GEE 003 Entrepreneurial Mindset
Market Segmentation and Niche Market TAM, SAM, and SOM
Market
 a place where parties can gather to facilitate the exchange of
goods and services.
 parties involved are usually buyers and sellers.
 may be physical like a retail outlet, where people meet face-to-
face, or virtual like an online market, where there is no direct
physical contact between buyers and sellers.
Market Segmentation
 Market segment consists of a group of customers who share a
similar set of needs and wants. The marketer’s task is to identify
the appropriate number and nature of market segments and
decide which one(s) to target. We use two broad groups of
variables to segment consumer markets. Some researchers
 Market segmentation consists of sectioning the target market into
smaller groups that share similar characteristics, such as age,
income, personality traits, behavior, interests, needs, or location.
Types of Market Segmentation
1. Geographic Segmentation
 divides the market into geographical units such as nations, states,
regions, counties, cities, or neighborhoods.
2. Demographic Segmentation
 divides the market on variables such as age, family size, family life
cycle, gender, income, occupation, education, religion, race,
generation, nationality, and social class.
3. Psychographic Segmentation
 buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values. People within
the same demographic group can exhibit very different
psychographic profiles.
4. Behavioral Segmentation
 marketers divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
 Needs and Benefits - not everyone who buys a product has the
same needs or wants the same benefits from it. Needs-based or
benefit-based segmentation is a widely used approach because
it identifies distinct market segments with clear marketing
implications.
 Decision Roles - It’s easy to identify the buyer for many products
but people play five roles in a buying decision: Initiator,
Influencer, Decider, Buyer, and User.
 User and Usage - Real User and Usage Related Variables -
Many marketers believe variables related to various aspects of
users or their usage—occasions, user status, usage rate, buyer-
readiness stage, and loyalty status—are good starting points for
constructing market segments.
Niche Market
 a subset of a larger market with its own particular needs or
preferences, which may be different from the larger market.
Companies focus on niche markets to better cater to a specific
consumer than competitors who target a broad audience. Catering
to the unique demands that mainstream providers aren't
addressing, businesses pursue niche markets to build loyalty and
revenue with a largely-overlooked audience.
Benefits of Niche Markets
There are several benefits to targeting a niche market:
 Reduced competition
 Focused business efforts
 Providing expertise
 Establishing brand loyalty
TAM, SAM, and SOM are metrics representing different market
subsets.
TAM = Total Addressable/Available Market
 the total market for your product. This is everyone in the world who
could buy your product, regardless of the competition in the
market.
SAM = Serviceable Available Market
 the portion of the market that you can acquire. For example, your
product may only be available in one language, so your SAM
would be the subset of the TAM that speaks the language that your
product is developed for.
SOM = Service Obtainable Market
 the subset of your SAM that you will realistically get to use your
product. This is effectively your target market that you will initially
try to sell to.
What’s an example of TAM, SAM, SOM?
You’re starting a concierge service in your city that focuses on doing
tasks/running errands for busy people.
Your TAM (total available market) would be all people who may have
a need for help doing tasks and running errands in your town. If your
town has 150,000 people, you may find (through market research)
that the total possible demand for your business in your city is 33
percent (or 50,000 people). You might arrive at this number by
excluding people who are under 18 years old and other groups of
people who can’t purchase your services.
Your SAM (serviceable available market) would be the portion of that
50,000 whom your current business model is targeting (this will be
outlined in your business plan). For example, your business model
focused on serving people who are ages 35 to 55, with small children
and disposable income. You may then discover that there are 20,000
of these people, which means your SAM is 40 percent of your TAM.
Your SOM (serviceable obtainable market) would be the portion of
your SAM that your business model can currently realistically serve.
For example, you may only have three employees (yourself and two
others) and can only serve people who live within a 2-mile radius of
downtown, so realistically what percentage of your SAM (20,000
people) can you reach in the first 2 to 3 years?
Let’s assume your company can effectively provide concierge
services to 100 people a month or 1,200 people a year. This means
your SOM is about 6 percent of your SAM.
Value Proposition Canvas
Value Proposition Design
 simple and comprehensive process of designing and testing value
propositions. It takes the guesswork and helps you create products
and services that perfectly match customers' needs and desires.
Value Proposition Canvas (VPC)
 a tool that you can use in understanding customers' problems and
producing products or services that solve them.
 formed around two building blocks – customer profile and a
company’s value proposition.
 Customer Profile
 Gains – the benefits which the customer expects and needs,
what would delight customers and the things which may
increase likelihood of adopting a value proposition.
 Pains – the negative experiences, emotions and risks that the
customer experiences in the process of getting the job done.
 Customer jobs – the functional, social and emotional tasks
customers are trying to perform, problems they are trying to
solve and needs they wish to satisfy.
 Value Map
 Gain creators – how the product or service creates customer
gains and how it offers added value to the customer.
GEE 003 Entrepreneurial Mindset

 Pain relievers – a description of exactly how the product or

service alleviates customer pains.
 Products and services – the products and services which create
gain and relieve pain, and which underpin the creation of value
for the customer.

