Five steps to define a target market with high potential

Is a market big enough to justify the time, money and effort to go after it?

It’s a question that many business-minded folks are faced with when exposed to ideas coming from creative minds (technical or otherwise). A typical conversation here would be of the type “we have this new iPhone accounting app for dentists…how big do you think the market could be?”

There are two problems with this question. First, who might know? Certainly not the people that sit in the room or the building with you. They are not the target customers and they do not have a crystal ball. The answer lies outside the building, with your target customers. Only they can tell you if they are interested in what you suggest. Which brings us to the second issue: it’s a product-centric question, and one that you can’t even begin to answer without a lot more information. At what price? Distributed how? Supported by whom? With what level of quality or performance? What is the competition? Etc.

So you go and try to find how many medical accounting apps exist in the app store and what their volume is, what your share might be, using your guess of the total number of dentists with a smartphone as your ceiling potential. This is a “glass half-empty”, (or red ocean) approach, with an underlying assumption that the market is going to be too small, until and unless you can demonstrate otherwise. You accept barriers to adoption that thin out possible customers, and you try to build your way up by tweaking (ie. hoping) that you can convince more people to go through your barriers. What you are left with all too often is a narrow group, a market dead-end.

A better way is to take a “glass half-full” (top-down) approach, ask customer-centric questions, and assume that your market is undeniably large to start with (a blue ocean perspective). Then slice your market in subsegments by introducing a targeted (niche) benefit so valuable that it will more than compensate for the smaller market size. Question the need for (and brainstorm ways around) any factor that cuts your market size without adding a strong benefit. What you will be left with is a niche market with high potential for a product that has high potential value to the audience.

Here is a 5-steps approach to scoping a sizable target market:

  1. Start from the largest known uber-market you aim to serve. It could as large as “Consumers” or “Health care professionals” or “K-12 schools”.
  2. Add a strong benefit that will resonate with a portion of your audience, and will increase the success of your offer enough to compensate for the lower market size
  3. Categorize the non-selected portion of your market as either “parallel target” or “non-target”. Would a secondary subsegment be interested in your offer with a minimal change to the product (or distribution or marketing or business model, etc)?
  4. Challenge a limiting market constraint that is not linked to a strong customer benefit. Look for ways to avoid the constraint or to turn it around into a strong customer benefit.
  5. Loop back to #2 as necessary
Going back to the example of the iPhone accounting software for dentists, you would:

  1. Start with all independent (non-payroll) professionals (22.5M in the US)
  2. The smartphone requirement cuts the market by ~50% but would be justified by the convenience and business impact of professionals having access to their accounting data anytime anywhere.
  3. For professionals without smartphones, you could consider the possibility of bundling a smartphone in your offer, or partnering with a cell carrier to include your software with a new smartphone subscription. You could also look at providing your accounting package in the Cloud to users with a PC.
  4. You should challenge the iPhone requirement. From your audience perspective, does the iPhone present a significant benefit over Android? Or is your product substantially appreciating in user value because it is exclusive to the iPhone? More than likely this limitation is product (development) driven, and you should consider adding relevant smartphone platforms to your realize the potential of your target audience.
  5. You would go through the same analysis for the decisions to target health care (vs other industries) and then dentists (vs other medical professionals). Those decisions cut your market down by 100 (there are 250,000 independent dentists in the US). Are you able to deliver something so compelling to these dentists that they value your product 100x more than other professionals? Or can you categorize many other professions as parallel markets that you would address after you’ve demonstrated success in your initial niche of dentists?
Having a well defined target market is an important criteria for business success. Aiming for too narrow a market is a recipe for disaster. By matching each limiting market factor with a valuable audience benefit, this approach will help you aim for high potential niches and avoid market dead-ends.

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