3 - TAM SAM SOM Market Evaluations

Summary

In this video, the speaker explains the concepts of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM), providing insights into market evaluation strategies. TAM represents the overall market demand for a product, while SAM is the portion of TAM that a company can realistically target, and SOM is the subset of SAM that can be realistically captured, considering competition and market dynamics. Using examples of LED lighting and a project management software company, the speaker illustrates how to define and assess these market segments effectively.

Takeaways

• 😀 TAM (Total Addressable Market) represents the maximum potential market size without constraints.
• 😀 SAM (Serviceable Available Market) is a subset of TAM, focusing on the market a company can realistically target.
• 😀 SOM (Serviceable Obtainable Market) narrows down further to the market share a company expects to capture.
• 😀 Understanding TAM helps businesses assess the overall revenue opportunity for their products or services.
• 😀 SAM considers specific characteristics and needs of target customers to identify viable market segments.
• 😀 SOM accounts for competition and market trends, providing a realistic view of achievable market share.
• 😀 The examples of LED bulbs and project management software illustrate how to apply these concepts in real scenarios.
• 😀 Companies should evaluate their resources and capabilities when determining their SAM and SOM.
• 😀 Market evaluation strategies are essential for developing effective marketing and business strategies.
• 😀 The process of narrowing from TAM to SAM to SOM helps businesses focus on reachable and profitable market segments.

Q & A

What does TAM stand for and what does it represent?

TAM stands for Total Addressable Market, representing the total market demand for a product or service, indicating the maximum potential market size without considering any constraints or competition.

How is SAM defined in the context of market evaluation?

SAM stands for Serviceable Available Market, which is a subset of TAM, indicating the portion of the market that a company can realistically serve based on its product capabilities and geographic limitations.

What is the difference between SAM and SOM?

SAM is the serviceable available market, while SOM stands for Serviceable Obtainable Market, which is a further subset of SAM that represents the market share a company can realistically capture, considering competition and other market factors.

Can you provide an example of how to calculate TAM, SAM, and SOM?

For a company producing non-dimmable LED bulbs, TAM would be the total worldwide LED market, SAM would focus on the non-dimmable segment, and SOM would quantify the realistic market share the company can capture within that non-dimmable segment.

What factors are considered when defining the SAM?

SAM takes into account specific characteristics and needs of target customers, focusing on market segments that are viable and reachable for the company.

How does a company determine its SOM?

A company determines its SOM by analyzing factors like competition, market trends, and its own capabilities to estimate the market share it aims to capture within its serviceable available market.

Why is understanding these market sizes important for a business?

Understanding TAM, SAM, and SOM helps businesses strategize their market approach, allocate resources effectively, and set realistic goals for market penetration and customer acquisition.

What role do competition and market trends play in defining SOM?

Competition and market trends influence the SOM by affecting the estimated market share a company can realistically achieve, guiding its strategies for customer acquisition and retention.

How might a software company define its TAM, SAM, and SOM?

For a cloud-based project management software company, TAM includes all potential customers needing project management solutions, SAM might target small to medium-sized businesses in specific industries, and SOM would estimate the expected market share within that identified SAM.

What additional materials are suggested for further understanding?

Viewers are encouraged to read available materials for more examples and detailed insights regarding the concepts of TAM, SAM, and SOM.