#2 Identifying Target Segment & Market Sizing
Understanding the target segment for your Startup;
Understanding the target segment is important for succeeding. One of the key things entrepreneurs should keep in mind, as they start up, is to stay focused. It is best to choose a smaller segment of customers within the overall market and serve that one segment really well. Before you start your startup, defining the one customer that your Startup is going to serve is very important. Your understanding of that one customer will help you plan your product and marketing correctly. While considering the target customer for your own Startup, below are the things to consider:
- Market segmentation is a marketing strategy which involves dividing a broad target market. Market segmentation can be based on:
- Geographic factors (region, city, rural)
- Demographic factors (age, family size, gender, income, occupation, education)
- Behavioral factors (benefits, attitude)
- Is there a target segment where you can offer the customer clear and fascinating benefits at a price they are willing to pay?
- Are these benefits, in the customer’s minds, different from and superior in some way to what is currently being offered by other solutions?
- How large is this segment and how fast is it growing?
- Is it likely that your entry into this segment will provide you with the platform to enter other segments you may wish to target in the future?
Sizing the Market / Target Market:
Once you have understood how to identify your target market. You need to understand how large is the market that you targeting? There are two broad approaches to size your market:
- Top-down approach: Here you understand and calculate basis the broad market, number of people, who consume, how much etc, to arrive at the total market sales
- Bottom-up approach: Here you understand and calculate basis the sales of a single entity or a business that is a part of the market, to arrive at the total market sales
While estimating the size of your market, you must make sure the data points come from valid, vetted or credible reports.
- Identify and assess your target segment
- Assess the attractiveness of your market by sizing the market using a top-down or bottom-up approach.
Build a consumer product:
When we were looking at market sizing one of the initial things was, we are going to build a consumer product but who do we build it for? And who we chose to build it for is the working couple. And basically, our thesis was that if we can make this product work for a working couple then we will eventually over time use cases for how different people want to use it. So we wanted to make a product where you think about a working couple, they basically are probably in the office from 8am to 5pm or 6pm everyday they have a one hour commute or a thirty minute commute. The sheer hassle is that during the week, going and making a trip to the market is something that is not very pleasant and they would rather spend their time doing something else and we came at the problem from that side. That let’s build a product that a working couple will actually be able to use for pretty much anything that they need in their house and if it works for them then we will figure out how it plays out for the other people.
Startup Story to Understand Identifying Target Segment & Market Sizing
Indigo Airlines – now this airline focuses on middle-class Indian households who are price sensitive and value on-time performance. Imagine if Indigo airline which is a low-cost no-frills carrier, started promoting luxury full-service flights to its target segment – would you say that it has lost its way.
Another example is of a startup iim jobs, every job they post is a premium job and their target audience are aspirational jobseekers from the best schools and colleges in the country. Hence they avoid posting jobs which would be base level – entry level roles that their target audience would find irrelevant.
For identify the target market Segment, need to ask two questions.
- Who are the potential customers who face the problem that you are trying to solve? (The problem you stated in the last segment)
- You learnt about the importance of staying focused and choosing a niche target segment. Is there a target segment where you can offer the customer clear and compelling benefits at a price they are willing to pay?
- Write point-wise definition of your Target Segments, and value propositions for each of them.