Market Segmentation – TAM SAM SOM
Market Segmentation
When launching a product or service, it may be tempting to go after the entire market. Unfortunately, that is usually not practical. This is where TAM SAM SOM comes in
TAM – Total Addressable Market
SAM – Serviceable Addressable Market
SOM – Serviceable Obtainable Market
The Total Addressable Market, also known as the Total Available Market, is everyone who may buy your product or service. It is the total revenue opportunity. This market is huge and impossible for a new company to properly service due to size, geographic diversity and many other factors. Further, are you able to service the entire market? Let’s imagine you are selling cell phone cases. Will you sell cases for every type and model of phone?
Realistically, you will only sell cases for recent models of popular phones. You may even choose only to sell cases for iPhones or Android devices. For this example, we will assume you are only selling cases for iPhones. The Serviceable Addressable Market is that portion of the total market that your company can service with its existing product and services. This is the market you can readily reach based on current abilities, geographic location and other factors.
Within the Serviceable Addressable Market is a smaller segment called the Serviceable Obtainable Market. In the Serviceable Addressable Market you will find competitors offering products and solutions similar to yours in some way, either by features or by the problem they solve. Because of market competition, the reach of your company, the size of your company and other factors, your company is only able to serve a portion of this market. This is your Serviceable Obtainable Market.
Your Serviceable Obtainable Market is made up of the geographic areas you can reasonably serve, the amount of products you can produce for sale given your company size and the amount of market share available. Everyone with a late model iPhone could be a potential customer but will all iPhone uses want a case? Further, why should they buy from you? The market for cell phone cases is huge but your share, your obtainable market, is small because of ample competition from other phone case sellers and Apple itself.
What sets your case apart? The custom design? The quality of material? The strength of the case? Price?
Always consider what makes your product or service unique in your obtainable market. Being unable to distinguish why customers would buy from you will not impress potential investors or resellers.