How To Identify & Understand Your Target Market

One of the greatest challenges that most businesses face is one of market focus. Many businesses adopt a sales-driven approach… take all the money you can, regardless of fit or focus.

Also, if you are a start-up trying to raise equity funding, your investors want to understand the size of the market opportunity. It allows them to figure out the upside from their perspective, assuming everything goes to plan.

Market sizing is tough. As is market focus.

You have to think big. But by doing so, you dilute your focus on getting your product or service into the market. This is a big problem.

Identifying Target Markets

When going through this process, you assume that customers are in the market for products like yours. You view competitors as those who have created a technology solution just like yours.

Unfortunately, there are flaws in this approach. How markets have operated in the past, and what customers have traditionally purchased is not a good indicator of how markets evolve over time.

So if, for example, your product is a customer relationship management (CRM) platform, you see Salesforce, HubSpot, Pipedrive and others as your competitors. They are competitors, of course. And so you focus on trying to win customers from them.

But getting customers to switch products is tough.

You win a few detractors, and confidence soars. But then growth flattens and you’re back to where you were before. You’re unsure what market you’re in. Then you realise that the new customers you won from your competitors are bad apples. They are expensive to serve and your overheads increase.

This exaggerates the problem because you have not defined your market correctly.

Customers buying existing CRMs are a pool of potential customers. However, they do not represent your entire market opportunity, and probably not even your first entry point into the market.

Customer expectations are often very high.

You have to overcome the challenge of stitching your target customers’ expected product with your value proposition. And then your value proposition with the actual product you’ll deliver to your customers.

How To Identify & Understand Your Target Market

The biggest innovation challenge in markets where technology is mature, is meeting high customer expectations. With that in mind, it’s better to think about markets from a different perspective. One that more closely reflects why we buy the things we do.

Looking at Markets Through A Jobs to be Done Lens

The Jobs to be Done approach takes a different approach to identifying and understanding target markets. The concept is that people buy products and services to satisfy certain needs or tasks that will help them make progress.

The late Harvard Business School professor Theodore Levitt famously said, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

On reflection, while Levitt is right, he’s not entirely correct. Because, why does a buyer want a quarter-inch hole? It’s safe to assume that they don’t want the hole because they like drilling holes in their walls. There is a reason why they want a quarter-inch hole.

It’s likely related to hanging pictures, putting up shelves, attaching furniture to the wall, installing light fittings, fixing your TV to the wall and so on. Stopping at the hole is a potential barrier to innovation, and represents a misunderstanding of the market opportunity.

Jobs to be Done helps you to focus on where opportunities for innovation exist, but they don’t tell the whole story. Successful businesses don’t stop at this juncture when defining their target market.

Understanding Important, Underserved Customer Needs

Successful businesses understand “why” customers behave the way they do. They focus on identifying and understanding the jobs that customers are trying to get done.

They spend time trying to understand the reasons why these jobs are important to their customers.

Like the drill example above, they aim to understand why a customer wants to drill a quarter-inch hole. They probe deeper, out of curiosity, so that they can gain a deeper understanding of their customers.

In a target market where competition already exists, you must understand two things. First, you must understand core jobs to be done. Abstract these from the product. Jobs are stable over time, but the products that customers use change as better solutions come to market.

It’s important to say that you don’t need customers to be able to go through this process. But you should have an idea who your ideal customer is.

Second, you must identify and understand where the market opportunity is.

How do existing solutions satisfy customer needs? Which of those needs are important? Which needs are over-served? Which needs do existing solutions serve appropriately? And which needs are under-served?

This process gets you away from building something that customers already have. It focuses your efforts on building something that they don’t have but need.

Understanding Competitors Through The Lens of Jobs

The fact is that, when we think about the competition, we view competitors through our own eyes. We don’t view them through the eyes of the customer.

But, when you look at competition through the eyes of the customer and focus on jobs to be done, you realise that there are competitors you would never have considered. And, what’s more, these newfound competitors are an opportunity to unlock a larger share of wallet.

In my last business, one of the biggest competitors for our video streaming clients was the hardware encoder they would install on-site at the event where they were broadcasting live. These were huge, expensive machines that can cost upwards of $40,000 per venue.

By offloading the encoding process to the cloud, many of our customers saved tens of thousands per year across their portfolio. All that was required was access to sufficient bandwidth at the event location to transit the raw stream into the cloud.

Had we viewed competitors through the lens of the market, we would have never considered this an opportunity. But an opportunity, it was.

Competing Against Blind Luck

Markets shift over time as technology matures or habits change. But jobs don’t change over time. As a result, most successful disruptive innovations initially compete against non-consumption.

The businesses that create them accurately predict where the market will shift before it gets there.

For example, 20 years ago, most of us would have said they’ll never buy products online with a credit card. But Amazon Founder and CEO Jeff Bezos was crazy enough to believe that people would.

He identified books as an ideal first target market, as it was often difficult for brick-and-mortar bookstores to stock a big enough range to give customers the choice they desired. The fact was, buying books from a bookstore was a frustrating experience, filled with compromise.

Compromise created by the limitations of the sales channel.

Amazon’s immediate competitive advantage was the fact that it could store books in warehouses and ship via mail-order. It was competing against non-consumption. It meant that it could, eventually, stock every book it could get its hands on, and ship it anywhere in the US (or the world, for that matter). It was the foundation upon which The Everything Store was born.

It was, without a doubt, as a result of viewing book buying through the lens of what customers were trying to get done. By working backwards from the customer, and through understanding the underserved needs they desired, Amazon was able to clearly define its initial target market.

Many see opportunities like this as lucky, but actually, it comes down to targeting the right market at the right time. The market need for book buyers was obvious when viewed through the lens of the jobs customers are trying to get done.

The fact is, with a view of the jobs potential customers are trying to get done, you can begin to identify new break-through market opportunities. Markets that you simply wouldn’t consider if you identify your target market with traditional market-sizing techniques.

 

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