Total Marketing Strategy Example – Total Addressable Market (TAM) sizing exercises have become very popular for assessing business viability. TAM, however, is often miscalculated and misinterpreted. In this section, we will discuss how to calculate and derive subset waypoints for SAM and SOM. A working example will also be shown at WeWork.
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Total Marketing Strategy Example
Total addressable market (TAM, sometimes known as attainable market) is a type of market size that allows a business to define the total revenue potential offered by a product or service. The event will shed light on the level of effort and investment in the new business line, as it provides an indication of the extent of its economic potential.
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In finance, TAM has become an important metric and a creative way to calculate it has emerged due to the increasing speed at which new markets are emerging. Realization of Moore’s Law will shorten technological innovation and increase (pleasant) uncertainty about rapid market integration. As a result, a deeper understanding of TAM allows marketers to recognize the blurred lines between their markets.
The value of the TAM process is primarily in understanding the financial opportunity, but it also offers a secondary benefit:
In 2014, there was a debate between NYU professor Aswath Damodaran and investor Bill Gurley about the value of the latter’s investment in Uber. Gurley’s low rating was due to Damodaran’s reading of TAM, which assumed Uber was just a taxi/limo service. Gurley’s response was that Uber was talking to too many territories; was a transport business:
By choosing to capitalize on the historic size of the taxi and limousine market, Damodaran believes the future will look like the past.
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The example of Uber shows the desire of many companies today when they want to take over the market. Initially in the human context, Uber’s MVP and first offering was inside the closets, a small part of the transport services market in fact. The later introduction of the X, POOL, EATS and RUSH services showed a desire to address a wider market, which confirmed Gurley’s thesis. Uber’s research and development in self-driving cars and long-distance transportation shows it has no plans to stop its expansion. Unfortunately, there are no concrete plans for Uber to get into air travel/freight, so it’s not trying to capture all of its TAM.
The TAM will show the theoretical possible market for a product, assuming unlimited access to it and unlimited use of the supplier’s resources. This would only be possible within a monopolistic industry where one player has the resources and scope to serve the entire potential market. In fact, only government services and public services receive this bonus.
If it’s impossible to get 100% of TAM, why is it included in almost every pitch department? Well, TAM is going to throw in a big number that’s eye-catching and sparks conversation. But the devil in this detail will be in the second and third part of the TAM analysis; market available (SAM) and market available (SOM). The last measure is the most important; it shows exactly what the business wants to manage. It’s about finding the tip of the iceberg:
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Pitches may tend to ignore SAM and SOM and try to damage the TAM estimate by leaving it at that. By doing so, they often create broad and vague descriptions of customer service, such as “we’re targeting millennial smartphone users.” As a result, the lack of proper direction of TAM, SAM and SOM, taking into account customer segmentation and competitive dynamics, can lead to disappointing results and lack of product-market fit.
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To give the article some application, I will work on a specific example of TAM, SAM and SOM for WeWork. It is not only the most important and well-known company, but also the one that is outside the usual view of its market.
Note: I am out of the WeLive section (home) due to the difficulty of specifying two methods for different offers at once.
Above, we begin by asking “What is TAM?” The definition of a potential market is the expected annual sales in the target market. The fixed market calculation is simple:
The easiest and fastest way to find the TAM is to look at the technical data you have already collected. Independent research reports are expensive, but sometimes their headline numbers are released into the public domain via press releases. The advantages of using these numbers are based on the pragmatic side; they are quickly acquired and assembled by a highly skilled professional within the rules of the division of labor.
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Companies such as Gartner, Forrester and IDC research and publish industry reports delving into sectors, often with figures such as revenue potential and future potential. A quick search turned up a press release from Gartner that said the cybersecurity market was worth $8.6 billion in 2016.
The disadvantage of this method is that it is a black box in terms of how the numbers are calculated. If the salesperson asks you to defend the reasoning behind the number, the only defense will be, “Well, X is printed on it, so it works.” Creating your own TAM will give you a deeper understanding and increase the number of conflicting statistics.
The top-down approach takes the ethos that you start at the top of the macro data set and works away from that data to find a subset of the market. You start with the population and then use reasonable demographic, geographic, and economic assumptions to remove the irrelevant bits.
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The advantage of this approach is that accurate and open statistics can be obtained for macroeconomic data. Other sources to mention: UN, OECD, World Bank and CIA World Factbook.
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For example, if the recommended water intake is 1.9 liters per day and there are 7.5 billion people in the world. Using an average cost of $1.22 per gallon ($0.32 per gallon) and a required 20% margin, the TAM for bottled water would be:
7.5 billion people * 1.9 liters * $0.32 price per liter * 120% margin * 365 days = $2.01 trillion TAM
This method involves working at a granular level to find ways to increase the number of people. It is preferred to be more specific, because its foundation is based on the level of data, which can be expanded to reveal the integrity of the entire TAM. Primary collection methods (eg local market research) or secondary research (news, company files) can be used.
For example Tesco has a 27.8% share of the UK grocery market. Tesco’s latest results show that, for the year ending April 2017, it had a turnover of £35.9 billion (excluding gas sales with the Republic of Ireland). Putting these two together adds up to a UK grocery market worth TAM 129.1 billion ($167.1 billion) per year in 2017.
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The disadvantage of the bottom-up approach is that due to the large assumptions made from the small sample size, the TAM may be far off. This is especially true for global TAM calculations, where factors such as population, economic development, and consumer preferences vary greatly between countries.
Top-down and bottom-up approaches often examine existing paradigms and assume that a new contribution will fit within them. But how can one evaluate the possibility of, say, flying cars when flying cars do not yet exist? For products or services that can transform the market into a new world and/or provide added value to various customer groups, value theory may be the best option.
With value theory, one must assess how much a customer would pay for a product improvement/change. Such training would be useful when subscription music streaming services, such as Spotify, begin to emerge. At the time, customers paid a fixed price to buy music, but the added value of not having songs to actually “borrow” was the added value of having access to their huge library, with the typical prices we see now being $9.99. the month seemed to be more important. Relating this cost to the number of music listeners would show that TAM is more important than looking at how much money was spent on purchased downloads.
First, I will explain what WeWork is in a broad sense, I will delve into its actual position and service offering within the SAM and SOM sections. To that end, WeWork is in the market to offer an on-demand workplace to service workers: space as a service (SpaaS), perhaps?
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Among the three methods, I