6.2.  Sizes, Segments & Trends

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The Guide > 6.  Profiles of Target Markets > 6.2.  Sizes, Segments & Trends

Describe the specific markets where the business operates and/or plans to enter. Explain how they have evolved and how they are segmented. Explain any historic shifts in consumer, product and technology trends and review any regulatory or structural restrictions on trade.

Claiming to have a unique offering is not an excuse for not doing a market assessment based on comparable indirect offerings. If target markets cannot be assessed then it is improbable that they can be sold into.

Use simple tables and charts to illustrate key points and to analyze structures and trends. Place detailed analyses in an appendix.

Here is an example of a simple table reviewing the size of key segments within an established market during the last four years:

Key Segments

20XX
($m)

20XX
($m)

20XX
($m)

20XX
($m)

Segment A

 

 

 

 

Segment B

 

 

 

 

Segment C

 

 

 

 

Other segments

 

 

 

 

Total market

 

 

 

 

 

Highlight the segments you are targeting and drill down into them as illustrated in this chart which breaks the total market into excluded, unserved and served low- and high-priced segments. Discuss channels of distribution, promotional methods and marketing expenditure levels within the served segments.

 

In some cases, it will be very difficult to analyze or segment a market because it is new or poorly researched. In these circumstances review proxy or adjacent markets to gain insights in demand for similar offerings or related solutions and use the results to make inferences about the target markets.

Another method that could be used for business-to-business offerings would be to identify or quantify key prospective purchasers within the target market, estimate the theoretical value of their purchases and then scale this back to take account of the early purchasers and so on. Here is how this might be approached:

Variable

Worst Case

Best case

Most Likely

Estimated number of likely prospects

200

300

250

Theoretical value of "typical" contracts/prospect ($000)

50

100

75

Theoretical size of market ($000)

10,000

30,000

19,000

Time interval for market to develop (years)

5

7

6

Annualized market size after 2-4 year ($000)

2,000

4,300

3,200

Guesstimated market size during initial growth phase ($000)

500

1,000

750

Estimated actual current market size based on pilot sales ($000)

50

50

50

 

Whilst this assessment is very speculative, a major benefit of having a limited number of prospects is that they can be individually identified for marketing purposes.

This "bottom-up" approach could also be used to help determine the size of a market within a heavily trafficked market segment. For example, if planning to open a restaurant within an established major shopping center, it should be possible (by simple observation) to assess the number of existing outlets, their table numbers, utilization rates, menu prices and favorites and thereby determine the size and segmentation of this local market, in value and volume terms.

In other circumstances, the market may be so big or broad that measurement might appear pointless, for example, the world market for video downloads or the US market for medical drugs targeting specific diseases. Here are two approaches that could assist:

1.Identify comparable-sized businesses and assess their size and progress within the market. By adding together their combined sales, an assessment can be made of the size and structure of the relevant market segments.
2.Assess the cost of customer acquisition or conversion rates and relate this to planned marketing expenditure, strategies and plans. For example, in the downloaded software business, the conventional wisdom is that about 1% of downloads result in a sale. Based on this yardstick, the amount of traffic required to secure a predetermined level of sales could be assessed. In turn, the likely sources of this traffic (e.g. web sites, directories etc.) could be identified and planned expenditure on acquiring traffic passing through these sources could provide a basis for sizing and segmenting the relevant channels.

Never ever base your market assessment on superficial generalizations like "According to well-known research firms, our market is growing at 100% a year and will reach $10 zillion by 20XX".

 

For latest information, see the Target Markets section in the Business Plan Guide at http://www.planware.org/gmarkets.htm

 



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