Using Examples of Successful Business Models to Understand Demographics & Define a Target Market

One of the toughest decisions is one that every entrepreneur has to face: to whom will I market my product. Having graduated in business management with a focus on entrepreneurship and strategy, I’m often puzzled by new startups with seemingly no understanding of their target markets. Many entrepreneurs are apparently plagued by the myth “If you build it, they will come.” With little to no effort on their part, these small business owners somehow think a marketing plan will take care of itself and a set of core customers will automatically develop. Sadly, that just isn’t true.

Successful Businesses Analyze Demographics, Understand Their Target Markets  amp; Service Accordingly

Successful businesses are built on competitive advantages. In addition to cost-advantages and product differentiations, businesses build brands based on focus–segmenting the market and catering products and services accordingly. No business can be all things to all people. This fundamental rule is what successful entrepreneurs internalize and base decisions on.

Let’s look at three profitable businesses who understand their places in the industries in which they conduct business. These companies know who their real customers are and act in view of that.

McDonald’s is Cheap. Is McDonald’s trying to be all things to all people? No! The fast-food chain sells low-priced hamburgers and French fries. It’s not super healthy, or that great of quality, but it’s consistent, convenient and cheap. Yes, prices have gone up and the menu has expanded over time, but McDonald’s has built its reputation catering to its target market: consumers who want quick and easy grub, on the go. Even though we all at times may be in the realm of McDonald’s target market, the restaurant chain doesn’t try to serve us every meal we could ever want. It wouldn’t make sense given its supply chain and corporate structure. McDonald’s is fine with you grabbing your filet mignon and caviar elsewhere because it knows those wants are better met by someone else. The company understands, given its core competencies, what its target market really is.

Walgreens is Convenient. Does Walgreens serve the same customers Walmart does? Not really. Yes, people who purchase items from Walgreens can also shop at Walmart. But in the moment you’re checking out at Walgreens, why are you there? Unless there’s a sale, or you have a coupon, Walgreens is not likely cheaper. On regular-priced items, you’re paying a premium for convenience. I shop at Walgreens because it’s on the corner. It’s a small store–I can run in and run out in under five minutes getting the three things I need that can’t wait until my next Walmart trip. And if I run into a problem, I have a much better chance at Walgreens of tracking down an employee and getting the help I need.

Shopping at Walgreens is a different experience. Hence, Walgreens doesn’t generally compete on price. There are sales to get you into the store, and a few novelty items here and there, but mostly customers are paying for a personalized shopping experience in a small drugstore on the corner. Would Walgreens gain sales if the company lowered prices? Yes. But, would the store actually profit from rebuilding the company’s structure and marketing strategy? Not likely. In the moment you’re shopping at Walgreens, you’re a different kind of customer than when you’re shopping at Walmart. Both companies know that and continue to grow their businesses accordingly.

Vitamin Cottage is Eco-Friendly. Locally, and perhaps company-wide, Vitamin Cottage Natural Food Market has discontinued making available plastic and paper bags for customers purchasing goods. Is that a revolutionary idea? Yes! Is it ridiculous? Absolutely not. The company has built its brand as a natural and healthy grocer, intent on saving you and the environment. Yes, the store may lose some customers on the sidelines who like killing the earth one plastic bag at a time. But, the business’ green target market has just become that much more loyal. Vitamin Cottage made a smart business move to further company aims and to appease consumer concerns–all because the store understood its target market.

How Can You, As a Small Business Owner, Get into the Successful Business Model Game?

Realize the Goldilocks Phenomenon. Entrepreneurs face what’s known as the “Goldilocks Phenomenon:” identifying a market not too big, not too small, but just right. Entrepreneurs rightfully do not want to limit themselves into too narrow of niches. But, no company has the resources or product offerings to satisfy everyone. And by trying to please everyone, generally, no one is completely satisfied.

In writing a business plan, honestly identify where your company’s strengths truly are in comparison to your competitors and the market which you plan to serve. If you have no edge in a given field, rethink the business plan. If initial research is showing too small of a target market, rethink the business plan. If the numbers aren’t working out–you guessed it–rethink the business plan.

Do Your Homework. Developing an accurate understanding of your company’s demographics is hard work. And while it’s not enough in and of itself to save a company, the lack of it is enough to kill a startup before it’s ever even gotten off the ground. Clearly, finding the perfect niche in the market would be every businessperson’s dream come true.

So how is it done? More market research, more competitor analysis, and a little more ingenuity. Answer the pertinent questions. Who is buying, or who would buy, what you are offering? If you have customers, interview them. What are the commonalities between your customers: age, sex, education? Race, occupation, hobbies, purchasing habits? If you’re only in brainstorming mode as a potential business, identify your potential competitors and interview their customers. What are the commonalities between them? What are the major differences? See what your competitors are offering and analyze who they are targeting. What are they doing wrong? What market segment is nobody reaching? Can you legitimately deliver to that segment that is presently being underserved?

Stick With It. Continue to conduct market research and employ creative techniques to further identify the circumstances in which your company will need to conduct business. Once you really understand your startups’ demographics, you can begin adjusting your company offerings accordingly. Knowing what to offer and whom to target is a balancing act. Fine tuning the details can take years, but the required effort is worth accurately identifying the perfect target market for your business.

For additional information on how to start a small business, you can visit the U.S. Small Business Administration’s website, which is a valuable resource for budding entrepreneurs.