How do you validate the feasibility of your business idea? You need to conduct an in-depth market analysis.

You need to carry out primary or secondary market research and collect data to analyze the market. We collect a combination of quantitative and qualitative research data to carry out market analysis effectively.

Quantitative data is usually numerical data converted to statistical graphs and diagrams to understand the market trends and primarily focuses on the ‘Who and what’ question?

Quantitative data includes data related to size of the market, customer buying patterns, target audience age group, how much does one spend on food every week, how frequently does one dine in or online food online etc. Research can be carried out on email, in person, telephone etc. Quantitative research is primarily conducted by sending out questionnaires, polls, and surveys. Also, quantitative analysis are close-ended questions.

On the other hand, qualitative data focuses on understanding the consumers wants and needs, attitudes, habits and challenges; focuses on the ‘Why or What’ questions primarily. Also, these questions are open-ended questions. Here are some examples of qualitative questions, how can we improve your experience, Which platform do you use to order food, Which cuisine do you order online, would you order again, what is your favorite dish on the menu etc.

Qualitative research is often carried out among audience within a focus group or small group. Qualitative data is carried out first and then based on the analysis the qualitative research is carried out. Also, qualitative research is expensive as researchers carry this out.

We will now look at TAM, SAM and SOM market analysis technique.

TAM, SAM and SOM represent the three subsets of a market.

TAM is Total Available Market which indicates the total market size for the product.

SAM is Serviceable Available Market represent the audience you can capture based on your geographical reach.

SOM is Serviceable Obtainable Market is the realistic market size you can capture within SAM based on your business capacity.

In order to obtain realistic data before you perform market analysis you should have clarity on the product you plan to launch, your distribution channels and marketing plan (especially since cloud kitchen depends heavily on marketing).

Let’s say you’re starting a cloud kitchen. Your TAM would be the worldwide demand for cloud kitchen market. It isn’t practically possible for you to cater to the whole world.

Since you’re planning to start you cloud kitchen in your city let’s be more realistic! SAM is the local target market likely to order from Cloud Kitchen.

There are many other cloud kitchens in the city. Now you can find an area where there is demand for cloud kitchen and there is lesser competition and capture that market, which is your SOM.

Why is it crucial to carry out TAM, SAM and SOM Analysis?

If you’re raising capital for your business, this method of analysis instills confidence among investors and also helps you pitch your business confidently.

As an investor you should have a realistic objective; ensure your SOM is reasonable size of SAM (don’t target more than 50% of SAM). If you’re able to meet your short-term objectives then you can expand your business to target the entire SAM.

Once you have penetrated into SAM and demonstrated ability to capture the significant share of local market you can consider penetrating into the TAM. SOM indicates your short-term objective (sales potential), SAM indicates your long-term business goal and understanding TAM is critical for existing business to understand future roadmap and conduct product evaluation.

Once you’ve accessed the your short-term market, then you could move to carry out market segmentation in order to ensure you target your audience (SOM) with a right message at the right time rather than targeting the entire target group (SAM).

There are 4 methods of market segmentation: demographic, behavioral, geographic and psychographic segmentation.

Demographic segmentation is dividing your audience based on age, sex, marital status family size, occupation etc. Also, we can easily access this information and it is low cost. You can share a survey form and obtain these details. You can also obtain this information from second- and third-party providers.

Second is the behavioral segmentation, you can also segment your market by observing customers behavioral habits like, the food aggregator platform one uses most frequently, during covid times does one prefer to order online for parties and celebrations or dine-in etc.

Depending on whether one is a heavy, medium, or light user your messaging can be different for different audience. By placing cookies on your website, you can collect this data through customer relationship management (CRM) software.

Third is geographic segmentation, if you decide to rent a cloud kitchen space in a particular area then you should understand the cuisine preference of the people in that area. Also, dividing target audience on location-basis is imperative if you’re targeting ads people based on the location.

Dividing a market according to location is critical if you need to target an ad to people in a specific area.

The last type of segmentation is psychographic segmentation, where the audience is divided based on mental and emotional attributes. For instance, Dominos Pizza appealed to the younger audience with their lively ads that portrays Dominos as a casual hangout.

For cloud kitchen, the logo and the brand color can be designed to trigger an emotion in the audience.

Business segmentation helps to improve campaign performance, modify product to appeal to target audience, improves business focus while market analysis validates that there is niche in the market that a business can exploit.

According to Khaleej times, Global entrepreneurship has ranked UAE first in Global Entrepreneurship Index in 2022, which comes with UAE’s investor friendly policies and laws.

Data from Bureau of Labor Statistics, US suggest that 39% make a profit, 30% break-even and around 30% actually lose money and go on to fail.  20% of new businesses fail in the first year and about 45% fail in the first 5 years and 65% fail in the first 10 years. Which leaves only 25% businesses to survive beyond 15 years. It is crucial to arrive at a realistic market size before developing business plan; otherwise leads to inefficient capital management and closure of business.

Many businesses conduct surface level market analysis and arrive at inaccurate data, which leads to a huge loss in the business. It is critical to conduct an in-depth market analysis (which includes market segmentation) to carry out a successful business.

Collecting different types of quantitative or qualitative data on a Data Management Platform (DMP) will help you stay organized and target your marketing campaigns towards particular group of audience.

If you have any queries related to conducting market research, you can book a free call with our Jupiter Business Mentors today.