We all know that the restaurant industry is a pretty board industry and we can cater to almost any person from any culture. However, this does not mean that we do not select a target market. Actually, it is in the best interest to have a specific target market so that you can differentiate your restaurant from other restaurants.
Having a restaurant that serves all forms of cuisines firstly means that the customers will have lots to choose from, which could lead to decision paralysis and secondly, your restaurant has to have different ingredients, different chefs in order to prepare those unique dishes.
Now that I have told you how important selecting the target market is, you have to do the hard part of actually selecting a target market. Here are some criteria’s that needs to be fulfilled while selecting the target market. First of all, the target market has to be large enough to be profitable. Secondly, you need to check whether that target market trend is growing or falling within the years.
Thirdly, it is important that you do a little market research on whether there are a lot of competitors within that target market. Moving along, a restaurant needs to be in a location where people are actually interested in the type of food you are serving. And lastly, the target market has to fit in with your restaurant’s mission and objectives.
Let’s just take an analogy of you wanting to climb up a mountain. You have been preparing yourself to climb this mountain for many years and finally, you have got the chance. Before beginning, you need to ask yourself where you are. If you are in a country where there are no mountains, it does not make sense for you to have this dream. Maybe, you should go to other countries where there are mountains for you to climb to.
In marketing, in order to find out where you stand, you need to conduct SWOT analysis, do market research. Basically, you need to have a baseline understanding of what and who your product/service serves in the marketplace. Moving along, let’s just say you are on your way to the mountain. Now, you need to decide which path you want to take in order to reach the peak of that mountain.
There will always be different paths; a path with curvy roads, a path that’s dangerous but quick, a path that requires help from others and so on. Since it’s your journey, you need to decide which path you want to take. Just because a competitor chose a path and succeeded does not mean that you also have to walk the same path.
Every path is different and every path leads to changing or adaptation of your product/services. For this, you will require the understanding of Segmentation, Targeting and Positioning (commonly known as STP). How you position your brand depends upon whom you are targeting and how well you have done the segmentation to reach that target.
You know where you are, you know which path you want to take so now the final question is how do you get there. You need to decide on the marketing channels you want to use, different product lines for different customer segmentation, the pricing strategy, differentiation strategy and how you communicate that to the target audience and so on. After doing all the hard analysis part, the road becomes much clearer as you begin unfolding the challenges and knocking them down one by one until you get to the top of the mountain.
Market segmentation analysis is basically the process of grouping customers into segments who share similar needs. It can be done in basically two approaches – either through common sense segmentation or data driven segmentation. One leans more towards being intuitive and another leaning towards customer survey and analytics. The step-by-step process of MS analysis goes like this:
First step is to decide what not to segment. We might think like our restaurant is for everyone and that might even be the case. However, let me give you an example. If your restaurant is a family theme restaurant then the food should be prepared accordingly, the seating should be arranged accordingly, the music and the ambience should be set accordingly. If in this example, youngsters and college students start to hang out more, the whole restaurant will fall apart.
This could mean two things. Either the area that the restaurant is opened has a lot of foot traffic from students which means there are colleges and universities nearby. Or, maybe the restaurant attracts more younger people as opposed to the customers we are targeting.
Second step is to sketch your ideal segment. Whom do you want to target? Make a detailed customer profile which describes their age, gender, hobbies, income level, preferences and so on. The more precise it is, the easier it is to find those types of customers for the restaurant. Once you have an idea on whom to target, you should start collecting data.
You can either hire a sales team to gather information around the locality or do it yourself. Prepare a questionnaire which contains questions which ends in Yes/No answer or rating from 1 to 5 scale. You need to include specific questions which will help you to understand the customers and their preferences.
Then you start to go through that data and see whether there is a market for your target audience. For example: If you have a question on whether they prefer family restaurants over other restaurants, and the majority answered No. You might have to avoid opening a family theme restaurant as there isn’t much market for it. You can also decide to go against the data and open a family style restaurant that challenges the traditional notion.
Moving on, we now have our hypothesis on what we want and also what the customers want. We will try to overlap the common theme and then work for the remaining ones. Suppose your target audience is office workers and a lot of office workers actually love the idea of having a restaurant which caters to them, this is a plus sign. You have just proven your hypothesis and now you can focus on other aspects such as lighting and seating and so on.
Once you have selected the target segment, you need to start developing a marketing mix for that target segment. Marketing mix, commonly known as 4P’s, focuses around price, place, promotion and product. Having a target segment will make it easier to build upon these marketing mix. For example: Knowing that our target market is office workers and business people, we can increase the prices of the food since they are willing to pay more than the average consumers. We can open restaurants near offices and corporations to increase foot traffic. We can promote our restaurants by introducing special offers and packages for office people. We can sell healthy food items knowing that office people need to work longer hours and need carbs and healthy nutrients.
