In this article, we’ll use this diner scenario to walk through the market research process and illustrate what the final result could look like.
Questions about your target market
Before you even set foot in the bank, you should already have asked – and taken steps to answer – several key questions about your target market.
Let’s call our example business the Bplans Diner. Where is that perfect location you’ve found for the diner? Is it in a densely populated urban area, suburban neighborhood, or rural?
What are your hours of operation? Some diners cater to a breakfast crowd, while others might offer 24-hour dining to be a favorite among night owls. When you expect your peak hours could help determine whether you should expect to sell more omelets or hamburgers.
What’s the area’s median income, and what types of businesses or institutions are nearby? This information will help you determine pricing and marketing strategies for your diner. For instance, if your diner is located in a business district, you may want to offer lunch specials. But if it’s near a college or university, you might want to offer student discounts.
This is what a thorough target market analysis looks like, providing key insights and data to pinpoint the specific groups of customers most likely to patronize your diner. Gathering all of this information may sound intimidating, but it’s really just a matter of doing research. If you need help and guidance, check out our complete guide to conducting market research for your business.
Let’s look at an example of a target market analysis for this diner. Then, we’ll break it down and discuss each element in detail.
Example of a target market analysis
As you can see, the target market analysis follows the basic market segmentation process of splitting out potential customers into their demographic, geographic, psychographic and behavioral traits.
Next, let’s take a look at each in more detail. Afterward, we’ll look at how you can harness your target market analysis into actual business strategies.
You may have noticed that the demographic analysis in our example is very broad – 18 to 65 years old, including students, workers, and some seniors.
Finding your target market isn’t always about identifying a narrow demographic to cater to. In the case of a restaurant, it makes sense to focus on the geographic location and who currently frequents the area (more on that in the next section).
A different approach may be needed for a technology product that’s sold online. In that case, narrowing the demographic focus to specific age ranges or needs would be much more important than where the business is located.
In the case of the diner, we reached our decision by conducting a demographic analysis, examining the age ranges, occupations, and other concrete data points about potential customers near the proposed location (Reminder: we didn’t do this for the Bplans Diner, we’re just providing an example).
There are several ways to go about collecting this information for your business. The most straightforward is to get out in the neighborhood, take a look around and talk to people. Are you mostly seeing students, or families? Are there a lot of office workers in the area?
You can also look up data from the U.S. Census Bureau, which includes population, age, income and other useful information, often down to the neighborhood level.
After conducting this research, one valuable step is to create a detailed customer persona that represents the typical customer you expect for your business (we provide an example of a customer persona for the diner further down in this article).
While the demographic analysis considers the type of people who might frequent your business, the geographic analysis considers the characteristics of the neighborhood itself.
Our target market analysis for Bplans Diner noted that we plan to operate in an urban area near a university with heavy foot traffic and expect a fair amount of late-night diners.
A key reason for examining the geographic makeup of your businesses is to size up your competition. If there’s already a popular diner in the area you plan to target, getting customers could be a major challenge. But if there’s a lack of dining options or no one is serving diner-style food, you’re more likely to be successful. Determining the size of your market will help you create reasonable revenue projections.
We also mentioned the plan for Bplans Diner to cater to a late-night crowd. Examining the geographic makeup of the neighborhood will help you determine if there are the kinds of businesses – bars, music venues, or businesses such as hospitals where people are working all hours – to justify targeting this group.
You know the demographics and geographic characteristics of your market. Now it’s time to consider the attitudes and values of your potential customers.
The psychographic analysis helps to understand the lifestyle of potential customers and how that might affect their preferences as consumers. If many of your potential customers are health-conscious, for instance, you’ll want to ensure your diner provides options like salads or gluten-free menu items. But if most customers are families looking for a place to bring their children, it may be important to keep classic items like hamburgers and french fries on the menu.
The best way to understand your potential customers’ attitudes is to get out and talk to them. Customer interviews are among the most powerful methods of validating a business idea, since you’ll get honest, real-time feedback from the kinds of people your business would depend on.
Finally, the behavioral analysis expands on customer psychographics by examining what customers do, given their values. This is another place where it’s worth considering the broad demographics of the diner’s target market – 18 to 65 years old, split among students, workers, and seniors.
They may all want the diner’s food, but their behaviors will vary widely. College students might be looking for a late-night study spot, or a place to meet up with friends for dinner before a concert or sporting event. But workers and seniors might be more interested in breakfast or lunch specials.
Each of these behaviors gives a business owner valuable information to target individual segments of their target audience. For instance, you might want to play popular music in the evenings to get young diners ready for a night out on the town. But you’ll want a quieter ambiance at the time of day when seniors are most likely to come in. The environment can be adjusted based on when certain customers frequent the business.
Addressing behavioral aspects like buying motivations and concerns of your potential customers will also help you effectively market your diner. For example, you could create marketing campaigns based on student discounts, late-night specials, or a family-friendly atmosphere, depending on your customers’ behaviors.
Connecting a target market analysis to business strategy
So far, we’ve touched on each of the components of a target market analysis for a diner: customer demographics, geographics, psychographics, and behaviors. (It’s also important to conduct an industry analysis to understand competitive and macroeconomic forces affecting your planning.)
With the target market analysis complete, you’re better equipped to demonstrate a thorough understanding of your customers to a lender.
Here are a few insights a business owner could use for the Bplans Diner, developed through the above analysis.
Bplans Diner Competitive Analysis
Market Trends: Growing demand for late-night food options, increasing preference for healthy dining options.
Competitor Strengths and Weaknesses:
Competitor A: Strong brand but limited menu options.
Competitor B: Wide variety of options but lacking in ambiance.
Bplans Diner Marketing Strategy
Product Differentiation: Offering a diverse menu that caters to various preferences, including healthy options.
Positioning: Establishing Bplans Diner as a reliable, quality, 24-hour dining option in the region.
Promotion: Utilizing social media to announce special night-time deals and promotions.
Get started with your business plan template
A target market analysis is a key part of any business plan. But it’s just one piece. At Bplans, we take some of the pain out of business planning. We’ve developed a free business planning template to help reduce entrepreneurs’ time to create a full, lender-ready business plan. Bplans has also collected over 550 free sample business plans across numerous industries. Find a plan in your industry to get inspiration for your plan.
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Elon is a marketing specialist at Palo Alto Software, working with consultants, accountants, business instructors and others who use LivePlan at scale. He has a bachelor's degree in journalism and an MBA from the University of Oregon.