NON-PRICE DETERMINANTS OF DEMAND

1. POPULATION - determines the number of buyers
2. INCOME - determines the ability to pay
3. TASTE & PREFERENCES - determines the likelihood of wanting
or needing a product
Concepts and Principles of Demand and Supply Analysis 4. PRICES OF RELATED GOODS - determines the possible choices
available to buyer
Demand and Supply Concepts
5. EXPECTATION OF FUTURE PRICES - determines the timing of
Demand
buying a product
 Need/Desire to own something
 Ability to buy  Any changes in the different non-price determinants of demand will
 Willingness to pay the given price cause changes in Supply, and any Changes in Supply
 For example, an INCREASE IN SUPPLY will shift the supply curve
 Motivated by Satisfaction
to the right and will create a new equilibrium, thus DECREASING
 As price decreases, more quantity is demanded
the price.
Supply
 The ability to produce has the capacity to buy resources and is a
risk taker
 Willingness to sell at a given price
 Motivated by profit
 As the price increases, more quantity is supplied
In summary
 Demand and Supply for products depends primarily on the given
prices in the market, which means PRICE is the primary
determinant of Demand and Supply
 Prices in the market is determined by the interaction of Demand  For example, a DECREASE IN SUPPLY will shift the supply curve
and Supply, technically referred to as Market Equilibrium. to the LEFT and will create a new equilibrium, thus INCREASING
Market Equilibrium the price.
 point in the market where buyers agree with the sellers (Demand =
Supply)

 determines the price and quantity traded for a particular product.

Concept and Principles
 Any changes in the different non-price determinants of demand will
cause changes in Demand, and any Changes in Demand
 For example, an INCREASE IN DEMAND will shift the demand
curve to the right and will create a new equilibrium, thus
INCREASING the price.
NON-PRICE DETERMINANTS OF SUPPLY
1. NUMBER OF SELLERS IN THE MARKET - determines the
degree of competition
2. COST OF PRODUCTION - determines the quantity of product
sellers can produce
3. TECHNOLOGY - determines the efficiency/speed of production
4. TAXES & SUBSIDIES - Determines motivation and
discouragement to produce
5. CALAMITY - Determines the possible availability of products

Cost structure
A new business will have two types of cost:
 Start-up cost
 Running cost
 For example, a DECREASE IN DEMAND will shift the demand In running a business, there are two types of costs:
curve to the left and will create a new equilibrium, thus  According to Function
DECREASING the price.  According to Behavior
GEE 003 Entrepreneurial Mindset

START-UP COST
 Startup costs are the expenses incurred during the process of
creating a new business.
 Pre-opening startup costs include
 a business plan,
 research expenses,
 borrowing costs (bank loans),
 and expenses for technology.
ACCORDING TO FUNCTION
1. Product cost – the cost incurred to produce a certain product.
 Direct materials,
 Direct labor,
 Overhead.
2. Period cost – the selling and administrative cost of an entity for a
certain period.
DIRECT MATERIALS
 These are materials that can be traced directly or conveniently to
the product.
 However, this should be an integral part of the product and is
significant in value.
 Example: Lumber to build a wooden house
DIRECT LABOR
 The salaries and wages of employees who work directly for the
product.
 Example: The wages of the carpenter to construct a wooden
house
OVERHEAD
It includes
 indirect materials,
 indirect labor,
 and other production costs needed to produce the product.
Example: The rent of the warehouse and other production facility to
construct a wooden house.
PERIOD COST
 Again, these are the selling and administrative cost of an entity for
a certain period.
 Example: The rent of the head office of a construction company
who construct a wooden house.
ACCORDING TO BEHAVIOR
 Variable cost – the total variable cost varies directly proportional to
the activity/operation level of an entity.
 Fixed cost - total fixed cost is constant regardless of the
activity/operation level of an entity
MIXED COST
Also known as semi variable cost.
There are costs that are partly fixed and partly variable. But the
company should separate the fixed portion and the variable portion
for sound decision-making.

Example: Taxi fare – the P40 fixed portion is the fixed cost and the
excess is the variable portion depending on the miles run by the taxi.

SUNK COST
A cost that has already been incurred and cannot be recovered.

Examples of these are:

∙ Research and development cost
∙ Acquisition of machinery but due to sudden change in
technology become obsolete