As we have already discussed market segmentation analysis and the step-by-step process of conducting the analysis, now we move on to the principles of market segmentation analysis. There are certain principles that you need to follow while selecting a target market audience.
The first principle states that there are hundreds of solutions. If you want to target college students to open up a cool cafe that they would love, you can still do that and maybe shift the target audience towards entrepreneurs and freelancers who want to connect with each other and socialize. You should never be restricted within what you think is possible. Gather as much information as possible from the local community, look at other restaurants, count the foot fall traffic within that area. Before investing your hard-earned finances into this, try to invest your time and effort towards understanding the market.
The second principle states that most segments actually do not exist. If you decide to target a family in a location where there are lots of consultancy and colleges, the market size for that audience will be significantly lower. Similarly, if you target high income earners and the restaurant does not even have a parking space, most of them will not come to the restaurant. You need to make sure that everything aligns from the location to the ambience.
The third principle states that you need good quality data. You might ask, what is good quality data? It is something that is relevant, collected with scientific reasoning, serves a purpose and has little to no biases. If we have an idea of what the target audience should be, we always tend to search for information which confirms that idea, commonly known as confirmation bias.
We need to make sure that the questions that we ask are unbiased and help with the context of selecting the target audience which is later compared with the hypothesis. Similarly, the fourth principle says that it has to be dynamic. Dynamic, in the sense, that if the target market that you selected is working right now does not necessarily mean that it will still be relevant after a year or so.
We always need to be keeping up with the current restaurant trends, consumer’s eating habits, what they love and what they don’t. It does not have to be something that completely changes the menu; adapt to the market and gather positive or negative feedback. For example: You can start adding menu items based on what the consumers loved and let me taste a quick sample. Gather data on that new menu item and once there are enough positive responses, launch it.
The fifth principle states that one segment is enough. There is a saying “If we try to please everyone, we actually please no one.” If that one segment has enough market size and that the target market actually loves the restaurant, that alone could be the differentiating factor. Your profit will only go up because you actually serve the customers whom you are targeting, and they come to the restaurant because they feel like the restaurant understands or values their opinion.
The last but not the least principle states that you need to keep it simple. I know this sounds counter-intuitive. I have given a step-by-step process on how to conduct market segmentation analysis and also told you about the principles of MS segmentation and this is really confusing. To be honest, it is supposed to be complicated so that once all the complications are cleared, you are left with the true essence; the ultimate target segment.
I want to start by saying that marketing starts with differentiation and differentiation starts with the product itself. Whatever I am selling in the market needs to have some kind of value to the target customer or else they are not going to come to you. In the restaurant business, there are restaurants on every block of the city. We are able to order food online without any hassle so restaurant owners really need to dive deeper into why people should come to your restaurant in the first place.
The product needs to be different from that of its competitors. If the location is pretty much the same, if the taste is the same, if the service is the same; people will go to the place that is cheaper and within walking distance. I will not travel for 30 minutes in order to eat at the restaurant which serves similar taste that I get from the restaurant next door.
Even if your restaurant is the cheapest option, I would rather pay a little more in order to save the commute cost. Conversely, we see restaurants that are opened in the middle of nowhere, however the place is so great that people travel for great miles in order to dine in that restaurant.
We can take the example of restaurants such as Sasa and Lahana which are quite far from Kathmandu and still people go there in order to taste authentic Newari cuisine. That’s how much people are willing to do, in order to have an amazing experience. You need to be able to create that experience in your restaurant.
Moving on, you need to have a proper value proposition. What value do you provide to the target market that other restaurants have not been able to give? It could be in terms of products such as ingredients used, the method of production. It could be in terms of the market itself, making it as convenient and accessible as possible.
It can go along the line of distribution and pricing. If the packaging is good or the pricing just hits the spot, I am more likely to return to that restaurant. Last but not the least, the most important value proposition should be the service itself. Quality must be maintained, the food must be served hot, the staffs should behave properly, the ambience should be great and so on.
Positioning is an expression of how a product with differentiation fills the need of a particular customer segment. If your restaurant does not stand out from the rest, it means that you do not have any positioning advantage. People have the freedom to go to any restaurant and the probability that they will come to you will be based purely on luck.
Whereas, on the other hand, if we flip the scenario and your restaurant is one of a kind that serves authentic and special handmade Italian pizza with thin crust and flavorful toppings. Pizza lovers will definitely want to come to your restaurant for this experience and this is how you can position your restaurant as the best pizza restaurant in the town.
Without positioning, people will lack the top-of-mind awareness of your restaurant. Even if they had seen an ad on social media or the billboard, people are not going to remember about that for very long. Customers don’t know how your product is different from others, and what needs should be fulfilled. Without positioning, your restaurant has to compete with every other restaurant in the town.