Welcome back
In this sub-session, we're going to talk about target marketing
Understanding target market is also very important for the entrepreneurs
So without understanding target market, we cannot simply do the businesses
Target market
I want to give you some of the interesting examples about the target market
Do you know the Zappos.com?
Zappos.com is a specialized e-commerce website for shoes
And Zappos.com was created by one of the entrepreneurs
His name was Nick Swimmer
He had an idea to sell the shoes online
Then he created just a simple website
and take a picture around the shoes store nearby his house
Then just he uploaded this picture on website
And then just wait for the consumers
And surprisingly, so many consumers
place the order from the online
Once he received the consumer order,
then he visited the real shoes store
and just purchased the shoes from the real shoe store
And deliver these shoes to the consumers
who place the order through the online
This is a very, very small and experimental website
But later, the consumer base grows
and he needs some money
to make his business standardized and structured
We need some system, something like that
So he tried to generate investment
He tried to attract investors
So he met the investors finally
Then he said that,
well, our company sells shoes online and please invest us
This is his suggestion
Then the investors at that time, his name was Tony Hsieh
Then later he became the CEO of Zappos.com many years ago
But he passed away through the tragedy accident
So Tony Hsieh at the time, he was an investor
He responded to the suggestion of the next woman
Tony Hsieh said that, who would purchase shoes online?
Okay, to purchase shoes and we should try on it
But if we purchase shoes, how can they try on the shoes?
So my idea is nobody can purchase the shoes
Okay, it's a a natural reaction, right?
A natural reaction
Then the next woman responded to the criticism of Tony Hsieh like this
Well, in 1998, the US shoe market was worth $40 billion
and 50 of them were being sold through the mail-order catalog
Okay, catalog means 5% of them,
5% of the entire consumers
purchased the shoes anyway without trying on it
So even before the internet exists,
1 out of 20 pairs of the shoes was already being sold by mail-order
Then right now, we provide some alternative marketplaces,
which is online, e-commerce
So it's about just selling through the internet
what was being sold already through the mail-order catalog
So right now we have 5% of the entire shoe market
What do you think?
What an impressive, what an impressive, right?
So Tony Hsieh immediately understood the market side,
immediately understood the business
So Tony Hsieh said that, yes, what about $500,000?
Was $500,000 enough?
So he invested $500,000 right now
This is a very important, very interesting story
about understanding target market
So the next woman totally understood the market side
And then he has the ability
to persuade other people to understand the market side, right?
Let's move on to another interesting story
This is the Chinese glove problem
Okay, what it is?
Please support you guys as glove makers
so you are making gloves
And then your goal is to go to China
and sell your gloves to the Chinese people
it's a great market
because there are about how many people live in China?
There are about 1.4 billion
Yes, 1.4 billion people live in China
Huge population, huge
so your approach is good, right?
Then my question is, how much is your real market side?
how much is your target market?
Just think about a little bit, think about it
how much is it?
I want to go to China where 1.4 billion people live there
Then how much is my target market?
I'm the glove maker
Yeah, what about 1%?
let's say just simply 1% of the total market
we have 1.4 billion people
1% means 14 million
14 million people, right?
So, you target to 14 million
it's about 25% of the entire Korean population
Wow, it's still huge, huge scale, right?
So, you are going to just make a simple glove
and do the business with 14 million people, right?
So, is it done?
What do you think?
So, you're done, right?
And the 14 million is your target market?
What do you think?
Well, actually, there is a problem
What kind of problems?
We don't know what types of the glove you are making
We don't know it, right?
So, your glove can be, you know, wintertime's glove
winter glove
Ski glove
But think, not everyone in China needs those types of gloves
because, many Chinese people live in tropical area
which is very warm and very hot
They don't need the glove, okay?
They never use the glove
And then so many Chinese people don't know how to play ski
because they live in very hot area, right?
What do you think?
So, we get rid of those types of consumers
So, you are not targeting 1.4 billion, as an entire market, right?
And also, think about it
You know, if your glove is examination glove for the hospital,
then your consumers are hospitals, okay?
