Most of us are familiar with the ‘Total Addressable Market’, or TAM. It is the number of buyers that could theoretically be convinced to buy a certain product or service. The finance guys like to see this value in dollars, the manufacturing and delivery people want to see units, and the sales folks want to see buyers. Let’s deal with buyers here because the other two are extrapolated from the number of buyers.
With me so far?
The TAM is a nice number when you are looking to tell a cool story but when you are trying sell, you really need to focus on the market segment that could really use your product or service – a high probability buyer. If you have a well-defined market segment – you’re well on your way.
But let’s take it one step further. Most people segment a market based on the product’s characteristics – ‘this will be a great fit with x’, and then include everyone who has that need.
But not so fast ...., if the market segment is large, which hopefully it is, how do you gain awareness, what do the sales tools cost, where do you buy your social ads?
Hyper Segmentation is the process of selecting characteristics of the buyers (not the product) to define how you position the product while ‘ignoring’ vast numbers of clients who are well suited to buy. Companies only have so much energy to focus on a market. By narrowing the beam, you can light up a hyper segment very easily. The result is faster brand recognition, lower cost of sales, higher sales conversion, accelerated revenue, and improved market dominance.
Let’s take a simple example: dog collars. Almost every dog needs a dog collar. There are 96 million dogs in North America. Let’s segment the market. Assuming our collar costs $100 to manufacture we will naturally address the high-income dog owners. A very large market but difficult to gain any traction. Now, what if we hyper segment that market. What if we focus only on high-income, single-female owners of German Shorthaired Pointers (and by the way there are 10,000 of them registered every year). Wouldn’t that be a whole lot easier to promote and get early revenue?
Even though the collar will fit all dogs, by hyper segmenting we can take a laser focus on all our go to market activities.
You may not be selling dog collars, but the principal applies to every market. Ask your marketing team about hyper segmentation. Or ask us – we’d love to help.