No business can be all things to all customers! Investors look to see that you have properly segmented your market.
This second article in the series on writing a successful marketing plan will focus on market segmentation - which is critical to understanding your Served Available Market. What is a Served Available Market (known as a SAM)? It is the portion of the TAM (Total Available Market) that your product or services can fill. For example, if you have a market TAM of $100B for all widgets but you make red widgets only, then you need to find out the portion of the overall TAM that is red widgets only.
In our simplistic example, the market segments would be red widgets, green widgets, purple widgets - you get the idea.
The task is a bit more complex for real world products and services. If you are a marketer for a Business-to Business enterprise (B-to-B), then you want to classify the businesses you sell to by end product, size, market share, and geographic location. Examine each of these potential segments, and see which classification scheme makes sense. If your customers in Boston have roughly the same needs as your customers in Shanghai, then a geographic segmentation is not a differentiator. A common segmentation for B-to-Bs is whether their end product serves the high, low, or middle end of the market price and quality-wise.
You can also segment by business model. In the software world, you can segment by whether your end customer sells mostly to enterprises with multiple seats, over the Internet via downloads, or through retail distribution centers to consumers.
If your business serves John Q Public directly, then you can segment by demographics (age, affluence, geographic area), interests, occupation, etc.
There are many ways to segment, so it is best to brainstorm all the possibilities first, and then choose the categories that make the most sense.
For our construction business, we segmented our market into Residential Remodels, Residential Additions, New Residential Construction, Public Works, and New Multifamily Construction.
After you have your segments identified and your potential customers classified into each one, you need to size each segment. This is a bit tougher than coming up with a TAM number, and will require reading some 10-Ks, research reports (or press releases if you can't afford the analyst reports), and trade rags.
Compare the largest segment of your market to the segment most of your customers (and potential customers) fall into. Are they the same? If not, consult your competitive analysis and see if a major marketshare player currently dominates this segment.
Smaller companies are better off finding a lesser served segment and developing a strategy to dominate it than to go head to head with the big boys - unless, of course, you have a unique defensible advantage covered by either patent or key talent in your team.
Choose which segment you plan to dominate, and be very clear as to why and how you will win in this area.
Next, calculate the numbers for what percentage of each segment is winnable. Add them up, and this constitutes the Served Available Market for your company.
Go back to the first chapter you have written in your Marketing Plan, and add your numbers in chart form with full explanations and rationale for your SAM into the section.
Reread the entire section, and make changes if some of your earlier assumptions don't make sense any longer.
Remember, one of the keys to being a successful marketer is FLEXIBILITY! It takes many iterations to arrive upon a workable, successful marketing plan.
Stay tuned for Part Three - to come!