It's not university
It's not just workplaces
Just normal workplaces don't need your types of your gloves
Only just the hospital need your glove
So, based on their usage, based on the consumers' preference,
your target market can be different
And what about income level and buying habit and cultural differences?
based on these, unknown factors,
based on these unknown factors, your target market can be different
So, this Chinese glove problem teaches a very critical lesson
What it is?
Large population, does not automatically mean the large market
As an entrepreneur, we must avoid these types of traps
These types of traps of total population equal your consumers
Instead, we need to define a realistic and reachable
and possible segment based on your product
and based on your consumers' preference
and consumers' usage, consumers' need
We say it is a target market, okay?
It's a target market
that means we need to identify
who actually needs your product
Before then, you identify what is your product
and who actually needs your product or service
and who is willing and able to pay for your product
And where they are living
And how can you reach them
How can you reach them
So, this is all about the target market
now we understand what it is, right?
As we discussed before, the market is a set of buyers
But more important thing is
the buyers have several groups,
several different groups of buyers exist
So, for example,
there are total theoretical market, entire market
like the China, in China, 1.4 billion people
These are entire theoretical market
And among the theoretical market, there are sub-market
and among the sub-market, there are addressable market
And among the addressable market,
we can target a certain market
So, the target market consists of several different layers
We say it is a target market funnel
Again, target market funnel consists of four different layers
from the total theoretical market,
sub-market, addressable market, and target market
What is the total theoretical market?
It is the entire, all potential consumers
Sub-market, among all potential consumers,
sub-market refers to the set of the buyer with the interest in your product
Only the people,
only the consumers who has an interest in your product
And among this sub-market,
addressable market refers to the set of the buyer
who have interest and access to your product
Again, they have interest in your product and also they can access your product
For example, if your product is a mobile application
then addressable market
should have some interest in your mobile application
as well as they can access your product
it means they should have smartphone, they should have cell phone
Without cell phone, they cannot access your product,
although they have an interest in your service or product
Do you understand that?
this is a addressable market meaning
And among the addressable market, you just put
a very critical or very specific criteria, one or two criteria
to identify your target market
This is a a target market that you decided to capture
from the addressable market
So, now you understand what is the target market funnel
so now, we are going to apply the target market funnel
into the real world startup
Let's look at it
This is a target market funnel again
And I'm going to apply this concept to the LinkedIn businesses
You know the LinkedIn, right?
LinkedIn is a specialized social website, social network
Specialized social network company for a job
So you can find out great job opening from the LinkedIn
And also, you can upload your profile so that
the companies can recruit the jobs the job candidate
So, this is a LinkedIn
So, when the LinkedIn started the businesses,
they probably conducted the market, the target market
Conducted the research about target market
And then they started in America
At that time, how many people live in America?
Because the total population in America would be
the total theoretical market
So, how many people live in America?
Yes, at that time, just 320 million people live in America
This is a total theoretical market
of the LinkedIn at that time
right now, the population increased a little bit
But, when the LinkedIn started in America,
there are 320 million people live there
And what is the soft market?
Among the theoretical market, we need to identify the soft market
the soft market means
any set of the buyers who are interested in your product
so who will be interested in the LinkedIn types of the social media?
social network, I'm sorry, social network website
about job seekers, of course
Because LinkedIn is a special type of
social network website for the job seekers
how many of them?
So, we can figure out how many of them
So, roughly maybe 70%
71% of the entire population would be job seekers
And they are interested in job
although they have a job, they can seek for the new job
So, 71% of them, 71% of them are job seekers
How many? 226 million people
then later on, we need to figure out addressable market
Addressable market means any set of the buyers
who has an interest and also can access to your product or services
What is your product LinkedIn?
Hey, LinkedIn product is social network service
Social network service means, so how to reach your service?
in order to reach your services,
they should use social network services
They should have an account of the social network services
And they should be familiar with the social network service
So in this case, we'd better identify
how many people use the social network service
it is called as social network services, penetration
this is a social media, social network penetration was around 60%
So, how much of them?
