Market Share vs Addressable Market
This article highlights a unique way to view your potential customer base.
Addressable Market
Basic business sense tells us we should strive for market share so we can control pricing. Market share is a worthy goal if your objective is to maximize your profits. However, if your primary objective is to increase the value of your company, you want to be able to communicate that you have relatively low market share across the entire addressable market. In other words, there is plenty of field left to plow.
Consider the following ways you might expand the way you are currently thinking about the addressable market for what you sell:
Demographics
Demographics involve segmenting a market by objective measures like gender, income, age and education level. Marriott is a hotel chain which has created a variety of brands to address the various demographic segments they want to serve. Ritz Carlton is a Marriott brand that appeals to well-heeled travelers, but a Courtyard Marriott provides a basic room. The same company has expanded their addressable market by focusing on different demographic segments.
Psychographics
Psychographics involve segmenting your market according to the way people think. Toyota produces the Prius, which gets 50 miles per gallon and is a favorite among environmentalists. In contrast, the Tundra pickup truck at just 15 miles per gallon, attracts a very different psychographic segment.
Geography
Success in your local market is good but if you want to really boost the value of your company in the eyes of an acquirer, you need to demonstrate that your concept crosses geographic lines. McDonald’s has more than fourteen thousand locations in the United States but they also have demonstrated success in global markets.
Increasing a company’s value is not limited to large corporations. The key for all businesses is to be able to communicate that your concept could work in other markets and that there is still good land left to plow.
