The more defined the niche market, the easier it is to direct resources to meet the needs and preferences of that market. A well-defined niche market is created by using two or more techniques for carving out a niche market. Suppose you are creating a drug to help women cope with their menstrual cramps, your niche market can be women between the ages of 18 and 35 years who suffer from throbbing cramps in their lower abdomen just before and during their menstrual cycle. The drug will be a safe over-the-counter non-steroidal anti-inflammatory pain reliever that also reduces inflammation and fever. Non-steroidal anti-inflammatory drugs are notorious for their adverse reaction that can affect various organs of the body such as the kidneys, stomach, and intestine. For the drug to be considered safe it should have an auspicious nephrotoxicity and gastrointestinal profile. This means that quality control testing for the drug must be rigorous and involve multiple techniques. Due to the differences in laws and legal requirements on prescription drugs in different countries, the drug will need to be manufactured, tested, and distributed in the country where it will be sold. Lastly, due to the quality of ingredients and testing that will go into developing the drug, it will be priced higher than the typical pain relief drug.
This narrowing down of a market segment from all the people that can possibly benefit from the product to the specific and attainable target market can be illustrated using a Euler diagram shown below. A Euler diagram is a graphic method, similar to a Venn diagram, for illustrating the relationships between groups.
Figure 1: Defining the TAM, SAM, and SOM.
Figure 1 shows the total available market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM). A startup business should focus on the SOM which represents the customers most likely to buy from you. As the business grows it can work to reach the SAM and eventually TAM. When attempting to identify the niche market, first identify the market potential which is represented by the TAM, then using the techniques to carve a niche market, narrow down the TAM to the SAM. The SAM represents part of the TAM that can actually be reached. From the SAM further differentiate the business by only focusing on the SOM, which represents the portion of the SAM that can be realistically obtained and served.
A large segment of the population of women suffers from menstrual cramps but not every woman suffering from menstrual cramps can access or afford your drug due to geographical and cost barriers. Identifying the SOM helps you precisely determine your target market, making it a lot easier to direct your energy and resources.
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