60% out of the served market, right?
60% out of served market
can use the social media or social network
How many of them? 126 million people
Among the 100 million people,
we finally identified our target market
so we started, we started to serve the market
How many? 126 million people
among them, who would be our real and ideal target market?
because we are targeting some qualified job seekers
In order to meet our consumer need
we target to the educated people
Educated, at least, high school graduate
Okay, wow, great
So, how many of them?
How many of them?
amongst the rest of the market, 87% of them
87% of American people graduate high school, at least
So, then we can apply 87%, to the addressable market
Then we got 110 million people as our target market
so based on this target market, LinkedIn started their businesses
And then they achieved the actual demand
How much?
Actual demand was 111 million
So, their target market was very close to their actual demand
this is a target market funnel
And now you understand how to calculate your target market
Again, your target market started from theoretical, total theoretical market
Then you identify your, served market first
Then identify addressable market from the sold market
Then later you put your criteria one or two, critical criteria
Then you figure out your target market out of your addressable market
Like LinkedIn, right?
but these days, in the real field of the startup
the startup companies use the simplified version of the target market
the concept of the target market funnel was great,
but a little bit complicated
so that's why these days, so many startups have simplified this
traditional target market funnel into the TAM-SAM-SOM
Okay, have you heard about TAM-SAM-SOM?
In the previous traditional,
the target market funnel has four different layers
from the total theoretical market,
served market, addressable market, and target market
But the TAM-SAM-SOM has just only three layers
So,TAM-SAM-SOM
let's look at the meaning of the TAM-SAM-SOM
TAM is the total addressable market
Total addressable market means total market demand
total market demand
It can be entire population or it can be similar to the served market
in the previous traditional, target market funnel
So, the TAM in this case, TAM can be located
somewhere in between total theoretical market
and served market
In a traditional target market funnel
What about SAM?
SAM is serviceable addressable market
Serviceable addressable market
serviceable addressable market means the market you can sell
Compared to the traditional target market funnel,
SAM can be located somewhere between
served market and addressable market
In a traditional target market funnel
And what about SOM?
Some is serviceable obtainable market
this market is about the market you can realistically capture
realistically
It can be short-term goal
This is very similar, somewhere between,
addressable market and target market
in a traditional, target market funnel
Anyway, you should, you'd better get used to this type of concept
because these days so many people use the TAM-SAM-sum
instead of a traditional target market funnel
let's take an example from, previous Japose.com case
So, Nick Swimmer said that
total market, total market term, total market was how much?
Do you remember that?
It's a $40 billion market
$40 billion in 1998
U.S. shoes market worth $40 billion
Do you remember that?
so among the $40 billion, among the $40 billion,
just five of them, five of them are mail-order, mail-order purchase
five of them
5% of them, 5% of them are mail-order purchase
So, we can calculate, we can simply calculate 5% out of total market
How much is it?
$2 billion
So, the SAM was $2 billion
SAM was $2 billion
And what about SOM?
What about SOM?
So among the 5%, among this $2 billion,
mail-order catalog purchase,
we just target to realistically, realistically,
we can capture just at least 1% of $2 billion market
So, how much is it?
Just $20 million
So, our SOM would be $20 million
it was based on our assumption of just 1% out of SAM
Wow, what do you think?
It's much simpler, right?
It's much simpler than the traditional target market funnel
let's take another example, which is Airbnb
Do you remember the Airbnb?
So, the Airbnb's TAM is a little bit different from
the japost.com's TAM
japost.com calculated this entire total market as dollars
as money, money that consumers spend
But Airbnb calculated
total market based on the numbers of the trips
they calculated how many trips take place a year in America
So, 1.9 billion trips occurs in America
they calculated 1.9 billion trips occurs in America
this is a total market
Among this total market, they calculated SAM
Among the total market, just budget travelers,
or the travelers who care for the efficiency
no luxurious travelers
no hotel users
just budget travelers
who can use the bed and breakfast, who can use a motel
something like that
So, how many of them, and those types,
they calculate those types of trips as 532 million trips
532 million trips are a budget traveling
Okay, which is great, right?
