Go-to-Market (GTM) Strategy insights for business leaders who’d like to grow their business.
Back to basics
In this series I’ll explore the foundations of GTM Strategy.
Whether you’re looking to refresh your know-how, or expand your skills, this series is for you.
Market segmentation
In our last GTM Strategy, Back to Basics, we explored Product-Market Fit.
We discussed how important it is to “get granular” about each of your product’s markets. How to ensure that each of your products fits its market.
Market segmentation is one way of doing this. It requires you to:
- understand your market landscape; and
- break that down into manageable, focused groups.
You can then target each of these more effectively.
TAM, SAM, SOM
Three commonly used metrics to describe the market your organisation operates in are:
- Total Addressable Market (TAM);
- Serviceable Addressable Market (SAM); and
- Serviceable Obtainable Market (SOM).
But what do these terms mean?
From hypothetical, to real, to obtainable
If you are a visual thinker, it might help to think of circles within circles.
Your focus becomes more “immediate” and more attainable, as you centre in.
Your inner “target” being the customers you can easily access, or have already accessed, now.
TAM
Your TAM is your “universe” of potential customers. A total world of everyone whom your product could service. A dream world, without competitors or other constraints.
TAM can be useful for assessing the big picture; for longer-term planning and growth goals.
But TAMs should be used with caution. In the real world, real constraints operate. This isn’t a metric against which you should set out your stall (e.g. with investors). You will fail to meet it.
SAM
Within your TAM, is your SAM. These are the segments whose addressable needs your product can realistically “service” based on your current capabilities and resources.
Geography, product fit, and customer types, amongst other things, will delineate this.
Knowing your SAM will help to focus your broader marketing efforts, and define your SOM.
SOM
Within your SAM is your SOM. How much of your SAM you can expect to capture in a defined time, given your strategy and the competition.
This is the time-delineated obtainable. These are the segments you should target right now, given your strengths and market readiness. Your serviceable and obtainable market.
Knowing your SOM will help you to set short term business and marketing goals.
How to find them
Use what data you can to estimate each.
Market research data, industry reports, Government sources, and other secondary sources can help for a “top down” approach.
Your customer data, from surveys or interviews, for a “bottom up”.
Rough calculations are as follows:
- TAM: Total number of potential customers X Likely average spend per annum of each on a product like yours.
- SAM: Approximate number of potential customers in the core segments which are described as your ideal customer profile and adjacencies X Likely average spend per annum of each on a product like yours.
- SOM: Based on your market penetration strategy, the percentage of SAM likely to be in market that you could theoretically capture in one year. In other words, that % of your SAM.
Top and bottom
I’d recommend using both a top down and a bottom up approach.
The top down approach begins broad (TAM), narrowing down to the target market segments.
The bottom up approach begins with those target market segments (SOM), panning out.
Use the right metric
As noted above, each (TAM, SAM, SOM) metric serves a different purpose.
Regularly estimate, and understand the benefits, and the limitations, of each.
As your product matures, as your market understanding deepens, refine your segmentation.
Your aim is to build a clear picture of where your best opportunities lie.
Just imagine
This isn’t just statistics for statistics’ sake. Nor is it simply about where to target your marketing and sales resources.
It’s also:
- A way to inspire growth and problem solving. (How can you stretch your SOM into what’s currently your SAM? What is holding you back?); and
- A stepping stone in finding and truly understanding your customers.
In so far as you can, try to imagine yourself in the boardroom of one of your SOM customers:
- What organisational or technological constraints might they face?
- What world-stage issues currently impact them?
To step into your customer’s shoes, it’s useful to know who your “ideal customer” might be.
Next time
In the next edition of GTM Strategy, Back to Basics, I’ll look more closely at defining just that: Your Ideal Customer Profile (ICP).
In the meantime, if you’d like to know more about market segmentation or would like to chat about how Toggle Switch could help your business to grow, do please get in touch.