. The people who show up for different types of movies are like the target markets for different products and services.

A target market is the specific group of people to which a firm markets its goods and services. Such a group of people typically share a set of demographic and psychographic characteristics. Having a specific target customer for its products, a company can more easily make decisions when it comes to pricing, positioning, and marketing its products.

For a real-world example of a target market, take a look at the shoe brand Rothy’s. By looking at the company’s website, you can immediately see that its target market is women — It says as much on its site. But the company isn’t marketing to all women, and it’d have a lot of competition if it were.

Rothy’s makes its shoes from recycled plastic products such as water bottles. By sharing this on the company website, Rothy’s is specifically marketing its products to environmentally-conscious women, which is a lot more specific than just women.

Companies usually separate their target customers from the rest of the market using two different market segmentation methods. The first method companies use is to break down their customers’ demographics. Demographics describe particular groups of people based on their characteristics. These are the traits that someone could self-identify by checking a box on a form. Demographic traits include:

• Age
• Gender
• Ethnicity
• Marital status
• Location
• Education level
• Occupation
• Income level

Demographic traits are often where companies start when it comes to determining their target market. For example, a business might sell a type of hair dye specifically targeted at aging men, while a makeup brand might choose to target their products to millennial women.

The other type of market segmentation is by psychographics. Psychographics aren’t as quantifiable as demographics. They describe the more psychological traits about a target market such as their values, personalities, hobbies, and interests. Examples of psychographic traits might include:

• Introvert vs. extrovert
• Active vs. sedentary lifestyle
• Politically conservative vs. progressive
• Watches a lot of television

Knowing the psychographics of your target market is particularly helpful when it comes to marketing your product. For example, the way you’d market a new smartwatch to an extrovert who goes out partying may be different from how you’d market one to an introvert who loves to run.

When a company knows its target market, it can make its marketing dollars go a lot further by only marketing to those who are more likely tobe interested in buying the product. Not only does having a target market tell a company who it should be marketing to, but it also helps them to pin down where to market their products and what language to use.

Let’s say you’re selling an energy drink. You aren’t sure who’s buying your product, but you think it’s for everyone. As a result, you start running Facebook ads targeting people of all ages and genders. You’re spending a lot of money on advertising, but how many of those people are actually buying your product? If it turns out that the people buying your product are between the ages of 16 and 20, and they aren’t hanging out on Facebook, you’ve wasted a lot of marketing dollars.

Having a very specific target market may also instill an extra layer of trust with your customers and allow you to charge more for your product.

There are several strategies companies can use when it comes to choosing a target market for their products. One strategy is multi-segment marketing, which is when a firm tries to attract different types of customers with each of its different products.

Take a look at the Walt Disney Company. Disney is a company most people immediately recognize and associate with Mickey Mouse, Disney movies, and Walt Disney World. Much of what the company has to offer is marketed toward small kids and families.

But Disney also owns brands with entirely different target markets. For example, Disney owns ESPN, the target market of which is people interested in sports. Disney also owns the History Channel, which has a different target audience than the Disney brand or ESPN.

A company using a multi-segment marketing strategy is kind of like an investor who diversifies their portfolio.

Many experts recommend against putting all of your investments into one particular stock. If that company goes down, you lose all your money. Instead, many investors choose to diversify their portfolios by perhaps investing in some individual stocks, but also by putting their money into index funds or government bonds, among other things. That way, if one company or sector goes downhill, their whole portfolio doesn’t go with it. Many companies want to do the same thing, so they diversify by hitting different target markets.

The next target market strategy is concentrated marketing, which is when companies market their goods or services to a very specific group of people.

One example of a business model with a concentrated market would be wedding photographers in Wisconsin. First, these companies are significantly narrowing their market by only marketing to couples in a particular state. They also aren’t marketing themselves as family photographers, nature photographers, or yearbook photographers. They only do wedding photography. And considering the vast majority of the population isn’t planning a wedding in any particular year, these photographers are limiting themselves to a pretty small group of potential clients.

The final target marketing strategy is for those companies targeting global markets. Companies using this strategy are selling their products worldwide, possibly to similar demographics from one country to the next. But they generally have to make some changes to their marketing by country.

Consider a company that sells children’s books around the world. It may sell similar books to kids of the same age in each country, but it's probably changing the language (and possibly the characters and stories) to account for the country where it’s selling each particular book. The book the company sells to kids in Japan is likely going to look a bit different than the one it sells to kids in Brazil.

The first step a company should take in finding its target market is to analyze its good or service. It should pin down why someone would buy the product and what type of person might buy it.

In some cases, a company might have a specific type of customer who would buy its product. For example, FreshBooks is an invoice and accounting software for small business owners. There’s only a specific segment of the market that would need that product. On the other hand, you have products like dish soap that just about anyone would need.

The next step is to segment your market. If your company is like FreshBooks and already has a very specific type of customer, this part might be easier. But what about that company selling dish soap? It can be tempting to market your product to everyone. After all, almost everyone needs dish soap.

At this point though, you may want to narrow things down. What features of your dish soap make it particularly attractive to a specific segment of people? For example, maybe you’re selling an all-natural dish soap at a low price point. This product might be ideal for parents who can’t afford to spend a lot on household goods, but who want to use safer products for the health of their kids.

Once you’ve narrowed down your target audience to a smaller segment of the market, it’s time to perform some market research on your potential customers. At this point, you’ll typically find the demographic and psychographic traits of your target market.

You can do this by conducting surveys of individuals in your market or by using data sources such as the United States Census Bureau or the U.S. Department of Commerce, both of which compile demographic information about American households.

Once a company has figured out its target market, it needs to find a way to attract those people to buy its product. To do that, companies can use the four Ps of marketing.

• Product: The product is the good or service that you’re marketing to your target audience. Companies should tailor their products to fit the needs of their specific target market.
• Price: Pricing a product is one of the biggest decisions a company has to make, and it’s largely dependent on who it chooses as its target market. Imagine you were selling an online course. If you were to price that product at $19, you might be able to sell it to high school students, but company executives would probably assume it isn’t valuable. If you sold that same course for $1,000, you’d be hard-pressed to get any high school students to buy, but the executives may reconsider its worth. The way you price your product is often as much a marketing tool as it is a means of profit for you.
• Place: Not only do you have to have the right product at the right price for the right target clients, but you also have to get it in front of customers. The place refers to the retailers and distribution channels you use to get the product in front of your customer. Who your target market is will largely influence where you sell your product. After all, the people buying products on an e-commerce site like Etsy probably aren’t the same ones shopping at a chain sporting goods store. It’s all about figuring out where your customers shop.
• Promotion: The final piece of the puzzle is how you promote your product. Once you know who you’re selling your product to, you can figure out how you should advertise it. Promotional channels might include radio, television, print, email, social media platforms, and content marketing. Different target markets are more likely to see and respond to advertising on different channels, which makes knowing your ideal customer critical. Your promotion also includes your value proposition, which is the sales pitch you make in your marketing campaigns to get customers to buy.

Any mentions of third party companies are provided as examples for educational purposes only. Robinhood is not affiliated with and does not endorse or sponsor any of the listed companies.