And the SOM, he 532 million trips,
we can just realistically capture, what about 2% of them?
2%
In this case, we easily calculated 2% of the SAM,
then we can get the SOM
How much?
10.6 million trips
so we target to the 10 million, basically 10 million trips
then we can get some small commission from the 10 million trips
Then we easily get our revenues
expected revenue
This is a very simple version of the target marketing,
TAM SAM SOM
Let's move on to another example
What about the Grab?
Okay, you know the Grab
If you are in Malaysia or Indonesia or Singapore
probably you are very familiar with the Grab
Grab is like the Uber, like very similar to the Uber, the specialized Uber in this
Southeast Asian countries such as Malaysia, Indonesia, etc
So, how many of the entire markets
Then, in this case, the Grab calculates the total market
based on the money, money that people spend
So, they calculate the TAM
as the money that people spend for the taxi service
How much is it?
Entire, Southeast Asia,
entire market was maximum $20 billion market
this is a taxi market
Taxi market was $20 billion market
When they started businesses
what about SAM?
out of total market, total market TAM,
and then they focused on serviceable market
They focused on serviceable market as Malaysia only
So, we focused on Malaysia only,
which is urban area, urban taxi users in Malaysia
So, then they quickly calculate the money that
urban taxi users in Malaysia spend for the taxi service
So, it was just $1 billion
it was maximum 1 billion then among this is some SAM,
the great founders, realistically
The capture just 2% or 1 or 2% of the SAM
then they easily calculated 5 million to 10 million dollars as a SOM
because we are able to
realistically capture the 1 or 2 percent from the SAM
So our SOM would be 5 million or 10 million
What do you think it can be very easy, right easy follow
You can follow the TAM SAM SOM very easy
Then you can apply this concept in your startup
So I suggest you guys to apply
TAM SAM SOM principle into your businesses
How to use it?
The step one
Step one is you need to define your business idea very well
What is your product services
and what problem your products are
So for example, if you are
producing or delivering on-demand tutoring application
for high school student think about it
This is your product services again on-demand
the tutoring application,
through our mobile, mobile phone right for the high school student
This is what is your Product service is
So the step two
You need to identify your total addressable market
total addressable market
So ask yourself, what is the broadest possible market for your service in product?
And who are all potential consumers?
what is the total market size in dollar based or in user basis
in your product in this case
hypothetical product was on demand
The tutoring application for the high school student
So suppose that you target to the global market
then how many people over there?
How much they spend,
how many days how much they spend for the tutoring service?
We just calculated and all student aged 12 to 18 worldwide
and then they spend 50 billion dollars for the tutoring service
So there are 50 billion Industry exist already
So this is a total addressable market which is 10
for your hypothetical services
And then step 3
Once you identify your TAM you now you identify your SAM
SAM is the service of available market and you ask yourself
Who can you realistically serve your services today?
in order to get this answer,
You need to consider a geography and language and regulation or
tech assess accessibility, etc
For example, your services on demand
tutoring application, then your SAM
Your SAM would be
urban high school student in English-speaking countries
considering all the factors such as
geography language regulation or tech
considering all the factors
and you just figure out your SAM would be
urban high school student in English-speaking countries
and then how much they spend for those types of service
Yes, five billions
So the five billion market exist as your SAM
So the last step is to identify
your serviceable obtained market, which is the SOM
What portion of the SAM can you capture
realistically in the near term?
Near term means
In the near future one or three years
So how many consumers can you realistically acquire in next
one or three years?
This is SAM
What about your hypothetical cases in this case, online tutoring?
On demand tutoring the mobile application service for high school student
You identify five billion dollars as SAM
What about just 1% out of SAM?
Then you got your SOM, how much is it?
1% out of 5 billion
You just target to the 50 million dollars as a SOM
So you're target market would be 50 million dollars market
What do you think? It's a pretty simple, right?
And can you apply the TAM SAM SOM principle?
When you calculate your target market, don't be afraid to apply
TAM SAM SOM principle
It will be very helpful