In the context of formulating a business growth strategy, the problem of market definition involves two basic questions:
1) What should be the scope of the market served by the business; the served available market (SAM)?
2) To what degree, and how, should multiple strategies be employed for distinct target markets within the served market?
Through a combination of choice, necessity, and trial and error, the management team defines its served market by selecting, from some range of possibilities, what kinds of customers it will try to serve; what kinds of products or services it will offer – taking into account both the business’ capabilities and available technologies; what geographic area it will cover; and at what level of production and distribution it will operate.
The choices involved in the definition of served market scope are not always arrived at through conscious, deliberate decision making. For many businesses, especially for small single-product companies, resource limitations severely constrain the range of possibilities.
ItStrategic Market Definition seems highly unlikely, for example, that a small or mid-sized company (or even a larger one, like Dell) could seriously consider a strategy of competing with IBM across the board. Often, the scope of a business’ served market is something that is determined through a trial and error process over a period of time. Individual decisions to accept orders from a new type of customer or to add a product to the line may be handled opportunistically. This is not, however, the best way to determine what the scope of the served market should be. How should one go about defining the scope of the served market?
Defining the Served Available Market
With these qualifications in mind, consider the question of defining a business’ served market as a matter of strategic choice. What are the possibilities? The following list some of the more commonly used approaches:
1) Breadth of product line; will you have a specialized technology with a broad range or product applications or will you be specialized in product uses with multiple technologies?
2) Types of customers; single vs. multiple customer segments. If multiple, will you have an undifferentiated treatment of these segments (same product / service) or a differentiated treatment.
3) Geographic scope; local, national and/or global
4) Level of production and distribution; raw or semi finished materials, finished products, B2B or B2C – wholesale or retail distribution
As you’re deciding on a market, also consider these questions:
- Who precisely are the customers? Can I develop a profile? Are there enough customers that fit my criteria?
- What are their needs; will they benefit from my product/service? What products or services do we offer (or need to offer) to meet their needs?
- Can these products/services be provided efficiently, profitably, and at an acceptable level of risk? What resources does we need to deliver these products/services?
- Do I understand what drives my target to make decisions?
- Can they afford my product/service?
- Can I reach them with my message? Are they easily accessible?
While defining a business’ served market may be a difficult undertaking, it is an important step in the development of a business growth strategy.