What is a Target Market? And How Do You Determine the Size?

". . .you can't please all of the people all of the time." - John Lydgate

As a marketer or business owner, you know that you cannot market to everyone. Your product or service simply doesn’t apply to every person or business. Even if it has broad appeal, you’ll want focus on a certain group of people or businesses. That way, you can focus your marketing and prospecting to a specific target market. We’ve all heard the phrase, “Niche to get rich.” Well, that wasn’t made up simply to be a clever rhyme. There’s truth to that statement.

So what is a target market? It is the segment of the population or businesses that you focus your business to serve. Put in another way, it is a group of customers a business has decided to aim its marketing efforts and ultimately its merchandise towards. [1] To make your marketing strategy work, you’ll want to have a good handle on who your target market is. You can think of it in terms of demographics, geography, lifestyle, psychographics, or a combination of these.  For this post, we will focus on consumers, but the concepts apply to businesses in similar ways.

If you have a specific market in mind already, you can rent a mailing list to get a count of the number of consumers within your market. This is a pretty simple approach. For example, you may want to know how many married men between the ages of 35 and 44 with an income of more the $100,000 live in NYC.  You’ll have a count and can request to rent a list of some of those names so you can send a direct mail campaign out to them. That is a straight forward way, but before you get there, it is wise to start with a higher level view then drill down to your target market.

TAM (Total Available Market)

The highest level to start with is the Total Available Market, or TAM. This is the market of consumers who can possibly be interested in your product or service.  Yes, virtually every U.S. adult consumer can purchase virtually every service, but if you start there every time you’re doing yourself a disservice.  Let’s use baby strollers as an example. In this case, it’s pretty clear that you want to ultimately target parents. Parents of infants are a good place to start. Can a single person buy a stroller for a friend who has a newborn? Sure. But that would be an infrequent scenario, especially considering the price of strollers. Can a grandparent buy a stroller for their son or daughter to use? Yes, but it might still not be a great use of your time and effort to include them in your count. Sticking to the consumers who are most likely interested in your product or service is your best bet. Also remember that since this is the TAM, all your competitors are looking at these consumers as well.

SAM (Served Available Market)

Think of this in terms of consumers within your TAM who can really use and afford your product. Then think to yourself, "how many can I reach with my sales channel?" That is your Served Available Market. If you’re a local vegan pizza shop in San Francisco, you’re not concerned about how many vegan pizza lovers live in Austin. You want to focus on the number of people you can reach with your sales channel.

Target Market

The target market consists of those consumers within your SAM who are most likely to purchase your product or service. These are the individuals and households to focus your marketing efforts towards. These are the consumers you email and post on Facebook for. These are the prospects you want to engage with using direct mail. When you rent a mailing list, you should request one with the specific demographics, psychographics, behaviors, hobbies, and/or financial characteristics of your target market.

Of course, at this point it is still a hypothesis that needs testing. Serial entrepreneur Steve Blank says you should “get out of the office” to meet and interview people within your target market, so you can start gaging interest and refine your assumptions. Keep in mind that you can’t go interview five people and come away with something like, “3 out of 5 people will buy our product so we can capture 60% of the market.” Your due diligence is required here. A rule of thumb followed by many is to talk to 100+ people before refining your hypothesis.

Mailing Your Target Market

Once you’ve gone through this exercise, you’ll have a much better idea of the details you’ll need to rent a mailing list.  If you’re already in business and want to start mailing consumers to start acquiring new customers, you can move forward with the mailing list you have to gage interest in your offer. When you send out your mailing, keep in mind that you’re testing that mail piece. More specifically, you’re testing whether your target market will respond to the particular offer you’ve sent out with carefully written and designed creative via direct mail. Consider that some consumers will respond to direct mail and not email or vice versa. Combining other channels with direct mail for multi-channel marketing can be extremely powerful, but that’s for another post.

Once you’ve sent out your mailer, it is imperative to test and track responses. Depending on your target market, you can test using a sample of 5,000 or send out as few as 1,000. If you want to eventually incorporate predictive modeling to take your mailing results to new levels of response and ROI, we recommend starting with a sample of 5,000-20,000 consumers. Whichever way you go, track the responses and see how you’re doing. It is possible that there’s a segment of your target market that is more interested in this particular offer than the rest of the target market. More on that in future posts.

Information about the concepts of TAM, SAM, and Target Market are available many places. One source we like is Steve Blank’s course “How to Build a Startup” on Udacity.

If you want to reach and gain insight into your Target Market, DTS can help.

[1] Kurtz, Dave. (2010). Contemporary Marketing Mason, OH: South-Western Cengage Learning.